[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]


 
                       STABILIZING THE FINANCIAL 
                       CONDITION OF THE AMERICAN 
                          AUTOMOBILE INDUSTRY 

=======================================================================

                                HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                           NOVEMBER 19, 2008

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 110-146

                               ----------
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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                 BARNEY FRANK, Massachusetts, Chairman

PAUL E. KANJORSKI, Pennsylvania      SPENCER BACHUS, Alabama
MAXINE WATERS, California            DEBORAH PRYCE, Ohio
CAROLYN B. MALONEY, New York         MICHAEL N. CASTLE, Delaware
LUIS V. GUTIERREZ, Illinois          PETER T. KING, New York
NYDIA M. VELAZQUEZ, New York         EDWARD R. ROYCE, California
MELVIN L. WATT, North Carolina       FRANK D. LUCAS, Oklahoma
GARY L. ACKERMAN, New York           RON PAUL, Texas
BRAD SHERMAN, California             STEVEN C. LaTOURETTE, Ohio
GREGORY W. MEEKS, New York           DONALD A. MANZULLO, Illinois
DENNIS MOORE, Kansas                 WALTER B. JONES, Jr., North 
MICHAEL E. CAPUANO, Massachusetts        Carolina
RUBEN HINOJOSA, Texas                JUDY BIGGERT, Illinois
WM. LACY CLAY, Missouri              CHRISTOPHER SHAYS, Connecticut
CAROLYN McCARTHY, New York           GARY G. MILLER, California
JOE BACA, California                 SHELLEY MOORE CAPITO, West 
STEPHEN F. LYNCH, Massachusetts          Virginia
BRAD MILLER, North Carolina          TOM FEENEY, Florida
DAVID SCOTT, Georgia                 JEB HENSARLING, Texas
AL GREEN, Texas                      SCOTT GARRETT, New Jersey
EMANUEL CLEAVER, Missouri            GINNY BROWN-WAITE, Florida
MELISSA L. BEAN, Illinois            J. GRESHAM BARRETT, South Carolina
GWEN MOORE, Wisconsin,               JIM GERLACH, Pennsylvania
LINCOLN DAVIS, Tennessee             STEVAN PEARCE, New Mexico
PAUL W. HODES, New Hampshire         RANDY NEUGEBAUER, Texas
KEITH ELLISON, Minnesota             TOM PRICE, Georgia
RON KLEIN, Florida                   GEOFF DAVIS, Kentucky
TIM MAHONEY, Florida                 PATRICK T. McHENRY, North Carolina
CHARLES WILSON, Ohio                 JOHN CAMPBELL, California
ED PERLMUTTER, Colorado              ADAM PUTNAM, Florida
CHRISTOPHER S. MURPHY, Connecticut   MICHELE BACHMANN, Minnesota
JOE DONNELLY, Indiana                PETER J. ROSKAM, Illinois
BILL FOSTER, Illinois                KENNY MARCHANT, Texas
ANDRE CARSON, Indiana                THADDEUS G. McCOTTER, Michigan
JACKIE SPEIER, California            KEVIN McCARTHY, California
DON CAZAYOUX, Louisiana              DEAN HELLER, Nevada
TRAVIS CHILDERS, Mississippi

        Jeanne M. Roslanowick, Staff Director and Chief Counsel




















                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    November 19, 2008............................................     1
Appendix:
    November 19, 2008............................................   107

                               WITNESSES
                      Wednesday, November 19, 2008

Gettelfinger, Ron, President, United Auto Workers................    22
Hoekstra, Hon. Peter, a Representative in Congress from the State 
  of Michigan....................................................     6
Kilpatrick, Hon. Carolyn C., a Representative in Congress from 
  the State of Michigan..........................................    11
Levin, Hon. Carl, a United States Senator from the State of 
  Michigan.......................................................     4
Levin, Hon. Sander M., a Representative in Congress from the 
  State of Michigan..............................................    10
McElya, James S., Chairman and Chief Executive Officer, Cooper-
  Standard Automotive, Inc.......................................    85
Miller, Hon. Candice S., a Representative in Congress from the 
  State of Michigan..............................................     8
Mulally, Alan R., President and Chief Executive Officer, Ford 
  Motor Company..................................................    20
Nardelli, Robert, Chief Executive Officer, Chrysler LLC..........    18
Sachs, Jeffrey D., Director, The Earth Institute, and Quetelet 
  Professor of Sustainable Development and Professor of Health 
  Policy and Management, Columbia University.....................    86
Slaughter, Dr. Matthew J., Professor of International Economics, 
  Tuck School of Business, Dartmouth College.....................    88
Sykora, Annette, Chairman, National Automobile Dealers 
  Association....................................................    83
Upton, Hon. Fred, a Representative in Congress from the State of 
  Michigan.......................................................     3
Wagoner, Richard G., Jr., Chairman and Chief Executive Officer, 
  General Motors Corporation.....................................    17

                                APPENDIX

Prepared statements:
    Castle, Hon. Michael.........................................   108
    Hoekstra, Hon. Peter.........................................   138
    Kilpatrick, Hon. Carolyn C...................................   110
    Levin, Hon. Sander M.........................................   119
    Miller, Hon. Candice S.......................................   124
    Pascrell, Hon. Bill, Jr......................................   129
    Gettelfinger, Ron............................................   131
    McElya, James S..............................................   146
    Mulally, Alan R..............................................   178
    Nardelli, Robert.............................................   198
    Slaughter, Dr. Matthew J.....................................   207
    Sykora, Annette..............................................   212
    Wagoner, Richard G., Jr......................................   221

              Additional Material Submitted for the Record

Frank, Hon. Barney:
    Article by Ben Stein entitled, ``Ben Stein Votes `Yes' on Big 
      Three Bailout,'' dated November 16, 2008...................   225


                       STABILIZING THE FINANCIAL
                       CONDITION OF THE AMERICAN
                          AUTOMOBILE INDUSTRY

                              ----------                              


                      Wednesday, November 19, 2008

             U.S. House of Representatives,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 10 a.m., in room 
2128, Rayburn House Office Building, Hon. Barney Frank 
[chairman of the committee] presiding.
    Members present: Representatives Frank, Kanjorski, Waters, 
Maloney, Gutierrez, Velazquez, Watt, Ackerman, Sherman, Meeks, 
Moore of Kansas, Capuano, Clay, Baca, Lynch, Miller of North 
Carolina, Scott, Green, Cleaver, Moore of Wisconsin, Davis of 
Tennessee, Hodes, Ellison, Klein, Wilson, Perlmutter, Murphy, 
Donnelly, Foster, Speier; Bachus, Castle, Royce, Manzullo, 
Jones, Biggert, Capito, Hensarling, Brown-Waite, Neugebauer, 
McHenry, Campbell, Bachmann, Roskam, and McCotter.
    Also present: Representatives Pascrell, Kaptur, Jackson-
Lee, Levin, Kildee, and Ehlers.
    The Chairman. The hearing will come to order. We are going 
to begin right away. There is--and I apologize for the schedule 
conflict--going to be a Republican Conference today, so we are 
going to accommodate our Republican colleagues. The ranking 
member is here. He is needed at his conference. I notice Mr. 
Upton has come to testify. I am going to take the Republicans 
right away because they do have their conference to go to. So I 
am now going to recognize for his opening statement the ranking 
member of the committee.
    Mr. Bachus. Thank you, Mr. Chairman. If the U.S. automakers 
didn't play such a central role in the American story we 
wouldn't be here today. But the Big Three stand as emblems of 
the American dream. And they have been an integral part of the 
American economy for generations. Because of that, they are 
special to all Americans.
    GM, Ford, and Chrysler have hit hard times. They are now 
asking for taxpayer help. Even though all Americans, I would 
hope, want this industry to succeed, and the workers who work 
at those factories, I cannot support a plan to spend taxpayer 
money to bail them out. My initial problem justifying these 
loans to the Big Three is when I speak to my constituents, and 
it is a fairness issue. The vast majority of my constituents 
are not making anywhere near what General Motors, Chrysler, and 
Ford pay their employees. Even with recent changes, the average 
hourly wage at General Motors is still $75 an hour. That is 50 
percent, 100 percent, or in some cases, 3 or 4 times what my 
constituents are making.
    My constituents do not understand why their taxpayer 
dollars should go to support what they consider less efficient 
businesses. And that raises a second issue, which is that a 
bailout is not a solution to the fundamental problems of the 
Big Three automakers. A bailout of the auto industry would just 
push the problem further down the path.
    To survive, the Big Three are going to have to change and 
become more efficient and competitive. I am not sure that 
management and labor are willing to make that sacrifice. Both 
management and labor at the Big Three have pay and wage scales 
that are substantially higher than their competitors. That is 
not being anti-management or anti-union; it is just being 
truthful.
    A bailout to me raises fairness issues, and does not solve 
the problem. Additionally, a bailout is not good economics and 
is not the American way. We believe in fair competition and 
free markets. The markets are unforgiving and they can be hard, 
but they are very good at showing business the path to long-
term success.
    The American way to solve this problem is not to depend on 
the government for a solution. The government handing them 
taxpayer money and telling them how to run their business is 
also not the American way, and will only lead to prolonged 
pain. The American way to solve this challenge, and it is a 
challenge for all of us, is for all the parties involved to sit 
down at the table and hash out a solution that will make these 
companies competitive in the long term and assure their 
survival. Once they have done this, and not until they have, I 
believe they should not come to Congress and the American 
people and ask them to sacrifice. Once they have made this 
sacrifice, I believe the American people and this Congress will 
be more receptive.
    Unfortunately, the parties have not had the fortitude and 
foresight to make admittedly difficult decisions that needed to 
be made. They have made some. They made them last year in some 
wage issues. But it is not enough.
    Unfortunately, in the case of the Big Three, the parties 
have been unable to make the difficult decisions that could be 
made to strengthen their businesses. It is important that 
management and the union stop kicking the can down the road, 
sit down, and resolve these important issues. Sacrifices will 
be required, as in the case of all challenges and changes.
    Now, let me conclude by saying if we continue down the path 
of taking money from more efficient and competitive companies 
and giving them to companies with less efficient models and 
those that are in trouble because of bad management and bad 
decisions, even with good intentions, our overall productivity 
as a country will continue to suffer. While we will avoid a 
certain amount of pain in the short term, we make the situation 
far worse in the future. By rewarding failure, we send a signal 
to the marketplace that we would live to regret.
    Finally, we need to protect the taxpayer. The American 
people have bailout fatigue. During hearings last week and 
again yesterday I said we needed an exit strategy from the 
string of bailouts. We still do.
    I yield back the balance of my time.
    The Chairman. We will now go to our congressional 
witnesses. And again given the Republican Conference going on, 
I will begin with the gentleman from Michigan, Mr. Upton.

  STATEMENT OF THE HONORABLE FRED UPTON, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MICHIGAN

    Mr. Upton. Thank you, Mr. Chairman. I appreciate your 
willingness to go out of regular order to allow us to do that 
as we are expecting votes perhaps as early as 10:30 within our 
Republican Conference.
    Our economy is in trouble. That is not news. There is 
uncertainty in the market, and job losses are mounting. It is 
our responsibility as lawmakers to act decisively to reverse 
this economic downturn and save millions of American jobs. We 
all know what is at stake. The financial rescue plan that 
Congress passed just before the election was for a large part 
opposed by many of our constituents. Most Americans saw that 
bill as a bailout for Wall Street, when help is desperately 
needed for Main Street.
    I opposed the Administration's initial proposal, and later 
pressed Secretary Paulson to use the authority granted under 
the measure to help average citizens, not just $147 billion for 
AIG, especially as AIG's execs were holed up in a posh resort 
on Uncle Sam's dime. My concerns were answered with a plan that 
I supported containing stronger oversight and a variety of 
positions intended to help Main Street.
    They have failed in meeting that congressional intent, and 
Secretary Paulson said of the vote, ``This was obviously a very 
important vote. It was a vote to protect the American people, 
protect their jobs, their economic well-being. It was to 
protect the small businesses, people's savings.''
    That is what he said. Well, I ask Secretary Paulson, does 
allowing the U.S. auto industry to die and losing millions of 
jobs supported by this vital industry fulfill his definition of 
protecting American jobs or small businesses? Denying support 
to the auto industry, losing millions of jobs across the 
country, runs counter to the initial intent of Congress in 
passing a rescue package.
    That is completely unacceptable. President Bush and 
Secretary Paulson should know that the U.S. auto industry is 
Main Street. The auto industry is American jobs. The auto 
industry supports countless small businesses all across the 
country, and the U.S. auto industry created the middle class 
and the manufacturing sector, the backbone of our very economy. 
You don't get more Main Street than the U.S. auto industry. And 
turning our backs at this time would be a disaster for our 
economy.
    Earlier this week, everyone in the financial sector cringed 
when Citibank announced the layoffs of over 50,000 employees. 
Now imagine the economic impact of multiplying those job losses 
by 50; that is the magnitude of what is at stake today. If we 
lose one of the Big Three, we will lose literally perhaps as 
many as 2\1/2\ million jobs almost overnight, and the ripple 
effect will be devastating on the national scale. Not only will 
we lose those jobs, we will also lose over $100 billion in tax 
revenue and $275 billion in middle class income over the next 3 
years.
    So let's look at what we are talking about here: $25 
billion in loans that is going to get paid back versus $100 
billion in lost tax revenue; millions of jobs lost in a 
prolonged economic crisis.
    There is vast support for helping automakers and their 
millions of employees survive this crisis. There is fear out 
there, not just in Michigan, that the collapse of GM, Ford, and 
Chrysler could and would trigger an economic depression. 
Americans understand that the auto industry is extremely 
important to the U.S. economy, not just for Michigan.
    The legislation that we passed wasn't supposed to be about 
bailing out Wall Street, but rather protecting working 
families, students, retirees, and all taxpayers, every one of 
them, from the consequences of a financial meltdown. If the 
White House won't use its existing authority to protect Main 
Street jobs, then Congress must act again to ensure that they 
do.
    The people of Michigan are suffering tremendously, big 
time, with the highest rates of unemployment and home 
foreclosures in the country. And while there is plenty of blame 
to go around, we cannot stand idly by as the pillar of our 
economy collapses, the aftershocks of which would further 
damage our Nation's economy.
    The State of Michigan already has an unemployment rate of 
nearly 10 percent. To do nothing and watch the domestic 
manufacturing sector crumble would further fan the flames of 
unemployment on a national scale in a way which we haven't 
witnessed in our lifetimes.
    I yield back the balance of my time. Thank you, Mr. 
Chairman.
    The Chairman. Next, we will go to the Levin of your choice. 
Who goes first? Are we going by age or branch?
    Senator Carl Levin. We have never disagreed on anything in 
our entire lives, and we are not disagreeing on this one.
    The Chairman. Our colleague. We will go by age. Our 
colleague from the House.
    Senator Carl Levin. That is the one thing we disagree on as 
a matter of fact.
    Mr. Sander Levin. If you are going to go by age, the 
Senator goes first.

STATEMENT OF THE HONORABLE CARL LEVIN, A SENATOR FROM THE STATE 
                          OF MICHIGAN

    Senator Carl Levin. Mr. Chairman, members of the committee, 
thank you so much for the opportunity to testify this morning.
    When today's hearing is over and our witnesses go back to 
the challenges they face to save their companies and to save 
this economy, the spotlight is going to be on Congress. It is 
going to be on what is our response to the plight of an 
industry which results from an economic downturn not of their 
own making. The collapse of our domestic automobile industry 
would be, in the words of President-elect Obama, a disaster for 
the entire economy.
    The auto industry is like no other industry in this 
country. Ten percent of the Nation's jobs relate to this 
industry. The industry accounts for 20 percent of our retail 
sales. Their dealers are on every Main Street in America, and 
their suppliers exist in most of our States.
    So where are we in Congress today? Where is the Congress? 
The President says that he supports bridge loans. The 
President-elect says that he supports bridge loans. The Speaker 
supports bridge loans. The majority and minority leaders in the 
Senate support bridge loans to the auto industry. So where is 
the problem? What are the barriers when that leadership 
supports bridge loans for the auto industry?
    Well, there is no disagreement over the fact that 
conditions need to be attached to the loans. Everybody who 
supports the loans agrees that these loans must be accompanied 
by strong oversight, taxpayer protections, and a financial plan 
which outlines the companies' steps to produce energy 
efficient, advanced technology vehicles and to achieve 
financial recovery. There is agreement that there should be a 
limit on executive compensation, bonuses, and golden 
parachutes.
    The problem now is that there is no agreement on the source 
of the funds for the bridge loans. My preferred course is 
contained in legislation that Senator Reid introduced Monday to 
provide bridge loans to the auto industry. That approach would 
take just 4 percent of the $700 billion made available by the 
Emergency Economic Stabilization Act, which after all was 
enacted to try to restore stability and assure stability in 
this economy. But the White House says no. They don't like that 
source of the funds although it is only 4 percent, and the 
failure of this industry would have this kind of a 
destabilizing impact.
    What the White House wants is to use the so-called Section 
136 Energy Department funds, which we provided earlier to 
support development of energy efficient, advanced technology 
vehicles. Now, some of the Section 136 supporters say no to 
that source of funds.
    Time is shorter than short. People in communities across 
this country are anxiously awaiting what Congress is going to 
do when there appears to be so much support, at least among the 
leadership here and between the President and President-elect. 
Where there is that kind of support, are we going to permit a 
difference over the source of funds for these loans to destroy 
an opportunity to help an industry so essential to this 
economy?
    Now, I know there is frustration with past actions of the 
U.S. auto companies. Blame them if you want for quality 
problems in the 1970's, or for paying their executives and 
their workers too much, or for not moving aggressively enough 
to produce advanced technology, fuel-efficient cars. But don't 
throw millions of jobs and a vital segment of this industrial 
and defense economy overboard in that frustration.
    There was an article in this morning's paper which to me 
was the most important of all the articles in the papers this 
morning, as important as our hearings were yesterday in the 
Senate and your hearings are here. This article is headlined 
the following: ``Facing a slowdown, China's auto industry 
presses for a bailout from Beijing.'' This is not just the 
domestic automobile industry which has problems because of this 
global economic slump. This is a worldwide problem.
    And the question is: Will we have an auto industry when 
this slump is over? China is going to have an auto industry. 
Germany is going to have an auto industry--Read what Chancellor 
Merkel said: She is going to make sure Opel gets enough money, 
if necessary, to keep going. European automakers have asked for 
$56 billion in loans. No auto-producing company in the world 
will permit their industry to go under. They are being asked 
for and will provide loans for those industries. We can do no 
less.
    Thank you, Mr. Chairman.
    The Chairman. Thank you. I just want to acknowledge that 
this is a matter of great interest, and while we have a number 
of Michigan representatives here, we have been joined by the 
gentlewoman from Ohio, Ms. Kaptur, who is here because of the 
importance to the State of Ohio, and also the gentlewoman from 
Texas, Ms. Jackson Lee. Any members who want to sit up here--
and of course our very distinguished colleague from Michigan, 
Mr. Kildee, whom I think is waiting a chance to get there. I 
wonder if it would be all right with Ms. Kilpatrick and Mr. 
Levin, there is the Republican Conference, could I go now to 
Mr. Hoekstra, to Ms. Miller and Mr. Hoekstra? Are you in a 
great hurry if I could get them?
    Let me also say to Mr. Upton, I consulted with the ranking 
member. I believe we could save our questions for later. If we 
have questions, we will get to you on the Floor. We know where 
to find you. So having testified, feel free to leave. I know 
you have your conference. It is not a sign of your lack of 
interest.
    I will go first to Mr. Hoekstra, then to Ms. Miller, and 
then we will continue with the others, for 5 minutes, please.

STATEMENT OF THE HONORABLE PETER HOEKSTRA, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MICHIGAN

    Mr. Hoekstra. Thank you, Mr. Chairman. It is good to be 
here, and I am glad you are having this hearing. I will submit 
my statement for the record--
    The Chairman. Without objection, all statements from all 
members will be printed in the record.
    Mr. Hoekstra. Let me just summarize the points that I would 
like to make today. Clearly, the automobile industry is 
critical to the United States, and it is critical to Michigan. 
That is not up for debate. Critically, or also essential, if 
the Big Three receive taxpayer-funded infusions of cash, I 
believe all the rules change. And I will explain that as I go 
through my statement. But I think that as a committee and as a 
Congress, we need to consider a wide range of alternatives as 
we take a look at how to get the automobile industry healthy 
again.
    The first thing that I think we need to do is we need to 
take a look at the Federal and the State level to provide 
incentives so that the consumer can be the driving force behind 
getting a healthy industry.
    Drive demand. At the Federal level, I think we should 
consider a tax credit for new car purchases. At the State 
level, I think we should take a look at the State policies. 
Michigan has an illogical sales tax. When someone in Michigan 
buys a new car, they pay a sales tax on the full purchase price 
of the car. The State, Michigan, should take the lead. We 
should only charge sales tax on the differential, the 
difference between the purchase price of a new car and the 
trade-in value. So I think the States and the Federal 
Government need to take a look at how we can drive demand for 
new car purchases to help get the Big Three moving again.
    The second thing that I think we need to do is we need to 
take a look at some of the Federal policies that have or will 
be implemented or are being considered for implementation. The 
first is we have provided this $25 billion for the industry to 
retool itself to move towards new CAFE standards. In this 
economic downturn, is it appropriate for us to consider 
delaying the implementation of CAFE standards for a period of 3 
to 5 years and use those dollars for other things? Or 
recognizing that provides significant savings to the automobile 
industry, and that might be preferential to an infusion of 
taxpayer dollars into the auto fleet?
    The second thing that we ought to consider is there has 
been a lot of discussion about whether there will be State 
standards for CAFE or emissions. Should Congress reassure the 
Big Three that we are going to have a consistent national 
standard for safety standards, for CAFE standards, and emission 
standards so they don't have to worry about the complexity or 
the confusion that they would be under if States started 
implementing various standards for them to meet for them to 
sell their cars in their States?
    A third point is if the committee and Congress finds itself 
moving down the path of providing taxpayer assistance, the 
rules do change. These companies, the workers, employees, and 
management are now accountable to the shareholders. We have a 
fiduciary responsibility to protect the interests of the 
taxpayer. Yes, these companies and these employees now are 
accountable to Joe the Plumber and others. You know, in my 
district, the average manufacturing salary or the average 
manufacturing salary across the country is $31 an hour, 
including fringes. For the transplant countries, it is $48 an 
hour. For workers in the Big Three, it is $73 per hour. Should 
manufacturing workers who are making $31 an hour, or $48 an 
hour, should their taxpayer dollars be used to provide 
assistance to blue collar and white collar workers who are 
maybe making significantly more than what they are?
    These are struggling industries. I have a lot of these 
suppliers in my district. There needs to be an element of 
fairness and sacrifice as we go through this process. Mr. 
Chairman, I am glad to see that in, I think, some of the 
legislation that you have brought forward you have strengthened 
the requirements on CEO pay and capping CEO pay. Because what 
we have seen in the financial bailout package, you know, when 
the companies set aside $40 billion for bonuses, we have done 
something wrong.
    And Mr. Chairman, of interest to yourself and myself, let 
me raise one final point: Federal Prison Industries. How does 
that fit with the automobile industry? Federal Prison 
Industries is an $800 million business rapidly growing to be a 
billion dollar business. They make $150 million of automobile 
components, and they make over $100 million of office 
furniture. These are industries that are struggling. They 
should at least have the opportunity to compete for that 
business.
    Thank you, Mr. Chairman.
    The Chairman. The gentlewoman from Michigan, Ms. Miller.

STATEMENT OF THE HONORABLE CANDICE S. MILLER, A REPRESENTATIVE 
             IN CONGRESS FROM THE STATE OF MICHIGAN

    Mrs. Miller of Michigan. Thank you very much, Mr. Chairman, 
Ranking Member Bachus, and all the members of the committee. I 
can't tell you how much we sincerely appreciate you calling 
this hearing and allowing all of us to come here today and make 
our case for saving millions of jobs, not just in Michigan, but 
all across our great Nation.
    You know, a number of critics have said the domestic auto 
industry is a dinosaur, that it is too fat to survive. But the 
truth is that over the last number of years, America's domestic 
auto manufacturers have made very tough decisions to make their 
operations leaner and more competitive. In Michigan, 
unfortunately, we have seen the loss of over 400,000 
manufacturing jobs as the auto companies have restructured 
themselves. And if those critics who think there is just too 
much fat in the industry really think that, I would invite them 
to come to Detroit, come to, for instance, Macomb County, which 
I am very proud to represent along with Sandy Levin and Carl as 
well, and to visit some of those who have been laid off. Or 
maybe they could visit with some of those whose homes are now 
in foreclosure, or visit some of those who have worked their 
entire lives and are now fearful that their jobs are going to 
go away. Or they could visit with some of the retirees who 
worked so hard to earn their pensions and now face the loss of 
substantial portions of their income if their pensions are 
thrown into the PBGC. Or perhaps they could tell those people 
that they are part of an unsustainable business model, and that 
they need to be sacrificed.
    The fact of the matter is that this industry, for all of 
its faults, has made very tough decisions. It has cut to the 
bone and it has dealt with crisis after crisis to return to 
profitability. It has been handed new government mandates, 
regulatory mandates that the experts say will cost this 
industry as much as $86 billion in order to comply. And of 
course this at a time of an economic downturn. It has dealt 
with skyrocketing health care costs, and it has worked with its 
employees to make major concessions to help the companies 
survive.
    But the final blow was an economy in a meltdown situation 
brought on not by the mistakes of the auto industry, but by 
those on Wall Street. Many have said that the problem with the 
domestic auto industry is that they don't make products people 
want to buy anymore. That is simply untrue. Do you know which 
company actually makes the most models that get over 30 miles 
to a gallon? That is General Motors. Or how about the car 
company that has the highest mileage SUV in the entire world? 
That company is Ford. And I am proud to drive a Ford Escape 
Hybrid. It is General Motors that is working to bring the very 
next great innovation to the auto market. The Chevy Volt 
extended range electric vehicle could revolutionize the 
industry, and will do it with American designed and American 
built technology.
    So the domestic auto industry's problem is not a lack of 
product, because that product is getting better each and every 
day. The problem is a lack of customers brought on by the 
economic meltdown. The actions of Wall Street have stifled 
consumer confidence, and they have frozen the credit markets 
and made auto loans unavailable for too many consumers.
    Last year, over 16 million vehicles were sold in this 
country. In October, the annualized rate of vehicle sales was 
at 11 million. And that is not the result of the product, that 
is a result of consumer confidence in the availability of 
financing.
    So this Congress just 7 or 8 weeks ago passed a $700 
billion bailout of the banking industry to help Wall Street to 
better times and to free up credit, $700 billion sent to those 
who caused the problem in the first place. And today all we are 
asking is that $25 billion of that money be targeted as a 
bridge loan to support the domestic auto industry.
    I would say this as well, Mr. Chairman, and all the members 
of the committee, I hope you think about the very rich, rich 
heritage that the domestic auto industry has had on our Nation 
in times of need, in times of national crisis. Southeastern 
Michigan was actually, during World War II we were known as the 
arsenal of democracy because we had the manufacturing 
capability to build the armaments that literally, literally led 
the world to peace. There were a couple of years where we 
didn't even produce automobiles because we were producing tanks 
and Jeeps, and we were fully engaged in the war effort. And I 
hope we would think about that as we are looking at perhaps the 
demise of a huge segment of our manufacturing segment. As well 
after the horrific attacks of our Nation of 9/11, when the 
terrorists were trying to bring our economy to its knees, it 
was the domestic auto industry, led by General Motors, I would 
tell you, that started the Keep America Rolling Program with 
the zero interest financing and the rebates, etc., that kept 
the workers working and kept America buying.
    And I will also say this, and let me just close on this, 
the domestic auto industry literally created the middle class 
of this great Nation. The middle class was not created by AIG 
or Bear Stearns or Lehman Brothers or whatever. They might have 
created the upper class, but they did not create the middle 
class. The middle class was created by this great industry. We 
are facing some tough economic times. We are asking for a loan; 
not a bailout, but a loan. And I think it is entirely 
appropriate that this Congress sees to it that happens.
    Thank you very much.
    The Chairman. Before I turn to Mr. Levin, let me just say, 
and we don't under our rules allude to a TV audience, but let 
me make a factual statement. I have been watching there. It may 
appear to people watching this that there is some lack of 
interest on the Republican side on this important issue. I want 
to stress again, unfortunately, there was a scheduling 
conflict. The Republican House Members have a conference that 
is going on now, their official organizing conference. It is 
important that they be there. The fact that there are more 
Democrats than Republicans is no indication of a disparity in 
interest. We unfortunately had this situation where people had 
to be in two places at one time. And I know as soon as they can 
they will be coming back. I didn't want to have any false 
impressions created by TV, God forbid that should ever happen.
    The gentleman from Michigan.

STATEMENT OF THE HONORABLE SANDER M. LEVIN, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MICHIGAN

    Mr. Sander Levin. Thank you, Mr. Chairman, Ranking Member 
Bachus, and all of my colleagues. I was in the Senate yesterday 
and heard some of the testimony, and I think the issues were 
raised and answers were given, and awfully good answers in most 
cases, if not all. I think what was missing is the sense of 
urgency, a sense of urgency.
    Lehman Brothers went under. This government did not act. A 
spark was set off that went around world. This industry now 
faces utter urgency. Yesterday, the Big Three indicated how 
much they thought they might well draw on the $25 billion. They 
needed it, and they need it as a bridge in the next few months. 
We can't leave here this week and take a chance. President-
elect Obama has said that the auto industry is the backbone of 
American manufacturing, and we can't leave here and see the 
backbone splintered.
    This is an international credit crunch. My kid brother, I 
am older, referred to China. Europe is being asked, the 
Commission, for over $50 billion to help their auto industry. 
And we are thinking of leaving here and taking the risk of 
bankruptcy? There is a looming cliff, and we have to act.
    I want to spend a few minutes, if I might, talking about 
some of the issues, Mr. Bachus, that you raised. You talked 
about people sitting down and facing the problems. I worked in 
the auto industry when I was a kid. It is a very different 
industry from then to be sure, and from 10 years ago, and I 
think from 5 years ago. As has been mentioned by others, there 
has been restructuring and cost cutting. Look at the number of 
employees who have gone: GM has reduced its head count by 
84,000; Chrysler by 32,000; and Ford by 51,000. They have 
closed plants, and they have done this in discussions with the 
labor movement.
    There is talk about quality, and I hear some references to 
dinosaurs. Ford, for example, has tied Honda and Toyota in 
quality, according to the Consumer Reports. And as mentioned, 
GM has more cars that get 30 miles per gallon than any other 
company. That is a dinosaur? The Chevy Volt. Chrysler warranty 
claims dropping. This is a vibrant, alive industry that now has 
improved and faces a circumstance outside of its control. And 
everybody else is acting in this world. Are we going to leave 
and not act?
    Let me just say, if I might, a word about bankruptcy. I saw 
two articles today in the paper, one by Mitt Romney. I won't 
comment, because he came to Michigan and said, ``I will fight 
for the auto industry.'' The other went through the bankruptcy 
issue. Bankruptcy Chapter 11 will mean Chapter 7 and the 
liquidation of a company. People may get on an airline and go 
from Washington to Erie, Pennsylvania, or I forget, Wilkes-
Barre, Pennsylvania, but they won't buy a car if they are not 
sure there is service or if the warranty won't be met.
    So let me just say one last thing about an issue that has 
not been well versed, I think. My brother is modest. He, years 
ago, worked to have developed a national automotive center in 
the defense area. It is in Warren, in the district I represent. 
It has the responsibility--I am almost done. It has the 
responsibility for the development of vehicles for the 
military. There is a complete interaction between the 
automotive center and its development of vehicles for the 
military and the Big Three. Is there going to be that kind of 
synergy between the Defense Department and companies that are 
owned and run by foreign manufacturers? We can't stand to lose 
the domestic auto industry for either economic or national 
security purposes. We need to act this week.
    The Chairman. The gentleman from Alabama would ask for 30 
seconds to make a clarification.
    Mr. Bachus. Thank you, Senator. I appreciate your--or 
Congressman, I appreciate your remarks. Let me say this: I have 
never myself, and you didn't say this, but I never said that GM 
or Ford or Chrysler was a dinosaur.
    Mr. Sander Levin. I know.
    Mr. Bachus. I would never say that. In fact, I drive two GM 
cars and they are great cars. I drive a Ford car. There are 
some cars we all know that there are a lot of models, a lot of 
problems. They have made changes. I don't think the American 
people are aware of the changes they have made. And finally, 
this thing about AIG, they pay their employees a lot. And I 
realize that when you give to AIG and you give to Lehman 
Brothers, you know, a part of fairness is why not the 
automobile industry? And it to me is every bit as important as 
those Wall Street companies, if not more important.
    So, I think that what we are looking for is a sacrifice and 
assurances to make sure that it is a solution, and not just a 
postponement.
    Mr. Sander Levin. Mr. Bachus, I fully agree, and the Big 
Three have agreed to a new wage structure. People are going to 
come into their plants earning $14 an hour and not have a 
defined contribution plan. And I think if people can aspire to 
have good health care and pensions like was worked out between 
the Big Three and the United Automobile Workers, that is an 
important part of America and aspiration to a solid middle 
class. I think you agree with me.
    The Chairman. I would just note, and I get the gentleman's 
point, but Lehman Brothers is probably not the best example of 
people who got anything; they got stiffed.
    Mr. Bachus. That is right.
    The Chairman. There were others, however. The gentlewoman 
from Michigan.

      STATEMENT OF THE HONORABLE CAROLYN C. KILPATRICK, A 
     REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN

    Ms. Kilpatrick. Thank you, Mr. Chairman, and members of the 
committee, for allowing us to come today before our powerhouse 
CEOs who run the most effective, outstanding manufacturing 
companies in our country and the world. The American auto 
industry is alive and well, employing over 13 million direct 
and nondirect employees who benefit from the over $340 billion 
worth of payrolls every year. I come today to ask for your 
quick, honest, thorough, comprehensive review of what we have 
before us today.
    The country is in total crisis, as is our industry at the 
moment. It is the last manufacturing base that we have in 
America. We must save this industry because of that 
manufacturing base, as well as it moves to our energy 
independence as we move into this 21st Century. Our car 
companies will build better, more efficient, environmentally 
sound cars as we move forward, and have made that commitment in 
previous energy legislation that has come before us. The jobs, 
the businesses, the revenue that our Federal Government, State 
government, local cities, and townships receive from this 
industry is paramount. It is not to be taken lightly.
    As was mentioned by a couple of our other Michigan 
bipartisan panel as you have had, Mr. Chairman, the military, 
our own military, is at stake here. Our car companies build the 
tanks, build the Humvees, build the armed resistant tanks that 
go through these wars, and I hope we end these wars very soon, 
lest we have none. Do we want to turn that over to our 
competitors? I think not. Our military and national security 
are at stake here. Since World War II, when our automobile 
companies built those same vehicles and helped us to win that 
war, the tanks, the Jeeps, the trucks that support the men and 
women in our military, often created the technology that helps 
us navigate in our own personal cars, brakes that last for 
thousands of miles. No other car company can say that. They 
protect our bodies in accidents. We can't afford to lose these 
intellectual properties that the American auto industry, only 
they provide today as we move forward. Our economy and our 
troops cannot survive if in fact our American auto industry 
goes under. And we know you won't let that happen.
    It is a loan. In the 1980's, when Chrysler came to this 
Congress and asked for assistance, at that time, I was a member 
of the State House of Representatives. Not only did we give 
that loan, Chrysler paid the loan early, and our Federal 
Government made $800 million more than was given to them at 
that time. I predict when we allow these companies to do the 
same, we will see growth and development and energy 
independence move as we move throughout this time in our lives.
    It is a critical time. Some of our colleagues don't 
understand. And a lot of times as leaders we have to be the 
ones, which is why we are chosen leaders, to educate, to 
demonstrate, and to let our constituents know that the American 
auto industry deserves our assistance, deserves the protection 
of those 13 million plus. And in my written testimony we have 
outlined from the sources of the Bureau of Labor Statistics, 
the Center for Automotive Research, and the National Automobile 
Dealers over 13 million job-related jobs in this economic 
automobile industry that we have before us.
    So we have to be very serious. And as my colleagues say, we 
have to be very quick. This is not something that can languish 
over to the next Administration, really over for the next 
month. It is that critical. Over 1 million pensioners who built 
the industry, who helped to build the middle class, who deserve 
their pensions be protected are a part of this bridge fund that 
we are asking you to approve for us.
    As we come to you today, just know that the energy 
independence, the manufacturing base that is the only one left 
in our country, the revenue that is generated from these 
companies is the sustaining force of our country. It is not a 
bailout; it is a loan. We will return it--5 percent interest 
over the next 5 years, another 9 percent over the second 5 
years. Don't let the automobile industry die because of our 
inaction. We have a responsibility to the children, to the 
villages, to the schools. We have a responsibility to the 
workers to make sure that they can have a decent living. We are 
in a very precarious situation as our country moves into the 
next Administration and throughout this century. What we do 
over the next 24 or 48 hours will determine what America will 
be for the next 50 to 100 years. I urge you to act.
    And thank you, Mr. Chairman, for your bill, with some of 
the things that you put in your bill that will help as we 
monitor and work with the auto dealers, the auto companies.
    And let me just, as I close, say something about the 
dealers and the ethnic dealers particularly. I am told that 
over the next 60 days, if something is not done, we will lose 
over 60 minority automobile dealers. If it is longer, over 700 
will go out. And neither the bridge loan nor the restructuring 
loan addresses that. I am pleading for you, Mr. Chairman, and 
members of this committee that we take a look at that. Those 
are thousands of families, thousands of children, revenues to 
cities and villages that must be protected.
    Thank you for the opportunity to testify before you today. 
I ask that you move swiftly, and assist the only manufacturing 
base that we have in America, the healthiest, the best. We ask 
for your assistance. Thank you.
    The Chairman. I thank the gentlewoman. I thank all my 
colleagues for testifying quite succinctly, all on the point. 
We will excuse all of our colleagues now. And I did have a 
request, because there are some other meetings. The gentleman 
from California, Mr. Baca, had a unanimous consent request, I 
believe.
    Mr. Baca. Thank you very much, Mr. Chairman. And I 
appreciate you holding this very important meeting right now, 
especially on the automobile industry, because the American 
people and the taxpayers are asking us to do something about 
this recession. And this impacts the recession right now, based 
on the amount of jobs that will be lost, you know, and 
basically what we are asking for is a loan. There is a whole 
difference right now in reference to the automobile industry 
asking for a loan to enable GM, Ford, and Chrysler to continue 
operating and avoid liquidation in the near future. The car 
industry represents almost 4 percent of the U.S. gross domestic 
products; 1 of every 10 U.S. jobs are impacted in the U.S. auto 
industries. And that impacts working families, it impacts our 
cities, and our communities as well.
    But Mr. Chairman, I wanted to ask again, this is a question 
I would like to ask the panel.
    The Chairman. No, we are not going to be having questions 
of the panel.
    Mr. Baca. I basically wanted to support this legislation. I 
think it is important that we deal with it. It impacts the 
United States. The American people are asking us to do 
something. This is a step in the right direction. And I believe 
that we have to support it. We bailed out everybody else. And 
what we are doing now is providing a loan, providing assistance 
to keep the American people working in our communities.
    Thank you very much.
    The Chairman. Thank you.
    Mr. Sander Levin. Mr. Frank, thank you for all of your 
work, and I hope everybody will take a look at the bill that 
you introduced.
    The Chairman. You are welcome. And we will now call on our 
next panel. The next panel will come forward. I will make my 
opening statement. We will continue with opening statements, if 
the panel will sit. Please, let's move quickly. Hey, all you 
people can say hello to each other in Michigan. Let's clear the 
room and get the panel seated. As the panel is seated, I am 
going to make my opening statement. I ask that the panel please 
be seated. If you are helping someone be seated, be seated 
yourself. They seem to have made it to the chairs on their own 
pretty good.
    I have been struck, not happily, in the time that we have 
been discussing this, that there is frankly, it seems to me, an 
inherent cultural bias. There is a double standard here. Aid to 
blue collar employees is being judged by a standard different 
than white collar employees. Now I have no complaint about 
white collar employees. They are my friends and constituents, 
as are others. But I do not remember complaints, and I am not 
talking about CEO compensation--and let me just add one thing. 
We have the CEOs with us. People have said, well, are we 
bailing them out? Should we deal with them? I do not think any 
of the three CEOs before us will show up on the unemployment 
line, no matter what happens. This is not about them 
personally. And none of them are going to be in any distress. 
But when people talk about bankruptcy, and I am struck that 
bankruptcy has become to some extent the new spectator sport; 
people are perfectly prepared to watch other people go through 
it, without understanding the stresses and strains it imposes.
    But there has been a particular concern raised about the 
wages of the auto workers. I was here through the entire debate 
on the $700 billion plan and on other interventions into the 
financial markets. Yes, there was concern about CEO 
compensation. By the way, when this committee last year voted 
for constraints on CEO compensation, it was something of a 
partisan issue. And while we did pass it in the House, there 
was a great deal of opposition who said, oh, it is just envy 
and jealousy. But while there was some talk about CEO 
compensation, there was none about the compensation of the 
people who work at these financial houses. And I am sure that 
even before the concessions in the recent contract, the hourly 
wage of people at the financial houses that have received 
assistance through the Federal Government are a good deal 
higher than auto workers. I think the average AIG worker gets a 
good deal more than the auto workers. Probably not the clerical 
people, but the people at AIG. There is apparently a cultural 
conditioning that is more prepared to accept aid to the white 
collar industry than to the blue collar industry. And I think 
that has to be confronted honestly.
    The $700 billion and this much smaller amount have in 
common the following: The justification for them has to be the 
impact on the broader economy. We have no right trying to help 
an industry for that industry's sake. And by the way, for 
people to say where is it going to stop? Pick up the papers. No 
one intervened for Circuit City. No one has intervened for any 
of the retailers that have gone bankrupt. No, we haven't 
declared that no one can go bankrupt. We have a criterion. Is 
this of a magnitude that it will threaten the entire economy? 
And particularly at a time of great vulnerability for the 
economy? You know, if we were at 4 percent unemployment, as we 
were in the Clinton Administration, if things were going well, 
this would be a different thing to contemplate. We have an 
economy already staggering, both because of our credit crisis 
and problems in the real economy. Adding to this enormous 
disruption at this point would be an awful idea.
    But here is the point: We aid an industry only when it is 
necessary to do that to avoid much greater harm to the economy 
as a whole. In doing so, however, we should acknowledge that 
while we are doing it because we want to help the whole 
economy, people in that particular industry do benefit a little 
more than the average. There is no question about it. That is 
unavoidable. Why was it so acceptable to do that for the 
financial industry, that is respond to the need to avoid 
macroeconomic harm by helping the financial industry, but doing 
it to a blue collar manufacturing industry is somehow not right 
and we have to look at the wage scale, etc.? And that is the 
issue that I think the country has to more honestly confront 
than we have done.
    One of the arguments I have heard as well, you know, the 
nice thing about bankruptcy is it will let them break the union 
contracts. I want to be very clear. The union and the 
management have already renegotiated downward to nobody's 
happiness. We have already in this country had too successful 
an assault on the right of men and women to bargain 
collectively, legally and economically. We have already had too 
great a gap in income inequality growing and growing and 
growing. I do not want to see bankruptcy established here as a 
precedent which can be used to take away from working men and 
women what gains they have accomplished.
    Now, that doesn't mean an endorsement of any particular 
level of wages here and there. But when you look, as I said, at 
the--now, there are people who are against this $700 billion. 
They have every right to be against this. But people who were 
for the $700 billion, who were for an $85 billion injection of 
capital into AIG by the Federal Reserve without a vote of 
Congress, and who did not raise the question of the average 
compensation of people at AIG or of the people who were the 
debtors of Bear Stearns--we didn't bail out Bear Stearns, we 
bailed out the debtors of Bear Stearns--it is a little late in 
the game for people who encouraged that infusion of far, far 
more money than we are talking about today to suddenly decide 
that an auto worker makes too much money, when it was okay to 
put hundreds and hundreds of billions of dollars into helping 
industries, again because it was economically necessary, and I 
don't dispute that, but in industries where the average wage is 
far beyond what the auto workers make.
    The gentleman from Pennsylvania.
    Mr. Kanjorski. Mr. Chairman, like many industries in 
America, the automotive sector confronts dire economic 
conditions. What we have here is a complicated mixture of 
ineffective management, a lack of innovation, exploding health 
care and pension costs, a struggling economy, increasing 
commodity prices, and changing consumer preferences. Regardless 
of the causes, the current plight demands dramatic reform.
    The Big Three must either adapt to survive or face 
extinction. To have a chance at survival, some maintain that 
the government should underwrite these needed changes to 
protect American jobs and prevent an impending economic 
catastrophe. Others counter that government assistance will 
merely prolong the inevitable failure of American automakers. 
Some also suggest that $25 billion is not enough to save the 
industry. Just like we have recently experienced at AIG, the 
automakers could soon be back at the government's doorstep with 
a beggar's cup demanding more money in short order.
    Most of us surely agree that if the Congress chooses to 
act, and that remains for me a big `if,' any money must come 
with substantive stipulations. While the draft House bill 
offers some important conditions, I believe they are 
insufficient to prevent recipients of taxpayer aid from abusing 
it. The draft provides no guarantees that these companies 
protect American jobs. Nothing prevents them from purchasing 
foreign-made supplies over American-made parts. Moreover, 
unlike the 1979 Chrysler bailout law that required concessions 
by many, the proposal before us contains no similar substantive 
sacrifices by suppliers, dealers, management, and workers. 
After all, Lee Iacocca symbolically accepted just $1 in annual 
pay. Why can't today's CEOs at General Motors, Ford, and 
Chrysler do the same?
    Furthermore, I am not yet convinced that the Congress must 
act so rashly. If one of these companies have a specific dollar 
amount to prevent its insolvency in a matter of weeks, then we 
should know that so that we can provide a limited bridge loan. 
We can then take the time to structure a proper deal that does 
not sell us a pig in a poke to allow yet even more businesses 
to bathe like pigs at the taxpayers' trough.
    The American people expect and deserve careful deliberation 
from this body rather than a blessing of last minute, expedient 
deals. Only after the Congress carefully and thoughtfully 
considers its options can it then draft a solution that not 
only keeps these companies running for months and years to 
come, but also helps them to thrive in the next generation.
    Even if we consider this bill, the onus lies with today's 
witnesses to explain why a direct government loan is a superior 
option. Many have credibly argued that bankruptcy or a 
structured receivership remain viable alternatives. The 
successful Chrysler loan guarantee provided a similar plausible 
road map this Congress could pursue. Whatever we ultimately 
decide, we must proceed with caution toward a prudent, long-
term solution.
    In sum, the American public expects us to take the time to 
get it right, even if we have to stay in Washington to do it. I 
am committed to getting it right, and look forward to the 
testimony.
    The Chairman. The witnesses will now begin with their 
opening statements. We had no further requests for an opening 
statement on the Republican side. We will begin with Mr. 
Richard Wagoner, the CEO of General Motors.

   STATEMENT OF RICHARD G. WAGONER, JR., CHAIRMAN AND CHIEF 
         EXECUTIVE OFFICER, GENERAL MOTORS CORPORATION

    Mr. Wagoner. Thank you very much, Mr. Chairman. I 
appreciate the opportunity to speak with you today about this 
important topic. I would like to acknowledge for the committee 
the audiences that I represent, General Motors employees 
directly, almost 96,000 people in the United States. We have 
6,500 dealers who employ another 340,000 people. Last year, we 
purchased more than $30 billion of goods and services from more 
than 2,000 suppliers in 46 States. Our pension program covers 
nearly 475,000 retirees and spouses. And our health benefits 
extend to about 1 million Americans. We have more than a 
million registered stockholders. And 70 million of our vehicles 
are registered to U.S. citizens, 22 million of them purchased 
in the last 5 years.
    As the recent news coverage has made abundantly clear, many 
people have a picture of GM that hasn't kept pace with the hard 
work that our people have been doing. Since 2005, we have 
reduced our annual structural costs or fixed costs in North 
America by 23 percent, or $9 billion, and expect to reduce them 
by about 35 percent, or $14- to $15 billion by 2011. We 
negotiated a landmark labor agreement with the UAW last year 
that will enable us to virtually erase our competitive gap. We 
have addressed pension and retiree health care costs in the 
United States, on which we spent $103 billion over the last 15 
years. As a result of these and other actions, we are now 
matching or besting foreign competitors in terms of 
productivity, quality, and fuel economy, and by 2010 will match 
them on labor costs as well.
    On the product side, we are building vehicles that 
consumers want to buy, like the Cadillac CTS, Motor Trend 
magazine's 2008 Car of the Year, and the Chevy Malibu, the 2008 
North American Car of the Year. We have made huge progress in 
developing advanced propulsion technologies, like 20 models in 
the United States next year that will get at least 30 miles per 
gallon on the highway; 6 hybrids on the road now, and 3 more 
next year; more than 3 million flex fuel vehicles; the world's 
largest hydrogen fuel cell test fleet; and the upcoming Chevy 
Volt extended range electric vehicle.
    In short, we moved aggressively in recent years to position 
GM for long-term success, and we are well on the road to 
turning our North American business around. Last October, 
following the negotiation of a new labor agreement with the 
UAW, our stock price climbed to almost $43 per share based on 
analysts' views that we had finally overcome the cost 
competitiveness gap with foreign manufacturers. Since then, our 
industry has been hit very hard by the global financial market 
crisis. And the recent plunge in vehicle sales threatens not 
only General Motors' ongoing turnaround, but our very survival.
    In response, we moved quickly to keep our company on track. 
Since June, we further reduced North American manufacturing 
capacity, put parts of our company up for sale, suspended 
dividend payments, reduced head count, and eliminated raises, 
bonuses, 401(k) matches, and health care coverage for many of 
our employees, all designed to improve GM's liquidity by $20 
billion by the end of 2009. These actions affect every 
employee, retiree, dealer, supplier, and investor in our 
company.
    Mr. Chairman, I do not agree with those who say we are not 
doing enough to position GM for success. What exposes us to 
failure now is not our product lineup nor our business plan nor 
our long-term strategy. What exposes us to failure now is the 
global financial crisis, which has severely restricted credit 
availability and reduced industry sales to the lowest per 
capita level since World War II.
    Our industry needs a bridge to span the financial chasm 
that has opened before us. We will use this bridge to pay for 
essential operations, new vehicles and power trains, parts from 
our suppliers, wages and benefits for our workers and retirees, 
and taxes for State and local government. But if the domestic 
industry were allowed to fail, the societal costs would be 
catastrophic: 3 million jobs lost within the first year; 
personal income reduced by $150 billion; government tax loss of 
more than $156 billion over 3 years; not to mention the huge 
blow to consumer and business confidence. Such a level of 
economic devastation would far exceed the government support 
that our industry needs to weather the current crisis. In 
short, helping the auto industry bridge the current financial 
crisis will not only prevent massive economic dislocation now, 
it will produce enormous benefits for our country later.
    Thank you very much. I look forward to your questions.
    [The prepared statement of Mr. Wagoner can be found on page 
221 of the appendix.]
    The Chairman. Next, Mr. Robert Nardelli from Chrysler.

STATEMENT OF ROBERT NARDELLI, CHIEF EXECUTIVE OFFICER, CHRYSLER 
                              LLC

    Mr. Nardelli. Thank you, Mr. Chairman, and members of this 
committee. I certainly appreciate the opportunity to be here 
today.
    We are asking for assistance for one reason: To address the 
devastating automotive industry recession caused by our 
Nation's financial meltdown.
    With credit markets frozen, the average working American 
can't get competitive financing to purchase or lease vehicles. 
Our dealers, many of whom are in the room with me today, don't 
have access to market competitive funding to place wholesale 
orders for new vehicles, which results in the constriction of 
cash inflow to all of us as auto manufacturers. At the same 
time, Chrysler has billions of dollars in cash payment 
obligations to pay wages, to pay suppliers, and to fund health 
care and pensions, all in the range of $4- to $5 billion a 
month.
    Therefore, without immediate bridge financing support, 
Chrysler's liquidity could fall below the level necessary to 
sustain operations.
    Independent research firms have quantified the fallout of a 
domestic automaker bankruptcy to the overall economy; and the 
impact would be devastating, as Rick mentioned. This is not a 
good option for Chrysler and, more importantly, for the auto 
industry or the broader economy for the following reasons:
    One, we believe that retail sales would plummet. The fact 
is, in February of 2007, when Daimler announced the sale of 
Chrysler, our sales fell off 37 percent. Our existing 
inventories would need to be heavily discounted. We have over 
400,000 units in the field worth about $1 billion.
    Given our common supplier base, the bankruptcy of any one 
automaker could threaten the viability of all automakers.
    Our factories would likely be idled for a significant 
period of time while we renegotiate contracts with literally 
thousands of suppliers and our primary lenders.
    The overall amount and cost of financing the restructuring 
would be significantly higher in a Chapter 11 than the working 
capital bridge that we are requesting here today.
    And, finally, we cannot be confident that we will be able 
to successfully emerge from bankruptcy.
    That is why, as an industry, we are requesting a $25 
billion working capital bridge to survive this liquidity 
crisis.
    We are willing to provide full financial transparency and 
welcome the government as stakeholders, including as an equity 
holder. We are fully prepared to comply with the current 
conditions and policies under the recently enacted Emergency 
Economic Stabilization Act.
    Furthermore, our private equity owner, Cerberus Capital 
Management, L.P., has made it clear that it will forego any 
benefits from the upside that would, in part, be created from 
any government assistance that Chrysler LLC may obtain.
    Mr. Chairman, being new to the auto industry, I recognize 
the need to challenge the status quo and to seek significant 
change. Change is the only constant we know at Chrysler today 
and throughout our businesses. Chrysler is making those 
changes.
    Since 2007, we have reduced 1.2 million units of capacity, 
or 30 percent of our installed base. We have identified over $1 
billion in non-earning assets to sell, and we are more than 75 
percent towards achieving that goal.
    This year, we reduced our fixed cost $2.2 billion; and, 
unfortunately, by the end of the year, we will have furloughed 
over 32,000 employees.
    It is equally important that the lack of liquidity to 
provide loans and leases to customers and financing to dealers 
is addressed immediately. It is imperative that our affiliated 
financial companies receive access to competitive liquidity and 
financing capacity.
    At Chrysler, 75 percent of our dealers rely on Chrysler 
Financial to support their business, and 50 percent of our 
customers finance their vehicles through purchases through 
Chrysler Financial. Normally, these loans and leases are 
securitized and sold in the secondary market to generate fresh 
liquidity and finance capacity.
    Today, there is virtually no secondary market and, 
therefore, no way to raise capital.
    With immediate financial assistance, the lifeblood of the 
U.S. economy will continue to flow and Chrysler will be able to 
continue to pay at its current levels.
    Mr. Chairman, Chrysler really is the quintessential 
American car company: 73 percent of our sales are in the United 
States; 61 percent of our vehicles are produced in the United 
States; 74 percent of our materials are purchased in the United 
States; and 62 percent of our dealers are based in the United 
States.
    Chrysler has a strong pipeline, with a product renaissance 
coming in 2010. In September, we reveal three electric drive 
vehicles, one for each brand; and one of those will be produced 
in 2010.
    Thank you very much.
    [The prepared statement of Mr. Nardelli can be found on 
page 198 of the appendix.]
    The Chairman. Next, Mr. Alan Mulally of Ford.

   STATEMENT OF ALAN MULALLY, PRESIDENT AND CHIEF EXECUTIVE 
                  OFFICER, FORD MOTOR COMPANY

    Mr. Mulally. Thank you, Chairman Frank, and members of the 
committee. I appreciate the opportunity to be here representing 
the Ford Motor Company.
    As you know, the auto industry has been heavily affected by 
the turmoil in the financial markets. Much of the recent 
commentary has suggested our companies need a new business 
model. I completely agree. In fact, we at Ford are well on our 
way to transforming our company and building a new Ford that 
has a very bright future.
    There are two fundamental questions today: First, is there 
a competitive and sustainable future for our domestic 
automobile industry; and, second, is a government bridge loan 
through these difficult economic times better for our country 
than inaction?
    I believe the answer to both of these questions is yes.
    As a relatively newcomer to this industry, I have the 
benefit of seeing the auto industry and its transformation 
clearly. I see parallels of what I have witnessed at Boeing 
after the 9/11 tragedy and the steps we took to transform the 
commercial airplane business. I can tell you that the 
transformation at Ford is even more aggressive and the progress 
we are making is even more remarkable.
    Our plan for the past 2 years has been focused and 
consistent:
    Aggressively restructure to operate profitably at the 
current lower demand and also the changing model mix;
    Accelerate the development of safe, fuel-efficient, high-
quality products that our customers want and they value; and
    Finance our plan and improve our balance sheet and work 
together as one team leveraging our global assets worldwide.
    Our goal is to create a viable Ford Motor Company and a 
lean global enterprise delivering profitable growth for all. 
Few companies have restructured more aggressively. We have 
taken out excess capacity, closing 17 plants and reducing our 
workforce by 51,000 vehicles. We negotiated a new contract with 
the UAW to improve our competitiveness. We shifted to a 
balanced product lineup offering high quality, proven safety 
and good value. We are delivering the best or among the best 
fuel economy with every new vehicle we are launching today.
    The speed and the breadth of our transformation is evident 
by our actions this week alone. Yesterday, we submitted our 
application for direct loans authorized by Congress last year 
to help us speed advanced technologies and vehicles to market.
    Today, at the Los Angeles Auto Show, we will introduce two 
all-new hybrids. Our new Ford Fusion hybrid beats the Toyota 
Camry hybrid by at least 6 miles per gallon. It is just a 
friendly competition.
    On Friday, we will enlarge SUV production at our Michigan 
truck plant and begin converting to fuel-efficient small car 
production at that same facility.
    To fund our new products and restructuring, we went to the 
capital markets early and we divested all of our noncore 
assets.
    Our Ford Credit business has consolidated abroad to 
preserve capital in support of our U.S. customers and our U.S. 
dealers.
    We appreciate the recently induced asset-backed commercial 
paper funding facility, and we anxiously await the 
Administration's term securitization facility in work.
    In addition, the FDIC's approval of Ford Credit's pending 
industrial loan bank application will enable us to meet the 
financial needs of our dealers and our retail customers.
    As a result of all of these actions, we were profitable in 
the first quarter of this year, 2008, and well on our way to 
sustainable profitability before the current economic and 
credit crisis stopped us cold. We have taken decisive action to 
deal with the current new crisis. We have reduced production to 
match the dramatically lower demand. We have further reduced 
employment, and we have eliminated all raises and bonuses for 
2009. We took these measures while protecting the new vehicles 
that will secure our future.
    Now, we believe we must join our competitors in asking for 
your support to gain access to an industry bridge loan to help 
us navigate our way through this difficult economic crisis. We 
suggest the loans be structured in a revolving format so the 
exposure to the taxpayer would be limited and, if used, would, 
of course, be repaid with interest.
    We at Ford are hopeful we have enough liquidity, but we 
also must prepare ourselves for the prospect of further 
deteriorating economic conditions in 2009. In addition, the 
collapse of one of our competitors would have a severe impact 
on Ford and our transformation plan because the domestic auto 
industry is highly interdependent. It would also have a 
devastating ripple effect across the entire U.S. economy.
    I am more convinced than ever that we have the right plan 
to transform Ford. We at Ford will continue to deliver our plan 
to create a thriving auto business for the benefit of all of 
us. With your help, we will create a safeguard to deal with the 
growing economic uncertainty. This is a really important 
industry. It is a pillar of our economy, and we look forward to 
working with you to be a part of the solution on the road to 
economic recovery.
    Thank you very much.
    [The prepared statement of Mr. Mulally can be found on page 
178 of the appendix.]
    The Chairman. Mr. Ron Gettelfinger, from the United Auto 
Workers.

 STATEMENT OF RON GETTELFINGER, PRESIDENT, UNITED AUTO WORKERS

    Mr. Gettelfinger. Mr. Chairman, on behalf of the men and 
women of the UAW, thank you for the opportunity to testify 
today on the state of the domestic automobile industry.
    The UAW strongly supports legislation to amend and clarify 
that the Treasury Department should use the existing financial 
rescue program to quickly provide a $25 billion emergency 
bridge loan to General Motors, Ford, and Chrysler to enable 
these companies to continue operations.
    The situation now facing GM, Ford, and Chrysler is 
extremely dire. Because of the credit and financial crisis, 
overall vehicle sales have plummeted to the lowest level in 25 
years. As a result, GM, Ford, and Chrysler are burning through 
their cash reserves at an unprecedented rate. The stark reality 
is that these companies could be forced into a Chapter 7 
liquidation, with their operations ceasing entirely.
    If this happens, as we all know, the consequences would be 
truly devastating. In addition to the hundreds of thousands of 
workers who would directly lose their jobs at the Detroit-based 
auto companies, a total of almost 3 million workers would see 
their jobs eliminated. This includes people who work for auto 
dealers, suppliers of components and materials, and thousands 
of other businesses that depend on the auto industry.
    Furthermore, retirees from the Detroit-based auto companies 
and their spouses and dependents, about 1 million people, could 
suffer sharp reductions in their pension benefits and the loss 
of their health insurance coverage, an especially devastating 
blow to the roughly 40 percent who are younger than 65 and thus 
not yet eligible for Medicare.
    If the automakers' pension plans are terminated, the PBGC 
would be saddled with unprecedented liabilities and the Federal 
Government would be liable for a 65 percent tax credit for the 
health care costs of pre-Medicare auto retirees.
    The liquidation of the Detroit-based auto companies would 
severely aggravate the current economic downturn. Government 
revenues would shrink even further, forcing harmful cuts in a 
wide range of social services.
    The UAW submits that it would be far better for the Federal 
Government to take prompt action now to prevent the imminent 
collapse of the Detroit-based auto companies. The human toll 
will be far less and the ultimate cost to the government will 
be far cheaper.
    The crisis facing the Detroit-based auto companies is not 
attributable to overly rich contracts negotiated by the UAW.
    In 2005, the UAW agreed to reopen the contracts midterm and 
accept significant cuts in workers' wages and health care 
benefits for retirees.
    Then, in the 2007 collective bargaining negotiations, the 
UAW agreed to slash wages for new hires by 50 percent. New 
hires will not be covered by the traditional retiree health 
care and defined pension benefit plans.
    In addition, beginning January 1, 2010, the liability for 
health care benefits for existing retirees will be transferred 
from the companies to an independent VEBA fund.
    The changes in our 2005 and 2007 contracts cut the 
companies' liabilities for retiree health care by 50 percent. 
As a result of all of these painful concessions, the gap in 
labor costs between the Detroit-based auto companies and the 
foreign transplant operations will be largely or completely 
eliminated by the end of the contract.
    Thus, the UAW active and retired members have stepped up to 
the plate and made the hard changes that were necessary to make 
our companies competitive in terms of their labor costs. GM, 
Ford, and Chrysler are now facing a crisis not because of their 
labor costs but because of the larger credit and economic 
crises that have engulfed our Nation and, with it, the 
unprecedented drop in auto sales that has affected all 
automakers.
    For all of these reasons, the UAW strongly urges Congress 
to provide immediate assistance to GM, Ford, and Chrysler to 
enable them to continue in business and to avoid the 
devastating consequences that a collapse of these companies 
would have for millions of workers and retirees across our 
country.
    Thank you.
    [The prepared statement of Mr. Gettelfinger can be found on 
page 131 of the appendix.]
    The Chairman. Thank you, Mr. Gettelfinger.
    Let me at this point ask unanimous consent to insert into 
the record a column by the economist Ben Stein. We are in an 
economic tailspin. We cannot allow roughly 3 million workers 
connected to the Big Three auto industry to fall into the ranks 
of the unemployed. It is possible that this nightmare could 
push the oncoming recession into being a depression. This 
economy is in enough trouble already. And it is an endorsement 
of this legislation. I ask that it be put in the record.
    I am now going to forego my 5 minutes in the interest of 
time, and I will recognize the gentleman from Pennsylvania.
    I will hold everybody to 5 minutes. So let me advise my 
colleagues, if you have a really good question that will take 5 
minutes, you are entitled to ask it. Do not expect an answer. 
You can look at the clock and know when--if you want answers, 
leave time for them.
    The gentleman from Pennsylvania.
    Mr. Kanjorski. Thank you, Mr. Chairman.
    Gentlemen, first of all, let me compliment the UAW. The 
first time over the last several weeks that I have had the 
opportunity to hear an adequate defense that this fault is not 
the fault of the labor contract, this is an economic fault. But 
I am not actually sure that it is only an economic fault. That 
is what I would like to ask Mr. Wagoner. None of this would 
have happened if the credit crunch had not occurred in Wall 
Street or do you anticipate that it would have happened or 
possibly would have happened anyway?
    Mr. Wagoner. No, sir. I think it is completely due to the 
credit crisis. And I just give you as an example, sir, that all 
of us were well on the way with our turnaround which was 
reflected by stock price improvement and earnings; and, 
frankly, what happened is the lack of availability of credit at 
a time when our balance sheets are weakened. This has really 
hurt not only our ability to fund ourselves but also our 
consumers' ability to buy cars.
    Mr. Kanjorski. In the way of analogy, the committee or the 
Congress is sitting as a loan officer in a bank; and I propose 
that we have three rather substantial individuals requesting a 
loan. I am amazed with how little depthful sales analysis has 
been made of what you need this money for, when will it be 
spent, how will it be spent, and what kind of protections are 
involved for both the workers and for the American public.
    For instance, I see nothing in this program that says the 
day we grant the power for you to make that $25 billion loan, 
you cannot strike a deal of General Motors in China and build 
plants in China or contract out most or all of the parts from 
China. Why do you think we should not take the time to make 
requirements and conditions in this loan, bridge loan, that 
would protect the American taxpayer, the American worker, and 
perhaps even some of your equity holders?
    Mr. Wagoner. Congressman, in our various submissions we 
suggested restrictions and have commented on the kind of 
restrictions that others have suggested. Your point about the 
money being used to support our operations in the United 
States, we would fully endorse that. So we are wide open--
    Mr. Kanjorski. Then, Mr. Wagoner, you would be agreeable 
that we find some methodology to buy some time here. So can you 
tell me when will General Motors run out of money relatively in 
the near future and what amount of money would you need now to 
be prevent that insolvency so that we can take the 3 months 
necessary to really go into depth of what conditions and how 
this agreement or bridge loan should be made?
    Mr. Wagoner. I don't believe, Congressman, that we have the 
luxury of a lot of time. And if I could--
    Mr. Kanjorski. Why? Tell me, when are you going to run out 
of money?
    Mr. Wagoner. I can't tell you that for certain because a 
lot depends on the people--whether our suppliers will continue 
to ship us with that--
    Mr. Kanjorski. You have to--accounting-wise, you have to 
be--if everybody acted against your best interest, there is a 
time you cannot meet your condition--somebody has briefed you 
on that, Mr. Wagoner.
    Mr. Wagoner. The needs are urgent. If everybody who lent 
money to the industry suppliers asked it to be paid off 
tomorrow, it would be a tremendous run on the financial 
position for all of us. So the need for funding actually is--
    Mr. Kanjorski. What amount of money would you need to take 
you to March 30th?
    Mr. Wagoner. We have talked about this $25 billion bridge 
loan.
    Mr. Kanjorski. The $25 billion bridge loan is for three 
auto companies. I am asking about General Motors, and I am 
asking how much money you need today to keep you viable and 
alive so we can structure a reasonable loan contract by March 
30th.
    Mr. Wagoner. We have talked about an allocation of the $25 
billion that would be approximately based on our U.S. market 
share, which suggests--relative market share, which suggests a 
total availability against that facility to GM to $10 to $12 
billion.
    Mr. Kanjorski. Maybe I am dense or something, Mr. Wagoner, 
but I do not quite understand what you just told me. Can you 
just tell me in absolute terms, how much money do you need to 
survive at General Motors from today until March 30th?
    Mr. Wagoner. Congressman, it is going to depend on what 
happens with suppliers and markets.
    Mr. Kanjorski. I understand that. Give me your worst-case 
scenario.
    Mr. Wagoner. The worst-case scenario, the amount of money 
would be significant. I mean, we have supplier--
    Mr. Kanjorski. What is significant?
    Mr. Wagoner. $4- or $5 billion every month.
    Mr. Kanjorski. So what you are telling us is, since you 
anticipate borrowing $15- to $18 billion under this 
authorization, if the market does not turn around and the 
economy does not recover by that time--and I think you have to 
be a wishful thinker to think it will--by March 30th, you are 
out of money; is that correct?
    Mr. Wagoner. The analysis that we have done is based on an 
assumption that the U.S. market continues at about the current 
rate, which is a weak level. We don't assume a lot of recovery. 
We hope it won't get worse. On that basis, we would--with the 
amount of funding that proportionately would presumably be 
allocated to us, we think we have a good shot to make it 
through next year. And our effort is to do that.
    The Chairman. The gentleman's time has expired.
    In light of what the gentleman raised, I am now going to 
recognize myself for my 5 minutes, only to take 1 or 2 minutes.
    The gentleman raised an important question about the 
possibility of additional fund investments elsewhere. We did 
specifically anticipate that in the legislation.
    The bill would create an oversight board, including the 
Secretary of Energy, the Secretary of Labor, the Secretary of 
Transportation, the Administrator of the EPA, and the Secretary 
of the Treasury; and it specifically says later on in the bill 
that any of the recipients must report to this oversight board, 
``any asset sale, investment, contract or commitment posed to 
be entered into by such recipient that has a value in excess of 
$25 million.''
    And it then says, the board may, ``prohibit the recipient 
of the loan from consummating any such proposed sale, 
investment, contract or commitment.'' That is, the members of 
the Cabinet of the incoming President will have the 
unchallenged authority to veto any investment, and we would 
expect that to be used to prevent any foreign investment. 
Trying to get more specific than that, you get too specific, 
and they come up with a new way.
    What we have here in this bill is the Obama Cabinet 
appointees, by the time this gets implemented, able to veto any 
investment over $25 million. So if they want to give China $24 
million, they are okay. But I think--and we did that 
specifically because of the point the gentleman raised.
    I yield back the balance of my time and recognize the 
gentleman from California.
    Mr. Campbell. Thank you, Mr. Chairman.
    Gentlemen, before I lost my mind and went into politics, I 
spent 25 years in the retail car business, most of that time as 
a dealer principal and dealer owner. Amongst the franchises I 
held General Motors, Saturn, Buick, GMC trucks, and Saab, Ford, 
Lincoln, Mercury, and Mazdas, quasi Fords. Sorry, no Chrysler, 
Mr. Nardelli. I learned a few things about the car business in 
that 25 years, but today I just have a few questions for you, 
and I will just listen.
    You are asking for a bridge loan, and I think a lot of 
people want to know what does the other side of the bridge look 
like. With the exception--let me go back.
    You know, in my 25 years, I lived through gas price spikes, 
I lived through credit shortage, and I lived through recessions 
in my dealerships. We have all three of those at once today, 
which is certainly the first time in my memory that has 
happened and I believe the first time in my lifetime; and I 
would argue that that is why the industry has been so hard hit, 
because there have been three different factors all convening 
all at the same time.
    With that being said, with the exception of the one quarter 
that Mr. Mulally referenced and, obviously, Mr. Nardelli, we 
don't know entirely what your earnings were, that the three 
companies were not making money before those three problems 
hit. So what are you going to do differently than what you 
perhaps were planning to do 6 months ago?
    As you mentioned, Mr. Mulally, you had a plan to come out 
of this. But these things have hit. They have happened. 
Conditions are worse. We will recover at some point. The 
economy will. But you go through a much more difficult time. 
What are you going to do differently than was your plan to 
change the other side of that bridge?
    All three of you, in whichever order you would like to 
respond.
    Mr. Wagoner. I will start. Thank you, Congressman Campbell.
    The things that are being done differently in response to 
the current crisis are, obviously, we are all slashing back 
every expense that is noncritical to the business. We are 
looking to take from our own expenditures over about an 18-
month period about $15 billion out. So that means things like a 
30 percent reduction in salaried employment costs, including, 
frankly, a substantial curtailment of benefits and 
compensation. We have moved already to take out a number of 
additional manufacturing lines and facilities.
    So I think the way we will come out of it from a cost 
perspective is we expect to be quite a bit leaner already. We 
are going to be dramatically leaner. So we have pushed back or 
even taken out spending on things like some of the larger 
engines and truck-based products; and we have accelerated 
spending on cars like the Chevy Cruze, which is our new 
subcompact car that will be built in Lordstown, Ohio. We have 
maintained on-schedule advanced technology spending for 
products like the Chevy Volt.
    We have to keep those all on track, because, obviously, we 
expect energy prices to go back up; and we expect a lot of 
pressure to be applied by our consumers to continue to improve 
fuel economy. So, from that perspective, I think we will have a 
much leaner business and one focused on fuel economy and 
advanced technology.
    The weight of our products, 18 out of our next 19 product 
launches, are cars and crossovers; 13 of our last 15 have been 
cars and crossovers. So I think you are going to see quite a 
different sales mix as well.
    Maybe I will stop there to give my colleagues a chance to 
respond.
    Mr. Nardelli. Yes, sir.
    For us, you mentioned, relative to the private equity, we 
did publicly disclose that through the first half of this year 
we had generated over a billion dollars in positive EBITDA, and 
we had continued to improve our cash position.
    Unfortunately, this unprecedented drop from an industry of 
16 million units down to 10.8 did catch us off guard. We have 
been dramatically restructuring and downsizing, it has cost us 
a few billion dollars in restructuring, but we are 1.2 billion 
units less in our capacity. We furloughed 32,000 employees. We 
have taken $2.2 billion in costs out. We are going to continue 
to make sure that we are lean and agile, assuming there is no 
sales recovery from our annual exit rate in this industry.
    We also will spend the money to pay suppliers. We will use 
the money to pay ongoing wages. We will use the money to 
develop a part of our product portfolio that was void based 
upon the separation that took place in August of 2007. We 
introduced three new electric vehicles, one of which we will 
have in production in 2010.
    So we have lowered the overall capacity. We have lowered 
our break-even point. We have paid for that one-time cost 
impact. It returns in one year. We hope to emerge leaner, 
stronger, and more formidable on the other side.
    The Chairman. Mr. Mulally, quickly if you can. Thank you.
    Mr. Mulally. I think your question, Congressman, is very, 
very important.
    As you well know, having a clear vision of what that future 
looks like, everything starts there. And in the automobile 
business, it is just so important that we are making the 
vehicles that people really do want and they really do value. 
That is the most important thing.
    The second thing is that you size your production to the 
real demand. Because the worst thing you can do is make more 
vehicles than the customers really do want and then force that 
into the distribution chain, discount them, ruin the residual 
values, and delay the recovery.
    So back on the first point--and we have seen the future. As 
I pointed out in my prepared remarks, we have been on this 
transformation plan for a number of years, and we have 
accelerated over the last 2 years, and we know it works. 
Because we got back to profitability in the first quarter of 
this year, and we did that by focusing on the product first. 
And the most important thing the consumer is looking for today 
is absolutely competitive and great quality. And in Ford's 
case, we have moved up to the place now where all the third-
party people will tell you that, from a quality point of view, 
we are equal to or better than Honda and Toyota.
    The second thing is that, on sustainability and with the 
fuel prices moving up and the awareness about energy security, 
energy independence, and sustainability, the consumer has moved 
up fuel economy right up next to the top on their purchase 
decision; and it is so important that we bring the enabling 
technology to bear to satisfy that customer requirement.
    Right now, every new vehicle we make, whether it is small, 
medium, or large, is best in fuel efficiency. The given is 
safety. And we have more at Ford, more 5-star quality and 
safety ratings than any other automobile company.
    The Chairman. Thank you.
    Mr. Mulally. And the best value.
    The Chairman. Commercials can go later. We are in a time 
crunch.
    The gentlelady from California.
    Ms. Waters. Thank you very much, Mr. Chairman.
    Again, I thank you for this hearing. It is extremely 
important that we hold these hearings to find out as much as we 
possibly can about what is going on in these industries and 
these companies that are coming before this Congress asking for 
government assistance.
    I am still traumatized by the hearing that we had yesterday 
and Secretary Paulson's denial of not paying attention to the 
loan modifications that we thought we would be getting as a 
result of the $700 billion bailout bill that we worked so hard 
to pass. So, on the heels of that, we have here today the 
automobile companies asking for their share of support from the 
Congress of the United States, from the people, to make sure 
that they are able to maintain their businesses. And what we 
basically get here are the big boys, the big industries who are 
well connected, have a lot of influence, and basically are too 
big to fail.
    Today, and long after today, we are going to hear a lot 
about arrogance and mismanagement and a refusal by these big 
automobile manufacturers to recognize that they could not 
continue to build certain kinds of automobiles; and we are 
going to hear a lot about the refusal to comply with some of 
our concerns about CAFE standards, on and on and on ad nauseam.
    But, in the final analysis, you know, people are going to 
roll. They are going to roll, and you are going to get what you 
are asking for. If I had my druthers, the $25 billion that we 
have already given you, I would say take it and run and we will 
deal with the environmental concerns a little bit later. 
However, many of our Members do not agree with that, so you 
will probably get an additional $25 billion.
    Here is what I want to ask you. Mr. Nardelli talked about 
the car dealers, and we just heard my colleague talk about his 
experience with his car dealership. I have here correspondence 
from the National Association of Minority Car Dealers, and I am 
going to read you something.
    ``As you consider the request for financial assistance to 
the automobile industry, I urge you do also consider provisions 
to provide financial assistance to automobile dealers, 
especially ethnic minority dealers. These dealers are being 
negatively affected by financial and captive institutions with 
their increase in floor plan interest rates, the curtailing of 
lines of credit, the canceling and/or nonrenewal of floor plan 
loans and the overall lack of lending to automobile dealers.
    ``As a result of this credit crunch, it is estimated that 
over 600 dealerships and 30,000 jobs have been lost already. Of 
that 600, it is estimated that over 150 were owned by ethnic 
minorities. If immediate assistance is not provided to 
automobile dealers, extremely negative consequences will be 
felt within the dealer program and the industry that will 
directly and adversely affect the economy of the United States 
both short and long term.''
    You basically said that, too, Mr. Nardelli. You talked 
about the lack of liquidity and the inability to have these 
floor plans that would provide the capital that is needed, I 
guess, for inventory to these car dealers.
    Having said that, I am about small businesses as well as 
about big businesses; and I have had enough experience here to 
know that oftentimes when we help the big businesses, they say 
that they are going to help the small businesses, but it never 
quite works that way. How many of you would be willing to 
dedicate a portion of this money, say a billion dollars of the 
$25 billion, to make sure that there was lending opportunities 
to these automobile dealerships? How many of you would agree to 
something like that?
    Let me start with Mr. Wagoner.
    Mr. Wagoner. Yes. What we are trying to do, Congresswoman, 
is also work on the ability of our finance companies to be able 
to go back to the kind of traditional funding that they have 
offered to all of our dealers; and we have been working with 
the captive finance companies, either fully owned or in our 
case partially owned, to work with the Fed to get better credit 
availability.
    Ms. Waters. GMAC has a letter here to your dealers that 
says, in response to difficult credit market conditions and 
recent actions by the Federal Reserve Board regarding the 
Federal fund rates, GMAC is making a change to its wholesale 
floor plan finance program. The following change is effective. 
And it goes on to talk about what it can no longer do.
    So what I am asking you, in addition to the work that you 
do with your captives, will you also commit to the floor plans 
that you are involved with to at least dedicate a billion 
dollars of this money to assist these dealerships?
    May I get those answers, Mr. Chairman?
    Mr. Wagoner. I think we really need the amount of money 
that we are talking about here for the operating business. But, 
at the same time, as Mr. Nardelli says, we are working with the 
Fed to try to get better credit availability for our finance 
companies so they can provide the credit to our dealers and 
customers.
    Ms. Waters. Mr. Nardelli, would you be willing to dedicate 
a billion dollars of this money to help the dealerships?
    Mr. Nardelli. Ma'am, we would be willing and open to any 
suggestions from this committee or Congress. But I want to make 
the point, as I said, this is a parallel request. Your comments 
are spot on. Our affiliate and captive finance companies are in 
desperate need, desperate need of access to liquidity. There is 
no secondary market, And it is causing tremendous hardship. The 
consumer cannot--
    The Chairman. You have to be more specific. We don't have 
time--
    Ms. Waters. So he basically agrees.
    Mr. Alan Mulally, what do you think--from Ford Motor 
Company--would you be willing to dedicate a billion dollars, 
whether it was a $25 billion--
    The Chairman. I think the question has been put. Let us 
have the--
    Ms. Waters. Or $26 billion?
    Mr. Mulally. I think that the actions we have taken with 
the Fed to free up the credit is absolutely the right thing to 
do which will help all of the dealers.
    Ms. Waters. So your answer is yes?
    Mr. Mulally. Pardon me?
    Ms. Waters. Your answer is yes?
    Mr. Mulally. I think the actions are in place right now 
where the Fed are doing exactly what you are asking for.
    The Chairman. The gentlewoman from West Virginia.
    Mrs. Capito. Thank you, Mr. Chairman.
    I want to thank the panelists, too.
    I have a question on the sum that we are talking about 
here. First of all, I would like to talk about the first $25 
billion that is for retooling and reworking to modernize. I 
mean, that was my assumption when I voted for that. What is the 
status of that right now, just quickly?
    Mr. Wagoner. Regulations were promulgated recently, and I 
think all of us now have filed our first applications. It is 
very helpful funding, but, as passed, the legislation basically 
allows you to draw down against credit facilities once you have 
already spent the money, and the draws are spread out over a 
fairly long period of time. So it is helpful, but as currently 
structured, it doesn't address the near-term cash flow issues 
facing our companies.
    Mrs. Capito. I think there has been some suggestion that if 
we took the first $25 billion and freed that from the 
restrictions that might have been placed on it to begin with to 
help you with your liquidity issues, that might be a more 
immediate way to be of assistance. What is your feeling on 
that?
    Mr. Wagoner. Well, from my side, to be honest, we have been 
clear that we think urgent funding support is required; and we 
are not overly prescriptive as to how it would be done. We 
leave that to the Congress.
    Mr. Mulally. Yes, I would like to make a comment on that. 
When we did that last year during the 2007 Energy Independence 
and Security Act, that recognized that all of us were making a 
commitment to improve the fuel mileage on every vehicle going 
forward as we move out the CAFE standards, and we all 
recognized the amount of money and investment it would take to 
do that, and that is why we put the $25 billion in and gave the 
Department of Energy the responsibility to implement that. We 
have been very pleased with their implementation of that.
    As Rick mentioned, we have all of our requests in to use 
that, to accelerate the fuel-efficient vehicles. I think it is 
absolutely critical that be used to continue to get that done, 
because it is critical to that improving the fuel efficient 
commitment that we made. As Rick said, I think the reason we 
are here today is that the industry has a critical need right 
now for liquidity. So I think it is really important that we 
keep that fuel efficiency investment going.
    Mrs. Capito. So basically you are both saying that a double 
track is what is needed here.
    So let me go to the figures--$25 billion for the first--
this is sort of the little cynic in me--$25 billion for the 
first, and all of a sudden it is $25 billion again. How did you 
reach the $25 billion figure for this particular request?
    Mr. Nardelli. Well, for Chrysler, we did--we looked at an 
assumption of what the balance of the year will be; and, as I 
said in my testimony, we could be dangerously close by the end 
of this quarter. We assume that next year's industry rate would 
match our exit rate. We looked at the continuation of what we 
will have to do, and basically our request is for $7 billion.
    Mrs. Capito. And then GM was--
    Mr. Wagoner. We performed a similar sort of analysis and 
came up with an estimate of $10- to $12 billion.
    Mrs. Capito. And then--
    Mr. Mulally. At Ford, we are in a little different 
position, because we believe that the actions we have taken 
over the last 2 years, that we have sufficient liquidity in the 
near term to make it through in economic recession if it 
doesn't get worse. And the reason we are here together is if 
any one of us go under, it has such a ripple, a tremendous 
effect on the whole industry and we are going to watch it very 
carefully. But if the economy starts to go down, we would have 
to access that money, too, and how much we would access would 
be dependent on how far the economy and the industry degrades.
    Mrs. Capito. The reason I am keying in on this is because, 
on the $700 billion bailout figure, there was a quote around--
and I don't know exactly who it was from--why did you pick $700 
billion; and a quote from an official supposedly at the 
Treasury Department, ``We just picked a really big figure.'' 
Well, to the American taxpayer, that is pretty much a smack in 
the face.
    When you see two figures come up with such large numbers 
that are exactly the same, it makes you--I am curious to know 
if there is a rounding-off effect here; and I want to make sure 
that whatever is being asked for is accounted for and has the 
oversight for but is also exactly what is estimated to be able 
to help the problem. Because I am certain that the last thing 
you want to do is to return here in another 6 months or 8 
months and possibly be in the same position.
    Now, I did a little mini survey as I was coming here from 
the TSA agent to just the guy sitting next to me on the plane. 
And you can imagine the American public is really all over the 
board on this. Because I represent a State, West Virginia, that 
has been gutted by the chemical industry. We have had 
difficulties with our steel industry, lost thousands of jobs. 
And, you know, nobody--the government didn't come in and save 
these jobs in the State of West Virginia. So you have that kind 
of feeling.
    But I think people are empathetic enough to know that job 
loss across the board, whether it is in your industry or your 
supplying industry or your ancillary industries or any of these 
industries, has a devastating effect on everybody, including 
those who don't work in the industry.
    So I thank you all for your testimony, and I look forward 
to hearing the rest.
    Mr. Kanjorski. [presiding] Mrs. Maloney.
    Mrs. Maloney. Thank you, Mr. Chairman, for holding this 
important hearing.
    It is unacceptable for America not to make its own cars, 
and it is unacceptable for America to continue outsourcing 
manufacturing and jobs. We have lost well over 22 million 
manufacturing jobs in recent years. No other country would let 
the major manufacturer, the major industry, fail in their 
country.
    Other countries are reporting that they are moving to help 
their automobile industry. We have reports that China is 
helping their industry, that Germany is helping their industry; 
and I believe that we need to help American jobs and American 
industry. And I believe in the American workers, that you are 
going to retool, you are going to move into the 21st Century 
and be more competitive than the world economy, because that is 
what we need to do. You need to be fuel efficient. You know 
what you need to do, and we are counting on you to make those 
changes and to regain the prominent position of leadership on 
manufacturing of automobiles that we have held in the past.
    Now, I will say there are a number of my colleagues who 
believe that we should let the automobile makers file for 
bankruptcy. But as Nobel laureate and economist Paul Krugman 
recently reported, ``If the economy as a whole were in 
reasonably good shape and the credit markets were functioning, 
Chapter 11 would be a way to go. But, because of the current 
economic crisis, a wide-ranging default in Detroit would 
probably mean loss of ability to pay suppliers, which would 
mean liquidation; and that, in turn, would mean wiping out 
probably well over a million jobs at the worst possible 
moment.''
    So I am supportive of your efforts because I believe it is 
necessary, and all other available alternatives are far worse.
    So my first question is, if you went to the private sector 
for your loan, would you not be able--you would not be able to 
get it or could you elaborate? Or, as I understand, the loan 
starts out at 5 percent and then climbs to 9 percent.
    I would also like to ask the panelists, do you agree with 
the assessment of economist Paul Krugman on what the impact of 
what a bankruptcy would mean in your Big Three and our industry 
and what would be the overall effect not just for you but the 
overall effect for our Nation's economy as we are struggling to 
stabilize our financial markets and to stabilize our economy 
and move forward?
    I ask anyone to respond.
    Mr. Nardelli. I think, as we said in our testimony, 
bankruptcy would be devastating. I know from Chrysler's 
standpoint and working with my colleagues, we have looked at 
all of the various options of prenegotiation, prepack, etc. 
There seems to be some major misunderstandings of what a 
bankruptcy allows a company to do.
    We don't have to look much further than Delphi, for 
example, who went into bankruptcy, and I think it was in 2006. 
They then in--2005. And, in 2006, they filed with the courts to 
basically break their contract. The courts sent them back to 
the table. And I am sure Mr. Gettelfinger can talk about that.
    So the--Mr. Chairman, as you mentioned, this has become 
such a spectator sport talking about bankruptcy. And I would 
submit to you that while it might freeze out all of our 
payables, most of our suppliers would go to cash in advance, 
which means there would be a significant increase in cash flow 
prior to our ability to manufacture a vehicle to get reimbursed 
from the dealer. I think it would turn us upside down faster 
and deeper than where we are today.
    Mr. Wagoner. I just also would like to add the point that 
there would be a massive loss of revenue under any scenario. 
The independent research that has been done fairly recently 
concludes that 80 percent of consumers said they would not buy 
a car from a company in bankruptcy. If any auto company lost 80 
percent of their volume or 40 percent of their volume, they 
would simply be in a massive liquidation. This would spread 
then to our common suppliers, and to other major manufacturers 
and dealers around the country. This would result in massive 
economic devastation.
    The Chairman. The gentleman from Alabama.
    Mr. Bachus. Thank you.
    From what I can understand--and you correct me if I am 
wrong--you have--there are two problems with the Big Three; and 
one of them is inefficiencies and the model that you are 
changing. I mean, last year, and what it was--is it VEBA?--you 
made some changes, but they don't go into effect until 2010. So 
you are not getting any benefit from those.
    You have had the new hire with the wage scale, and that is 
going to help, you know, and the longer we go on that is going 
to help. So I agree that you are moving in the direction of 
addressing that. But I think your short-term problem is a 
different problem, and that is a problem that everyone is 
facing, and that is not being able to get loans to buy cars. 
That is consumers. And isn't that your short-term problem? Or 
is it?
    Mr. Nardelli. It certainly is one of the major problems 
that we are facing today, as I have stated. Our consumers 
cannot get loans. FICA scores of 700 are not common to the 
average American worker. Therefore, the--and the lack of 
liquidity for our dealers to get competitive wholesale rates 
are contributing equally to the fact that, as we are resizing 
our businesses 30 to 35 percent and, in fact, as we do that, 
the reduction in cash inflow while we continue to have 
liabilities and payables to suppliers, etc., sir, is what is 
causing--there is a dual effect--
    Mr. Bachus. Let me ask you this. I am assuming the other 
two gentlemen agree that--you know, the TARP funds are intended 
for financial institutions, but aren't GMAC and Ford Credit and 
Chrysler Financial they financial institutions? If you receive 
funding through those--
    Mr. Wagoner. GMAC has been able to use the commercial paper 
backup facility at the Fed recently. That has helped some. But 
I think all of our finance companies are talking to the Fed 
about being categorized into different structures.
    Mr. Bachus. And that would help, wouldn't it?
    Mr. Wagoner. That would help tremendously.
    Mr. Bachus. That is something we could do without 
legislation. I am not suggesting there won't be legislation, 
but that would be an immediate help, wouldn't it?
    Mr. Wagoner. Yes, sir. And I understand those are at 
various stages of review at the Fed.
    The Chairman. If the gentleman would yield. I had a 
colloquy specifically on that point with the gentleman from 
Michigan, Mr. Dingell, to emphasize that those were fully 
included in the TARP.
    Mr. Bachus. I would be disappointed if that wasn't a top 
priority of the Fed today.
    Let me ask you this: You negotiated a new agreement, labor 
and union, in 2007; and I commend you on it. I think it was a 
step in the right direction, and it required sacrifice on the 
part of the workers. Things have gotten worse since then. We 
all agree. And I don't know whether some of these other things 
will help. But let me just ask you this: Are there any plans 
now that we have really hit a storm to at least sit back down 
and open up those discussions, at least to explore them, Mr. 
Gettelfinger?
    Mr. Gettelfinger. Thank you for the question, sir.
    What we have been doing is we have continually in 
negotiations--I know most people believe that negotiations only 
happen at the expiration of the contract. But, right now, we 
are in discussions with the companies.
    General Motors, for example, the Janesville, Wisconsin, 
facility. The sacrifices that we made last time were based on 
product commitment to our plants here for product to be made in 
America. We are going to lose that plant.
    St. Louis South assembly plant, another plant that we were 
hopeful that we would have product in. So we are working with 
the companies on that.
    We have--Ford Wixom's plant, since the negotiations, has 
closed down.
    And a lot of people have the perception that the union and 
the company only negotiate part of the time. Well, maybe it 
used to be that way, but today when we negotiate a contract, it 
is not just the implementation of the contract, it is the 
ongoing daily negotiations.
    The current operating agreements that have been negotiated 
at all of the facilities to make these plants more productive 
and the Harper report proves that that is effective. So we have 
those negotiations ongoing all the time.
    And I might add also that the UAW can't be the low hanging 
fruit, the men and women, the only ones at the table. And so, 
while we are at the table, we would respectfully request that 
others come into the party and sacrifice as well. Because we 
certainly believe that the men and women, both active and 
retired, have sacrificed, sir.
    Mr. Bachus. I agree with you.
    Let me say this: I think it would be helpful as you sell 
the public, as maybe some of these agreements or some of these 
changes are made for more efficiency, that you announce those, 
that the company and the union announce those. And I think it 
shows good faith on your part.
    Mr. Gettelfinger. Thank you for that. And we do try to get 
that out to the public, but, unfortunately, oftentimes if we 
have a conflict, they are willing to talk about that, but the 
positive things, it is much more difficult.
    The Chairman. Mr. Gettelfinger, there is a lot of that 
going around.
    The gentleman from New York.
    Mr. Ackerman. Thank you, Mr. Chairman.
    There is a delicious irony in seeing private luxury jets 
flying in to Washington, D.C., and people coming off of them 
with tin cups in their hand saying that they are going to be 
trimming down and streamlining their businesses. It is almost 
like seeing a guy show up at the soup kitchen in high hat and 
tuxedo. It kind of makes you a little bit suspicious as to 
whether or not, as Mr. Mulally said, we have seen the future 
and causes at least some of us to think have we seen the 
future. I mean, there is a message there. Couldn't you all have 
downgraded to first class or jetpooled or something to get 
here? That would have at least sent a message that you do get 
it.
    If you are going to streamline your company, where does it 
start? And it would seem to me if, as the chief executive 
officer of those companies, you can't set the standard of what 
that future is going to look like, that you are really going to 
be competitive, that you are going to trim the fat, that you 
don't need all the luxuries and bells and whistles, it causes 
us to wonder.
    You know, I don't have a dealership. I have driven a car 
for a long time. Around here, as my colleagues know, I drive 
the same 1966 Plymouth Valiant that I have always had. I can't 
seem to kill it.
    I strut my stuff in New York a little bit, and I drive a 
Cadillac. And I just bought a new one. I bought it because of 
the finance companies that are in the financing of the car 
business. I bought this car a couple of weeks ago, and I had 
some problems with it, and I couldn't get in touch with 
anybody. Because the dealership--which is a great dealership, 
by the way--couldn't tell me that they had the phone number of 
somebody at Cadillac to call to fix this GPS system that I had 
trouble with in the previous car. That is systemically built in 
with a software problem that I can describe, but nobody can 
listen. And if you are going to sell cars that customers want, 
you have to find out what the problems are; and you are not 
doing that.
    I wanted a loaded car in blue. I had to reach out to five 
States to find one in blue. I said, ``Can't you tell them they 
should be making more blue cars this year?'' He said, ``We have 
no mechanism to get back to the company to tell them that.'' 
Well, lucky for me, you guys are in a crisis, and they reached 
out and called me because you all said to your dealers, call 
your Congressman if you know who they are.
    And I got a call, and I actually had somebody call me. And 
in this discussion, I said, ``Hey, part of the problem is you 
are not listening to your customers. You have a problem with 
this, that and the other thing and this GPS system, etc., and I 
have nobody to talk to.'' And the answer was, ``Well, I think 
there is an 800-number in the manual somewhere.''
    Now when my wife has a problem with the foreign car that 
she drives, they bend over backwards to try to listen to her 
and figure out what is going on, what the colors are, what the 
bells and whistles customers like. And you all are not 
listening. If you are going to sell cars that customers want, 
you have to find a way to talk to your customers or better 
listen to your customers. You have no mechanism. There is an 
arrogance in that. We will all be out of business in 2 years. 
We have a time limit also.
    So maybe you can tell us what you are actually going to do 
to sell cars people want and how are you going to do that in 
real short order because otherwise, you know, there is triage. 
Somebody heard that we were giving out free money in 
Washington, and they are showing up from all over the place. 
And we have to figure out where to put it.
    And you know, you don't want to put your last tourniquet on 
a dead guy. So tell us, what is going to be different 3 months 
from now? Anybody?
    Mr. Nardelli. Well, sir, I can tell you what we have done 
at Chrysler in the last 18 months. We have installed the first 
ever chief customer officer. We have methodically gone through 
400 line items, enhancing, improving the reliability, the 
durability. As a result of that, our warranty costs have gone 
down 29 percent. We established the first ever customer council 
online. Our chief marketing officer is listening.
    God knows we have a long way to go. But I think we have 
recognized the first and biggest hurdle, that of denial. And we 
are committed to improve our overall product quality and the 
service with which we provide our valuable customers.
    The Chairman. The gentleman from North Carolina.
    Mr. Jones. Mr. Chairman, thank you very much.
    Gentlemen, thank you for being here.
    To your left--I am on the right. Politically I am on the 
Republican side. I want to read to you--
    The Chairman. Sometimes.
    Mr. Jones. Well, I am somewhat independent.
    Thank you, Mr. Chairman.
    The budget should be balanced. The Treasury should be 
refilled. Public debt should be reduced. The arrogance of 
officialdom should be tempered and controlled. And the 
assistance to foreign lands should be curtailed, lest America 
becomes bankrupt. People must again learn to work instead of 
living on public assistance.
    Let me explain. I took advantage of a quote by Cicero in 55 
B.C., but instead of ``less Rome becomes bankrupt,'' I inserted 
``America.'' The people of this country, as well as the Third 
District of North Carolina, which I represent, where the 
average income of a family of 3 or 4 is about $36,000. And 
after the bailout of Wall Street, they want to know why we need 
to be bailing out the automobile corporations of America and if 
it is justified.
    Now when I look at these cars--I am not going to go through 
them--but this is the General Motors Chevrolet Avalanche, 
assembled in Mexico. This is the Fusion, assembled in Mexico. 
This is the Crown Victoria, assembled in Canada. This is the PT 
Cruiser, assembled in Mexico. And this is the Crossfire, 
assembled in Germany.
    Then I have articles from the latest news from China Car 
Times, ``Chrysler and the Great Wall to Work on Small Car.'' 
Okay. Chinese cars will soon be sold in the United States. 
This, again, is a relationship with some of your corporations, 
and then Chrysler signs a pack. This again is with the Chinese. 
The problem with--you being here is not the problem. We care 
about those workers who are American workers. In fact, Mr. 
Obama carried my State of North Carolina. One of the ads that 
helped him win was: ``We are not going to any longer give tax 
credits to companies who move jobs overseas. We are going to 
give tax credits to those companies that stay in this 
country.''
    And what my question to you is, when you are getting this 
money from the American taxpayer and you keep having these cars 
assembled overseas in different countries, what is the purpose 
of this loan? Is it to keep you viable so that you can continue 
to move jobs overseas? I speak for the frustrated people of the 
Third District of North Carolina because Cicero was right. We 
are in the last days of this country surviving. And how in the 
world can we find the billions of dollars that we are borrowing 
from China and Japan to help you stay in business when you are 
sending jobs overseas to pay those workers less than you are 
paying the workers in Detroit? What can you do to keep the jobs 
here? Anyone who wants to answer it, fine. If you don't, fine. 
But I just wanted to tell you, people are frustrated. You have 
been helped before. Maybe not with billions but with millions. 
And I have those figures, too. But you have to reassure the 
American people that you are going to stop sending these jobs 
overseas and work with these unions and work with this country 
and find ways to keep these jobs here because this country is 
falling apart. If anybody wants to--
    Mr. Nardelli. If I can just take 30 seconds and share the 
time.
    Your point is well taken on the Crossfire. One of the 
things I did in the first 60 days was discontinue that car that 
was made in Germany, point number one.
    Point number two, sir, the articles you referred to about 
China is part of our attempt to compete in China. As you know, 
you have to have, based on local restrictions, a joint venture 
to be able to compete there competitively in that market. So 
that article you are referring to is more about, how do we 
expand our business globally to try to get more volume to 
compete in that market as they are trying to compete in our 
market?
    Mr. Wagoner. I would say the auto business has become 
somewhat more global over the years. And you know, of our 
foreign competitors here, in many cases, they import and sell 
more cars in the United States than they build here. And I 
think if you look at the labor intensity of the three of our 
cars sold in the United States versus our transplant 
competitors, it is vastly greater.
    I can tell you, from GM's side, we certainly do want to 
grow in China and Brazil and the places that are growing around 
the world. That is good for our business here. But the United 
States is by far our biggest manufacturing site. And this is 
the most important market for us. So we are treating it that 
way.
    We do export some to Mexico. We import some from Mexico. On 
balance, we have a huge amount of U.S. content in most of what 
we sell here from Mexico.
    Mr. Mulally. I would just like to add that the Ford Motor 
Company plan, we operate, as you know, around the world. Our 
fundamental plan is to make the vehicles in the markets that we 
serve. And the United States is by far our biggest market. We 
want to make our U.S. vehicles in the United States. And I 
really, I think that the actions we have taken over the last 
few years, especially starting with the transformational 
agreement that we made with the UAW, allows us to make vehicles 
of all sizes, small, medium, and large, cars, utilities and 
trucks and make them right here in the United States. That is 
our main objective.
    The Chairman. If the gentleman would yield? I think one of 
the answers did highlight, however, a real problem in our trade 
policy, which, as I understand it, if they want to sell cars in 
China, it has to be a joint venture with a Chinese partner. No 
such restriction applies to people here. That is a defect in 
our trade policy in failing to insist on reciprocity for our 
own people.
    Mr. Gettelfinger.
    Mr. Gettelfinger. I wanted to thank the Representative for 
his comments because these gentlemen to my right have all heard 
that from all three of our vice presidents and myself.
    But it does go back to us being the most open market in the 
world. We do nothing to assist or to protect our industry. Our 
free trade agreements should be fair trade agreements, and they 
all well know our position on that. So you did an eloquent job 
of stating what we have said to them.
    Mr. Jones. Mr. Chairman, may I make one statement in 
closing, sir?
    The Chairman. Certainly, because I took some of your time.
    Mr. Jones. The Thursday after the Tuesday election at East 
Carolina University in Greenville, North Carolina, David 
Walker, former Comptroller General of the GAO who is now with 
the Pete Peterson Foundation, spoke to over 400 people at the 
Hilton in Greenville.
    At the end of his speaking, he was willing to take 
questions. But in his speech or presentation, he used the word 
``abyss.'' One of the questions from the audience was this: 
``Explain abyss and how you meant it in your presentation.'' 
And he said, ``I would rather not answer because the press is 
here,'' but he was saying that jokingly. And then he said, ``If 
this country does not become smarter and wiser with how it 
spends its money, then I see, in 4 or 5 years, a collapse and a 
depression.''
    I yield back.
    The Chairman. The other gentleman from North Carolina.
    Mr. Watt. Thank you, Mr. Chairman.
    And let me start by thanking the Chair and the Senate 
yesterday for having these hearings because I think it is 
absolutely important that we understand better what is going 
on, but that the American public get a better understanding of 
the potential consequences of bankruptcy of any of the 
automobile manufacturers that are based in the United States.
    We are in much the same position that we were with the 
original bailout. We are very much between a rock and a hard 
place, and the hard place is coming from the public out there 
who has a great resistance to bailing out anybody else as they 
did in the original bailout. So I apologize for having to step 
out, and I hope I am not being repetitive of questions that 
were already asked.
    I did consult with Ms. Waters, and I think both she and the 
second ranking member on our side asked some questions about 
the use of this money, the projected use of the money. I guess, 
to some extent, as a bridge loan, this can be used for 
anything. But I am aware that up and down the chain under the 
manufacturers, there is substantial stress at the dealer level; 
a number of them are either going out of business, have gone 
out of business, or are on the verge of going out of business.
    One of the questions I want to ask is, is there some plan 
here for a use of part of this money to address their urgent 
needs as well as the manufacturers' urgent needs? Can somebody 
address that for me?
    Mr. Mulally. You bet. I think it is a very important 
consideration because just like we have ended up over the years 
with overcapacity in the manufacturers, we also have 
overcapacity in the dealer network and also in our supplier 
network. And we have been working together very closely with 
our dealers and our suppliers to improve their profitability, 
their throughput, their revenue, and their productivity.
    Mr. Watt. Well, overcapacity suggests that a number of them 
will go out of business. And my experience is that some of the 
most marginal, some of the most distressed of those are the 
newest dealers, and they tend to be disproportionately minority 
dealers because they have come to the table more recently. What 
particularly are you doing to address that issue?
    Mr. Mulally. Our data says that it isn't associated with 
how long they have been in business. It is their fundamental 
business acumen for all the dealers, all of them, not 
necessarily dependent on how long they have been in business. 
And it is really an important thing that we keep working 
together because we have to get their profitability up per 
dealership because it is the only way for them, just like us, 
to be competitive by going forward. But it is an ongoing thing 
that we are working on. We have made great progress, and we are 
going to continue to work it very closely.
    Mr. Watt. A number of them are experiencing challenges with 
the financial services sector because the financial services 
sector has withdrawn from this industry, making any kinds of 
loans--you are a lot more likely to be able to get a loan to 
purchase a car than you are to sustain a dealership, as I 
understand it, because all of the lenders have kind of taken a 
hike on your industry because they perceive that you are in 
distress. Will part of that money take up that slack? Or is 
this just operating money that you are requesting?
    Mr. Nardelli. Sir, this is specifically operating money. 
And as we discussed, possibly when you were out of the room, 
our affiliate financial companies, in parallel to what we are 
asking for here today, must gain access to the TARP funds. They 
currently have submitted requests for, in one case, a bank 
holding company. We have a request in for ILC that will allow 
them to have access to the secondary market to generate 
capacity and to improve liquidity. That is the most important 
thing we could do for these men and women, these entrepreneurs, 
these small businesspeople that we have about 3,500 across the 
country to get vitality back into their businesses.
    Mr. Watt. Thank you, Mr. Chairman.
    The Chairman. The gentleman from Illinois, Mr. Manzullo.
    Mr. Manzullo. Thank you very much. I appreciate the 
opportunity that we have this afternoon. I especially welcome 
Mr. Nardelli from Rockford, Illinois, a graduate of Auburn High 
School. The district I represent is the proud home of one of 
the great Chrysler facilities.
    I have two questions. The first one is, you are claiming 
that no one can buy new cars because the financial crisis has 
negatively affected the captive financing arms of the Big Three 
automakers. However, yesterday we heard from the bankers, and 
we have also heard from the credit unions, that they have tons 
of money to lend to car customers. What steps are you taking to 
get the word out to auto dealers and the general public that 
they shouldn't just use your financing companies to facilitate 
car and truck sales?
    Mr. Wagoner. If I could start with that, we have recently 
actually begun a national advertising campaign to do just that 
and basically offer, through our dealers, that the customers 
can directly go to Web sites of all potential financing 
sources, because we welcome banks and credit unions. We have 
actually have some specific work going on with the credit 
unions to try to get them back in the auto finance business. So 
we are very enthusiastic.
    Mr. Manzullo. Those are local credit unions and local 
banks?
    Mr. Wagoner. Yes.
    Mr. Nardelli. Sir, we have gone to two major banks. We have 
given one of them half our country, four of our business 
centers. And to date, through this new pilot, they have 
basically have had access to about 1,500 opportunities, 1,500 
loans. We have approached Ron Gettelfinger and asked him to 
help us approach credit unions across the country to see if 
they are willing to help consumers get access to auto loans to 
help create some infusion of cash back into the system.
    Mr. Mulally. We also have a loan in to the FDIC, an 
application in for an industrial bank, which will help on that 
also. Plus, we have come to an agreement with the Fed on asset-
backed paper for the short term, and also they are now working 
it for the longer term, which will also free up credit. So our 
Ford Motor Credit Company, as you mentioned, can offer the 
loans to the customers.
    Mr. Manzullo. The reason I ask that is you are asking for 
taxpayer funds for people to buy cars when in fact the private 
sector already has the money available.
    The second question is, if you were given the $25 billion 
today, the additional $25 billion, exactly what would you do 
with it? Where would the money go?
    Mr. Wagoner. The money will basically be used as bridge 
financing because, actually, private capital is not available 
to us at this time.
    Mr. Manzullo. Where would the money go?
    Mr. Wagoner. For us to continue our capital expenditures, 
to continue our product development and research development, 
and to be able to pay our suppliers, employees, and retirees.
    Mr. Manzullo. All right.
    I presume that it would be the same answer. It is going for 
general operating expenses.
    Mr. Nardelli. Yes.
    Mr. Manzullo. If you don't have new sales, won't you be 
back here again in 2 months?
    Mr. Wagoner. We have built, as we explained earlier, our 
estimates of the amount of funding we need on an assumed level 
of auto market sales next year. And in our case, about 11.7 
million units, which we have viewed to be quite conservative 
given that that would be the lowest level the United States has 
seen in--
    Mr. Manzullo. The reason I ask the question is, isn't it 
better to give a $3,000 or $4,000 tax credit to any person who 
buys a new automobile so the money is directly infused into the 
automobile industry, no bureaucrats to screw it up, no 
testimony such as we had yesterday that there is no game plan 
on how to spend the TARP money, no need for testimony. The 
money would go directly to all the automobile manufacturers in 
the country. Isn't that the best way to spend $25 billion?
    Mr. Nardelli. Well, sir, there is no question, you know, 
given where we are, we are open to any suggestions, and 
certainly a consumer tax credit would be great. The reality of 
that is, the industry has fallen from 16 million last month to 
10.8. So before that is a benefit, the consumer has to have 
access to a loan to be able to get credit--
    Mr. Manzullo. The consumer has access to a loan, Mr. 
Nardelli. It is the local credit union and the local bank. The 
money is there. It is there.
    Mr. Nardelli. Well, then, sir, certainly the increase in 
the balance sheet, the reduction in the debt to equity ration 
for these banks, they need to let it start flowing.
    Mr. Manzullo. Well, I thank you.
    The Chairman. Did you have a last comment you wanted to 
make at this time?
    Mr. Manzullo. No, I just, the comment--Mr. Chairman, thank 
you, you are very generous.
    Well, the comment is the fact that if car sales don't pick 
up, you are just throwing money at a problem. That is what my 
union guys are saying back home. They are saying, unless there 
is a plan--all you guys advertise on television are the big 
trucks. Why not the little cars that are made in my district, 
the Caliper and the Patriot, the finest and the smallest car in 
the world?
    The Chairman. I think the statement has been made.
    The gentleman from California.
    Mr. Sherman. It would be insane if this country stopped 
designing and building automobiles and trucks. It would also be 
insane if the top executives from the three automakers came 
here on private jets. I am going to ask the three executives 
here to raise their hand if they flew here commercial. Let the 
record show no hands went up.
    Second, I am going to ask you to raise your hand if you are 
planning to sell your jet in place now and fly back commercial. 
Let the record show no hands went up.
    I don't know how I go back to my constituents and say, the 
auto industry has changed if they own private jets, which are 
not only expensive to own but expensive to operate and 
expensive to fly here rather than to have flown commercial.
    I also, though, must recognize that you are in trouble 
mostly because of the economic downturn. The proof of that is 
that all three of your companies were worth roughly 5 times 
what they are worth today at the beginning of this year based 
on Wall Street and, in one of your cases, of course, a private 
transaction. I don't think Wall Street wasn't aware at the 
beginning of this year of all the problems that we have all 
talked about. It is the additional problem of this 
unanticipated downturn that has driven the value of your 
company down.
    I have three questions for the record. First, is the idea 
of building and buying in America. We have talked about new 
investments in China. I am not worried about your new 
investments. I am worried about your dis-investments. Chrysler, 
in particular, shuts down in Missouri a shift that its building 
the Dodge Ram while continuing to build the same vehicle in 
Mexico and then shuts down a plant in Missouri building the 
Dodge Caravan while running three shifts at their plant in 
Windsor, Ontario. I would hope that you would respond for the 
record whether you expect to get any bailout money from Ottawa 
or Mexico City? And if not, whether you will commit yourselves 
as you disinvest, as you close down plants, to close down the 
foreign plants and not those in the United States?
    Second, I am concerned about the consumers. People in my 
district are buying your cars. They expect that 5-year warranty 
to be there. You go bankrupt, they have no warranty. They are 
going to figure that out. But even before they do, are any of 
you willing to establish trust funds with a few hundred dollars 
per vehicle sold, so that if your company ceases to exist, 
there is at least something there to provide warranty service?
    Third, executive compensation. We have already talked about 
bonuses, which are covered in the bill. But your total 
compensation package includes your salary, your bonus, the 
stock options as valued by the new accounting rules, and 
ancillary compensation as well. I would hope that you would be 
able to respond for the record that no one at your companies is 
going to get more than $1 million per year in total 
compensation package including bonuses, including stock 
options, including contributions to pension plans.
    Now, I have a question that I would like you to respond to 
orally, and that relates to the number of warrants that the 
taxpayers are going to get if we make this investment, because 
God knows we may lose it all. When Warren Buffett made 
investments, he demanded--and he was making much less risky 
investments than what you guys are asking for here--a number of 
warrants equal to 100 percent of the number of shares that 
could be purchased for the amount invested; a strike price 
equal to the amount--equal to the current fair market value of 
the stock; any term on the warrants at least as long as the 
investment remained in place.
    Now I know that you would like to give less warrants. And 
you are going to tell me how unfair it is that we don't just 
give you all the money that you want and not dilute your 
shareholders' equity. But are you willing to accept a Federal 
infusion of capital where we get the kind of upside that Warren 
Buffett was able to negotiate, mainly the terms I have just 
outlined?
    I will start with the--
    The Chairman. We won't have time for everyone to answer, 
but can get a couple.
    Mr. Sherman. Let's hear from General Motors.
    Mr. Wagoner. I think we have all been clear that we are 
very willing to do warrants. To be honest, our shareholders 
have been dramatically diluted, as you highlighted. And we 
certainly feel an obligation to be responsible to them. But the 
most important item on our agenda is this bridge funding, and 
we respect the government should get fair compensation and are 
very willing to discuss the kind of terms you laid out.
    Mr. Sherman. If I have time, Ford as well.
    Mr. Mulally. Nothing else to add.
    Mr. Sherman. So we are talking roughly 5 times the number 
of warrants called for in the current draft of the bill.
    I yield back to the chairman.
    The Chairman. The gentleman from New York.
    Mr. Meeks. Thank you, Mr. Chairman.
    I was listening to some of the questions by Mr. Watt, and I 
am trying to be clear on the utilization of the money. I am one 
who believes that, given the close to 5 million jobs, whether 
it is direct or related, that we could lose, this industry is 
tremendously important. But I am concerned about how the money 
is going to be spent, and I know that, for example, in some 
places or areas in the country where there is no manufacturing, 
but there are dealerships which employ a substantial amount of 
people. And in listening to some of the responses, it is that 
dealerships are going to shrink substantially. And I don't know 
whether or not there is any plan with reference to the dollars 
that the taxpayers will be lending you to help stabilize 
dealerships and others, because that becomes part of the local 
community--and both sides, where they go buy their cars and 
also employment for them. And so I am trying to say, are there 
any plans with this taxpayer money to keep and to preserve 
dealerships or to strengthen dealerships?
    That is my first question.
    Mr. Wagoner. Maybe, I could offer some perspective on it. I 
think generally people who look at the industry say that those 
of us who have been around a long time have probably more 
dealers than we can support with current volumes because the 
economics of the dealership business now require higher scale 
than they did a few years ago, the technical training, the 
technical equipment they have to have. So what we have been 
doing is working with our dealers.
    But I highlight, each dealer makes their call, whether they 
want to stay in business or not. We do have a number of dealers 
who, with the economic downturn, with the change in generations 
have said, hey, I would like to get out of the business. And 
what we try to do in that case is have them work with another 
local dealer, for example, to try to take over their business, 
take over their customer responsibilities, although it has to 
be done in cooperation with individual dealers. And so we do 
need to try to do that in an orderly and constructive way.
    Mr. Meeks. And encourage mergers. I mean, this is the day 
and age of mergers.
    Mr. Wagoner. And we do provide, in some cases, support for 
that to be done. I can assure you, in virtually every 
significant community in the United States, we have and will 
continue to have dealer representation. In some cases rather 
than three Pontiac or standalone Pontiac, Buick, and GMC 
stores, there might be one store that has all three franchises, 
so the retailer has a chance to make some business profit. So 
as part of our normal business, we have some budget to 
facilitate those kind of things happening.
    Mr. Meeks. Yesterday at the Senate hearing, I think I heard 
a number of Senators reference Honda made in Indiana as a 
benchmark for the most efficient cost to produce it and for 
profitability. How, with this taxpayer money, will our three 
major industries be able to compete with Honda made in Indiana 
so that--because, you know, part of what we haven't discussed 
is the American consumer. Nowadays, a lot of times they are 
buying what they believe is the best vehicle, cost-wise as well 
as reliability-wise. And that is why others got into our 
market. How will this $25 billion help you compete so that we 
are not back here again with Honda made in Indiana?
    Mr. Nardelli. Sir, if you are familiar with the Harbor 
report, and I think Mr. Gettelfinger has it, the Chrysler team, 
long before I got there, has been on a path to improve the 
overall efficiencies of our manufacturing plants as measured in 
hours to assemble. This year, I am proud to say that we are 
spot on Toyota relative to the hours required to produce a 
vehicle. If you look at our contract that was just negotiated, 
with the forward-looking rates times those hours, we think we 
can be extremely competitive.
    I would tell you, sir, to your other question, the dealer 
council that is here with me in the room would say the most 
important thing we can do for them is to have a financially 
sound business with a continuous flow of products and the kinds 
of investments we are making in the quality, reliability, 
durability, fit, and finish of our products, where some of that 
money, you question, would go into $300, $400, or $500 per 
vehicle to enhance the overall aspirational aspects for our 
consumers.
    The Chairman. Before I go to the next question, let me say, 
I am going to assume the indulgence of the witnesses, this is 
obviously very important. I intend to stay here until every 
Member gets a chance to ask questions. I assume you can 
accommodate us. There are facilities just off the hallway there 
if you need them. The staff will be available. But I do think, 
given the magnitude of this, other than the Republican 
Conference, which unfortunately took them away for some time, 
but they will be back, there is not much else going on. I think 
this is important enough for us to stay, and I certainly intend 
to.
    The gentleman from Kansas.
    Mr. Moore. Thank you, Mr. Chairman.
    I had a conversation with an auto dealer in my district 
back in the suburbs of Kansas City in the Kansas side about 
2\1/2\ or 3 years ago, but I am not going to name the dealer 
because it doesn't matter. I think it is applicable here to the 
auto industry here generally. I said to him, ``You know, I am 
concerned that auto sales in our country are falling off, and 
the sales in foreign countries are increasing because a lot of 
the foreign cars are more fuel-efficient than the cars in our 
country. I am not saying this because I want to be critical of 
our industry. I want us to succeed. I want us to win. I don't 
want us to lose and fall behind the sales of other countries.''
    He said, ``Oh, I don't think that is a problem.''
    Well, that was 2\1/2\ or 3 years ago, and I think things 
have changed dramatically since then. That is why we are here 
today. And I am here today because I want the U.S. auto 
industry to survive and succeed. I don't want the industry to 
fail. The auto industry is a huge part of our job market; it 
provides a living to millions of Americans. We have to survive. 
We have to pull through on this. And that is why I am here 
today, and I think that is why every member of this committee 
is here today.
    The auto industry is a huge and very important part of our 
job market and our Nation's economy. I am very concerned the 
United States' auto industry learn something here from what may 
be mistakes that have been made in the past and not repeat 
those mistakes.
    Energy supplies are limited. Bigger and better SUVs are not 
what every American consumer wants when the price of gas 
increases to more than $4 a gallon as it did just a few months 
ago. The price of a gallon of gas has fallen to almost half of 
that very recently, but I think we can expect that there may be 
similar increases in the future.
    Our auto industry needs to be competitive with foreign 
automakers. I am glad that you are here. I have heard you 
describe some of the new models you have designed to be more 
fuel efficient. I hope it is not too little and too late.
    My questions I guess are these: What lessons have we 
learned? What are the auto manufacturers doing to make sure we 
don't repeat mistakes made in the past? And we have heard about 
a couple of new fuel-efficient models. Is there anything else 
we can expect to see in the near future? And, again, I am 
asking this because I want us to be there together. Anybody, 
please.
    Mr. Mulally. It is just such an important question. I 
think, from a lessons learned point of view, being relatively 
new to the industry, it really surprised me the lack of 
consistency, the lack of purpose on staying with the vehicles 
and improving them every year forever.
    This is well known at Ford. But when I first arrived, one 
of the things I knew about Ford was the Taurus. And when I was 
at Boeing and we were going getting ready to launch the 777 
program, we happened to have a member on our board who was also 
the chairman of Ford, Don Peterson. He told me that Ford was 
getting ready to design and launch the Taurus sedan, and would 
I be interested in getting together and comparing notes on the 
technology on the digital product definition, the digital pre-
assembly on the manufacturing plant? And I said, absolutely.
    So we hosted the Ford team, and for 3 days, we compared 
notes. They went back to Detroit and created the Taurus, which 
was the number one sedan in the United States for 9 years, 7 
million Tauri. A fabulous vehicle. And we created the Triple 
Seven, which is the number one commercial airplane in the 
world.
    And so when I was doing my due diligence, when I was 
recruited by Ford, I thought that I would just be going home 
because here is the Taurus. And so the day I arrived, I found 
out that they had changed the name, and they were killing it. I 
said, we are the ones who made it look like a football. Can't 
we have a consistency of purpose? We had all that brand. We had 
all that equity.
    And so one thing that I think you are going to see from us 
going forward is an absolute laser focus on every vehicle that 
we have in our portfolio, small, medium, and large; a car, 
utility or a truck. And every year we are going to improve the 
quality. We are going to improve the fuel efficiency. We are 
going to improve the safety, and we are going to improving the 
productivity so we can offer the consumer the very best value.
    Mr. Moore. And be competitive?
    Mr. Mulally. And be competitive, absolutely.
    And like I mentioned this morning, we are now competitive 
in all of those areas, all of the areas the consumer is 
considering. But, clearly, when we lost that consistency of 
purpose, there was a brand awareness that was lost. And we are 
fighting every day to get that awareness out and that message 
out that we are back, and that Ford is worthy of consideration. 
We have these fabulous vehicles.
    And when we had this big void for a number of years, we are 
still hurt by that. So I think consistency of purpose and 
absolutely delivering on this brand promise is going to be the 
most important thing we do on our transformational plan.
    The Chairman. The gentlewoman from New York.
    Ms. Velazquez. Thank you, Mr. Chairman.
    Mr. Wagoner, clearly, the $25 billion assistance package 
the Congress passed in September was not sufficient for the 
auto industry. You are back again, and now you want more and a 
different type of assistance.
    My issue is not with providing this assistance. But since 
the Wall Street bailout, I believe we have learned our lesson. 
Congress is not just going to hand out money without 
significant oversight on requirements. Given this, how will you 
restructure GM so that it is a more valuable business and the 
taxpayers are not left wondering why we gave you this money in 
the first place?
    Mr. Wagoner. Thank you.
    I think I tried to address the business restructuring, the 
cost restructuring, in some detail in my opening comments.
    And Mr. Gettelfinger has also talked about what the union 
does. So I won't repeat that side.
    But fundamental is obviously to be cost competitive. And so 
we are going to continue on that very aggressive path we have 
there, including recent additional plans.
    Ms. Velazquez. So when you mentioned the union side, will 
that mean what, pensions?
    Mr. Wagoner. No, I am talking about the fact that we have 
restructured labor agreements, reduced labor rates for new 
employees. We have spent--
    Ms. Velazquez. And besides that, what else would you do?
    Mr. Wagoner. We are going to continue our focus on new 
product launches and, particularly and in line with the prior 
question, commitment to technology leaders like the Chevy Volt, 
which can raise the image of the company. We are going to 
continue to work on making sure that, particularly, we keep the 
car products on time in our portfolio and execute them to the 
highest standards. And we have continued work to do to make 
sure we have the right size distribution channel so our dealers 
can be profitable.
    Ms. Velazquez. So, sir, what about marketing and 
advertising? Would you have an ad at a cost of $3 million per 
30 seconds during the Super Bowl this year? Or what about 
rationalizing the complex web of GM's product lines and cutting 
bureaucracy? And what about cutting travel costs? I wasn't 
here, but I understand you traveled in a private jet today.
    Mr. Wagoner. We are not going to do Super Bowl ads this 
year, frankly, because we are cutting back on everything, and 
we are actually shifting a huge amount of our ad budget that 
remains to digital marketing, which is less expensive and more 
efficient.
    I think it is fair to say every part of our business is 
cutting back expenses dramatically, including travel expenses.
    Ms. Velazquez. Thank you.
    Mr. Nardelli, I understand that 80.1 percent of Chrysler is 
owned by the private equity firm Cerberus Capital Management. 
Is that the case?
    Mr. Nardelli. Yes, there is--
    Ms. Velazquez. Okay. So I understand also that current 
senior executives at that firm include Former Bush Treasury 
Secretary John Snow and former Vice President Dan Quayle. Is 
that the case?
    Mr. Nardelli. Yes.
    Ms. Velazquez. Both gentlemen strongly support or supported 
free-market policies in their government capacities. But now 
they are asking for, and clearly will privately benefit from, a 
massive Federal bailout. How do you reconcile that these men, 
staunch supporters of the free market, are now asking for 
massive amounts of taxpayers' assistance?
    Mr. Nardelli. Well, as I said in my comments, Cerberus 
Capital Management has made it clear that they will forgo any 
benefits from the upside that would be contributed from any 
government loan in Chrysler LLC.
    Ms. Velazquez. Thank you.
    Mr. Mulally, as you know, several Wall Street firms 
recently announced that they will forgo giving bonuses to their 
top executives in part due to the perception that taxpayer 
funds should not be used to compensate unprofitable companies. 
Would you agree to restrictions up front that will prevent any 
of the Federal funds from being used for executive bonuses?
    Mr. Mulally. Yes, we have already decided to forgo any 
merit increases on the base salary and also any bonuses, 
because when you are in a situation like this, it is just so 
important to conserve the cash. Now, having said that, it is 
just so important that we also keep a skilled and a motivated 
team. As you know, this is a very competitive marketplace.
    Ms. Velazquez. But I understand you made that commitment.
    Mr. Mulally. We have a very motivated team.
    Ms. Velazquez. Thank you.
    Mr. Nardelli, we have heard you and your peers express your 
willingness to improve the fuel efficiency of your products, 
and yet all three of you have stacked your bets on different 
technologies. As we move forward, a more unified energy policy, 
are you concerned that the market may favor one technology over 
another, thus placing your business model at a disadvantage?
    Mr. Nardelli. May I answer, Mr. Chairman?
    The Chairman. Yes, you can finish.
    Mr. Nardelli. We did select a single technology because of 
our financial situation. We could not afford to develop 
multiple technologies. We chose the technology that we had the 
most experience in and that we thought would have the easiest 
application for the consumer, and that is electric.
    The Chairman. The gentleman from Michigan, Mr. McCotter, is 
now recognized before the committee for a combined opening 
statement and questions.
    Mr. McCotter. I thank the Chairman. Thank you for your 
indulgence.
    I will have an opening statement and some questions. I will 
try not to take up too much time, and if I cover ground that 
you already have, please feel free to disregard it, and put in 
your own points.
    I come from Michigan's 11th District. My district borders 
Detroit, heavy automotive industry, with a lot of dealers, a 
lot of suppliers, a lot of white-collar, and a lot of blue-
collar employees.
    One of the first things I would like to make clear is that 
I personally find offensive the implication that the domestic 
American auto industry has not done anything since the 1970's 
to restructure. If anyone believes that the Big Three were not 
restructuring prior to the credit crisis bringing them here 
today, or the CAFE mandates that have brought them here today, 
I invite you to my district.
    I invite you to look at how the fragile fabric of people's 
lives has been rendered asunder by a necessary restructuring 
process that has involved give and take on both sides from 
labor and management. I will show you the white-collar workers 
who are out of work. I will show you the blue-collar workers 
who are out of work. I will show you the pensioners who are 
worried about their health retirement benefits being lost, and 
I will show you the Wixom Assembly Plant that is closed.
    I bring this up not for your pity for my constituents. I 
bring this up to show you that the automotive companies and the 
UAW have been doing what they believe they possibly can to 
restructure and become globally competitive and ensure that 
American has a domestic manufacturing base for the generations 
to come.
    The second point I wish to bring up is why they are here. 
Throughout the entire process of the restructuring, we would 
hear rumors in Washington that the Big Three were coming for a 
Federal assistance package for one reason or another. And yet 
as the white-collar workforce and the blue-collar workforce and 
the pensioners suffered the restructuring, they did not come. 
They did not come to Washington with their hands out. They were 
not here begging, as it has been pejoratively put in the press. 
They wanted to restructure without us making it harder for them 
to do so.
    Unfortunately, the first thing we did, this Congress, was 
we passed a $100 billion CAFE standard mandate on the auto 
industry, which would have been far worse had it not been for 
the strenuous efforts of the Dean of the United States 
Congress, John Dingell.
    Secondly, through no fault of their own, as they went 
through the restructuring process, the wiz kids on Wall Street 
with their computer algorithms decided to screw up the entire 
credit market of the United States. This was critical to the 
restructuring of the auto industry.
    And then this Congress, in my opinion, passed a very bad 
piece of legislation, a $700 billion bailout of the very people 
on Wall Street who caused the problem.
    And now you see hundreds of billions of dollars slated to 
go to ``healthy'' banks to free up the credit system that has 
yet to free up or they would not be here today.
    So the question that the chairman puts before us, in terms 
of the legislation he is proposing, is to me not a matter of a 
bad policy that has already been imposed on the American people 
and has yet to work; it becomes a question of equity. If the 
$25 billion is appropriated for Wall Street, some of it 
probably targeted to healthy institutions, financial 
institutions, however nebulously defined, a no vote on a bridge 
loan to the auto industry means that that $25 billion will 
continue to go to Wall Street and to healthy banks. A yes vote 
means that it actually goes to Main Street, not just for the 
structure of the Big Three, the labor leaders, the auto leaders 
but for the very hard-working men and people whose taxes have 
gone into the $700 billion bailout, which has yet to free up 
the credit markets. So we are in the realm of equity here.
    And while I did not support that bad policy, we had here 
yesterday Secretary Paulson who explained that he believed one 
of the fundamental problems that we face in stabilizing our 
financial system is the problem with home foreclosures. I would 
agree with that. I would agree that the biggest problem we have 
is real working peoples' abilities to pay to stay in the homes 
that they have. If we turn our backs on Main Street, if we 
continue to send all the money to Wall Street, who caused the 
problem, and the auto industry does have to go into bankruptcy, 
you will see foreclosure rates in this country skyrocket from 
people who have played by the rules and are currently paying 
their mortgage and are not part of the problem Mr. Paulson says 
is already big enough to be worthy of addressing.
    Finally, I want to address the issue of labor costs. I have 
long said that one of the problems Michigan suffers is the fact 
that we are currently still operating under the industrial 
welfare's model of governance. And this is where the Big Three 
and the UAW get a very bad rap. They talk about, ``shedding 
labor costs that have been duly negotiated because it makes 
them uncompetitive.'' My response to that is, where do those 
labor costs go? The traditional model of governance throughout 
the 20th Century of the United States, as we were an industrial 
power, was that business would pick up some of the benefits of 
employees and government would pick up some of the social needs 
of employees and there was always the tension as to which would 
do what. But you had two pillars to help undergird American 
prosperity.
    As we move into what people call the new global economy, 
the post-industrial economy, my question is this: If the 
business entities in negotiation with labor entities decide 
that they can no longer be competitive with these labor costs, 
quote-unquote, where do those go? They are going to go to the 
Federal Government. And so we have another instance where we 
can be pennywise and pound foolish, and we can say we are not 
sending a $25 billion bridge loan to allow the auto industry to 
survive, and we can let real human beings about into the 
process of bankruptcy and watch the stresses and strains on 
their families as they endure that pain, and you will not have 
saved the American taxpayers anything because the pension costs 
will be picked up somewhere from the retirees who were cheated 
out of a lifetime of hard work. You will see the health care 
costs that hard-working people have enjoyed because of the 
fruit of their labor put into the Federal system. And you will 
see prosperity throughout the Midwest and the rest of the 
country crash, and you won't have enough worker retraining 
money to take care of their needs.
    And finally, for some of my more conservative friends, I 
point this out: If America does not have a manufacturing base, 
a manufacturing base which some may think is not necessary in 
this new global world, the United States will cease to be able 
to defend itself. We will be reliant on other nations for the 
innovative technologies, not only their creation but their 
provision, from friendly nations such as communist China and 
others and the arsenal of democracy in our lifetime will have 
been dismantled in a time of war.
    In the end, this issue is larger than the Big Three. It is 
in many ways larger than the economy. It is, what type of 
nation do we become? Do we become a nation that no longer 
produces wealth, that no longer has a path to middle class 
prosperity? Do we remain the America we inherited? Or do we 
just let it go and watch real people suffer in the process?
    And my answer is, no. Now if you can find a question in 
there, my hat is off to you. Thank you.
    The Chairman. No. It will be long enough without that 
stuff.
    The gentleman from Missouri.
    Mr. Clay. Thank you, Mr. Chairman.
    My comments are not as passionate as my friend from 
Michigan, but I represent Missouri, which houses all three 
factories from your companies. And the First Congressional 
District, which I represent, also supports this bailout. We are 
also big supporters of organized labor, too.
    Welcome to all of you.
    I do support the direction that Chairman Frank is going in 
in addressing this crisis. We cannot let the industry collapse.
    Having said that, I do have some reservations about this 
endeavor and want to be assured that we are not just dropping 
money into a bottomless pit. Throughout the year, the numbers 
of automobile workers have been declining at an alarming rate. 
If the bailout is approved, what will be the short-term effect 
of addressing the rapidly declining job numbers? Are you going 
to stop farming out jobs overseas? And if so, when? What 
assurances or guarantees do we have that you are not going to 
go back to past practices once you are again on your feet? You 
know, these are U.S. taxpayer dollars. You would think we would 
target our efforts to keep those jobs here and to create 
additional jobs with those tax dollars. So what assurances do 
we have that the $25 billion is not just an installment on your 
request? And do you absolutely know that this request is the 
amount that is needed to do the job of helping you to retool 
and reorganize and get this industry back on its feet?
    I will start with you, Mr. Wagoner.
    Mr. Wagoner. Sure. Thank you.
    I want to be candid to your comment about, can we tell you 
with absolute certainty that this is the total amount, that 
this is the exact amount needed. Could it be more? Could it be 
less? The honest response is, I don't think anybody knows that 
today because we have to assume when the U.S. economy is going 
to stabilize, when automotive sales will stop going down and 
when they will stabilize and hopefully begin to go up. We have 
to assume that eventually the credit markets and capital 
markets begin to function, which they don't today. We are here 
very simply because our revenue has been devastated because 
people can't afford to buy cars or can't get credit and the 
traditional sources of credit that we have relied upon are 
simply not available.
    Mr. Clay. Excuse me for interrupting. But on the point of 
the credit market and in freeing up credit, will any of this 
money go towards that effort as far as people getting auto 
loans?
    Mr. Wagoner. Based on what we think are conservative 
estimates, we feel this amount of money would likely provide 
for the industry through a difficult 2009, and this is what we 
think we need, more or less, for the industry itself to be able 
to pay its bills, keep the capital spending going, our 
products, etc. A simultaneous effort that we are working just 
as hard at is to work with the Fed to enable our captive 
finance companies to have more access to credit and be able to 
make more money available to dealers and customers, too, to 
work on the retail demand side. So we are trying to work both 
sides of that.
    Mr. Clay. Okay.
    Mr. Nardelli, how do we stop the bleeding of jobs in the 
industry? How do we save some jobs or even put people back to 
work?
    Mr. Nardelli. Well, sir, the first way we need to do that 
is to get this economy turned around and to try and avoid a 
further dip in the recession we are in and the downward 
spiraling that we are seeing in the auto industry. So I think, 
as Mr. Wagoner said, certainly through our affiliated--our 
finance companies, we have to make readily available 
competitive money available to our consumers to get loans, more 
competitive rates for our dealers who can then wholesale and 
floor plan, which then would put orders back into our 
factories, which would then generate cash. And to your other 
point, our request here today is based on a set of assumptions 
of what the industry will be, what the unemployment rate will 
be, and it is our best business judgment of the request. If we 
continue to see the downward spiral, if the trough gets deeper 
and longer, sir, I think not only this industry but our entire 
economy will continue to suffer.
    The Chairman. The gentleman from Delaware is now recognized 
for a combined 7 minutes for an opening statement and 
questions.
    Mr. Castle. Thank you, Mr. Chairman.
    I will try just to summarize a bit of an opening statement. 
I, like many of the members here, have some frustration with 
all this. I spoke, not to you all, you weren't coming to 
Washington then, but perhaps 7 or 8 years ago to a number of 
your lobbyists. And I spoke about the hybrid products which 
were starting to be developed in Japan. Safety had pretty well 
been addressed, and I think you have done a good job with that. 
And we talked about other issues, including developing models 
that the people would want to buy in the United States. My 
impression was that they were hearing what I was saying, but 
they weren't being responsive to it. I thought that the hybrid 
development was slow in the United States. The understanding 
that fuel consumption was going to be a problem was not there. 
And that was a tremendous issue.
    We, in Delaware, were the first State, I believe, to help 
any of you, helping Chrysler and later General Motors in the 
two plants there. Chrysler is now closing in Delaware. That is 
about 1,100 jobs. GM has a plant in Delaware. It is not closing 
but reducing the employment there by 400. There is an auto 
parts maker which is closing, which is 136 more jobs. So we are 
very much on the line. There are also a lot of auto dealers who 
are on the line as well. So I am very concerned about what we 
are doing here.
    I will not at this point judge whether I would or would not 
support whatever a bailout may be or where it would come from. 
Those are issues we have to resolve here in Congress.
    But I am concerned even beyond that. The question was 
raised, what happens after the $25 billion? Is this a down 
payment? Or is this a final number? I don't know if anybody can 
really answer that question or not. But I have seen the amount 
of money that is being consumed each month by each of the 
companies.
    Obviously, Mr. Gettelfinger, the union has been involved in 
this, too. And you are all concerned about that. My concern is 
that we are going to give you money in some way or another, and 
it is going to last for a period of perhaps less than a year, 
and all of a sudden you are still going to be in trouble.
    I still don't know if we have the fundamental questions of, 
do we have desirable products? Some of your products are 
getting better reviews. They are, I think, being rated higher 
by the public. But do we have desirable products that the 
public is going to buy? Or are they going to continue to buy 
Toyotas? And are you addressing all the issues of the fuel 
consumption, and I know about the Volt and that kind of thing, 
but are those being really addressed in terms of where we are 
going? Do your future plans include real details with respect 
to how we are going to work our way through this from an 
economic point of view? And that involves every one of you at 
this table as well as the actual selling of product.
    I will tell you another issue that is not raised much, Jane 
my wife, drives a 1999 Jeep, which we talk about getting rid of 
from time to time, but the thing runs pretty well. It is our 
major car. It probably has about 150,000 miles on it, and it is 
still running well. Congratulations. But we are not buying a 
new car at this point. I am not sure we can afford it either, 
but that is all right. That is an issue, as you develop these 
cars that are running better and better, obviously we don't go 
back every 3 years and buy cars. All of us are holding onto 
them longer. That is not necessarily a negative from a consumer 
point of view. But it is obviously maybe a negative from a 
corporate financial planning point of view that needs to be 
addressed as well.
    So I think there are a lot of issues out there, and I am 
not sure there is an easy recovery. I am very concerned about 
just giving you money, as we have done with the banks. A great 
deal of equity is being obtained from those banks in terms of 
preferred stock. And I would hope, as we consider it here, 
there would be some sort of security for repayment in terms of 
a return to profitability at some point in the future. That 
should be a concern for each and every one of us. I am not 
going to make the argument that the union has been a problem or 
not. I don't think they necessarily have been. But on the other 
hand, there is still a differential. It may not be as great as 
some people will state, but there is still a differential in 
terms of some of the union versus nonunion plants that needs to 
be at least factored into the considerations of where we are 
going and what you are doing.
    I think you have probably done a lot more than the public 
realizes, and I give you credit for that, all of you. On the 
other hand, we are in a very difficult situation now, and we 
need to look for whatever those ultimate steps are to bail us 
out from that. So those are all concerns which I have in terms 
of where we are going.
    This planning does not end at a hearing today. It does not 
end at some point sort of a bailout plan which we are going to 
embrace. It ends when, obviously, you are able to produce cars 
at a price people are willing to pay and with a number of 
people working on them so that there is a profitability to it 
all, particularly when people are holding onto their cars for a 
longer period of time. And I hope together, we can work on this 
and make it all click.
    I happen to be a great supporter of the automobile 
industry. I think it is absolutely needed in America for a 
whole variety of reasons. But on the other hand, I think we 
have to be very cautious about taxpayers' money and making sure 
that we have a survival plan that is in place.
    I watched your hearing in the Senate yesterday. I have read 
your testimony from today. And I had been reading what you have 
been saying about this. But my concern is, are we really 
getting ready as far as the future steps are concerned?
    If you have any comments from anything I just stated, I 
would be happy to hear them; anything to make me or perhaps the 
public feel better about it, I would be happy to hear those 
comments.
    The Chairman. We have a minute. Go ahead.
    Mr. Mulally. I think you really hit on the key parts. And 
just two areas I would like to focus on in response is on the 
revenue side and on the product side. And then another comment 
about the competitiveness on the cost side. And, you know, 
clearly in the Ford Motor Company's case, over the last recent 
history we have focused on the larger vehicles, the SUVs and 
the trucks. And the wonderful F-150 has been the number one 
vehicle in the United States for 34 years. It is just a 
tremendous vehicle that has served a lot of customers.
    But, clearly, with the way the world is changing and 
especially with the consciousness of fuel efficiency and 
sustainability, the consumer, and also with the fuel prices 
rising in the United States, the consumers have really moved 
fuel efficiency up on the purchase agenda, as you have 
mentioned. And if we look at the decisions that the consumers 
are making and what is really important to them today, quality, 
sustainability, fuel efficiency, safety, of course, and the 
very best value.
    Over the last few years, we decided that it wasn't good to 
just have improvements in that area. We needed every new 
vehicle that we brought out needed to be best in class in those 
four areas. I am very proud to be able to say today that over 
these last couple of years we have moved into a leadership 
position equal to or better than Toyota or Honda, the best in 
the world on quality. We have also moved into a leadership 
position with every new vehicle that we are introducing on fuel 
efficiency, and of course, we have been the leader in safety. 
So from a product point of view, it has to be led with vehicles 
that people want and value. May I say one more thing?
    The Chairman. Quickly.
    Mr. Mulally. With the agreement that we made with the UAW 
and our other productivity improvements, we can make cars, 
trucks, and utilities in the United States, and we can do it 
profitably now. So those two things are the most important 
things.
    The Chairman. Thank you.
    The gentleman from Massachusetts.
    Mr. Lynch. Thank you, Mr. Chairman, and Ranking Member 
Bachus.
    I have a little bit of history with the auto industry. I 
actually worked at the Detroit diesel plant in Michigan back 
when I was an iron worker. I also worked at the General Motors 
plant in Framingham, Massachusetts, for a while as an worker. 
And I appreciate the job opportunities that has provided.
    Also, Mr. Gettelfinger, I think you need to tell that story 
more. You described a lot of the cuts, the concessions, the 
work that you have been doing on your end. I know that was a 
surprise to a lot of the people who are listening to this 
hearing. And I think you just have to tell that story more 
about the hardship that people have taken on in trying to save 
the industry.
    I worked at that Framingham plant in Framingham, 
Massachusetts, with General Motors, and I was there at a time 
just before GM made their decision to close down that plant, 
and actually they opened up a few plants in Mexico right after 
they closed down the U.S. plants. And I saw that devastation, 
you know, just the hardship on a lot of families and on that 
community, not only from the loss of the direct jobs but also 
related businesses and the tax base for the communities there. 
Framingham and Natick were really impacted quite heavily. And 
you could see it in just funding for the schools and funding 
for public safety. But now, so you know where my sympathies lie 
having seen all of that, I would not care to see that happen 
again anywhere in the United States.
    But I also read that GM now has approximately 13,000 
employees at four different plants in Mexico, and this makes GM 
the single largest private employer in Mexico. In addition, GM 
has 20,000 employees at 7 operations in China.
    And on May 31st of this year, Ford announced that they 
would be creating a new Ford factory in Mexico City. The 
operations are likely to create an estimated 4,500 jobs in 
Mexico, where car workers earn substantially less than our 
American counterparts, and where Ford has approximately 4,000 
assembly plant employees also in Mexico. And, at the same time, 
you plan on making 30,000 job cuts and 14 plant closings in 
North America by 2012.
    Look, I want to see what is best for the American worker 
here, and I want to see what is best for the American taxpayer. 
This question has been raised a couple of times here. Number 
one, given the global presence that you big companies have, 
have you gone to the Mexican Government to ask them for a 
bailout? Have you gone to the Chinese Government and asked them 
for a bailout? I want that question answered.
    But it is a two-part question. And number two, what 
commitments are you making that if you get this $25 billion, 
you just won't turn around and lay off thousands more U.S. 
workers? And we will have no chance through the tax base and 
taxation from those jobs to recover any of this money that we 
are loaning out to you.
    A two-part question: Have you gone to Mexico? Have you gone 
to Mexico City and asked them for a bailout? Have you gone to 
Beijing and asked for a bailout? And what are you going to do 
to make sure that, if you get this bailout, the American worker 
is going to benefit from these jobs and we are not going to 
just see this continual drain of American jobs overseas?
    Mr. Wagoner, please.
    Mr. Wagoner. Thank you for the question.
    As far as asking the Chinese Government, we haven't. To be 
honest, our business in China is still quite profitable. And, 
in fact, that business, I think every year for the last 9 or 
10, has sent significant dividends back to the United States. 
So, to be honest, we appreciate the support that we can provide 
from our Chinese business to our operations here. It is a joint 
venture. But, at least as of this moment, it is still quite 
profitable, and so there hasn't been an approach on our part to 
the Chinese Government for direct funding support.
    In Mexico, the business in Mexico had held up pretty well, 
I would say, until the last month or two. So, again, there, our 
financial position was okay, credit availability was okay, so 
we have not yet requested Mexican government support.
    We have had--
    Mr. Lynch. Let me ask you--
    Mr. Wagoner. Yes.
    Mr. Lynch. So--and I know, I have been to China, I have 
seen the Buick Regals selling big over there. Are all those 
cars being sold into China that are being made in China? And 
are all the cars in Mexico being sold into Mexico?
    Mr. Wagoner. In China, basically, almost everything that we 
sell in China is made there. We export almost nothing from 
China, nothing to the United States. And we actually export 
some vehicles from the United States to China. Buick Enclave 
would be an example, that we actually export from the United 
States to China.
    Mr. Lynch. How about Mexico?
    Mr. Wagoner. Mexico is integrated completely in our U.S.-
Canadian production system. So we build many cars in the United 
States that we sell in Mexico and many in Mexico that we sell 
in the United States, most all with significant U.S. content.
    The Chairman. You will have to get the rest in writing, 
because we are over the time.
    Mr. Lynch. Okay. Thank you, Mr. Chairman.
    The Chairman. The gentleman from Michigan, by unanimous 
consent, wasn't able to be here for an opening statement, and 
he will be recognized for 2 minutes.
    Mr. Ehlers. Thank you, Mr. Chairman. I appreciate that.
    And, to save time, I will associate my remarks with the 
remarks of Mr. McCotter, who eloquently stated his position, 
which I agree with. But I also want to add a few other things.
    Many of you who know me well, and also the gentlemen at the 
witness table who know me well, will be surprised that I am in 
support of this initiative, because I have been chastising them 
for over a decade about not producing fuel-efficient 
automobiles, not developing hybrids, to the point where I think 
they were refusing to talk to me for a while.
    But the point is, that is not the issue. The issue is that 
a major American corporation is in deep trouble, and it has 
tremendous ramifications for the country and especially for my 
State of Michigan, which is already facing bankruptcy as a 
State. If any of these companies go belly up, bankrupt, 
whatever term you use, the State of Michigan will be in 
incredibly dire straits. The unemployment rate, which has been 
the highest in the country for several years now, will actually 
be much, much higher than anywhere else in the country.
    If you have a neighbor whose house is on fire, no matter 
how many disagreements you have had with that neighbor, you 
will call the fire department, you will get the family out and 
try to help them put out the fire. We have an industry here 
that is suffering that type of calamity, and we have to throw 
them the life raft. We have to offer them help, not just for 
their salvation or the saving of their company, but rather 
because of the thousands and thousands of workers who will be 
devastated. The State of Michigan and several other States will 
be devastated.
    This is an emergency situation. We should treat it as an 
emergency and recognize that, although I disagree with many of 
their business decisions, that is not the total cause of what 
is happening. The entire credit crunch, which was beyond their 
control, has really brought this to a head. And they simply 
cannot get the capital they need to recover or even to operate 
unless we provide the funds to get them over the hump. I urge 
that you approve this loan.
    The Chairman. I would ask similarly for 2 minutes for the 
other gentleman from Michigan, from Flint, Mr. Kildee.
    Mr. Kildee. Thank you, Mr. Chairman.
    I was a cosponsor, back in 1979, of the Chrysler loan 
guarantee, and the U.S. Government made money on that. I 
learned from that, really, the saying that what America drives 
drives America. You know, we know it is a great buyer of steel, 
rubber, and computer chips. My car downstairs has more computer 
chips than the first vessel that landed on the moon.
    But I can recall Jim Broyhill from North Carolina came up 
to me around that time, and he said, ``When are you guys 
getting back to work in Michigan?'' And I gave what I thought 
was the right answer, and I said, ``Why do you ask, Jim?'' He 
said, ``Well, my carpet industry in North Carolina is really 
suffering. When you guys in Michigan aren't producing cars, my 
guys are laid off at the carpet fiber industry.'' It is such a 
broad consumer of the other parts of our economy. So, really, 
the saying that what America drives drives America is very 
true.
    I didn't speak before because Fred Upton is the co-chair of 
the auto caucus--I am the Democratic chair--and I felt he could 
do an excellent job, which he did. But I wanted to speak now 
that this is not just the auto industry, not just Michigan. I 
couldn't find one district in this country that wasn't affected 
by the auto industry. And that was my job; Jimmy Blanchard 
asked me to try to find districts. I found, out west, ranchers 
selling their hides to Ottawa Indian, another company in my 
district, who, in turn, sold to Chrysler--or the company that 
made the seats for Chrysler. Every district somehow is touched 
by the auto industry.
    Thank you, Mr. Chairman.
    Mr. Kanjorski. [presiding] Mr. Neugebauer.
    Mr. Neugebauer. Thank you, Mr. Chairman.
    I thank the panelists for being here today, and I apologize 
if any of my comments or questions are redundant, but we have 
been in a little leadership election here.
    You know, I think we could line up panelists from now until 
Christmas, businesses, business leaders, business CEOs, who 
would come in here and testify to this committee that their 
business is key and crucial to the economy of the United States 
of America. So I am really not going to debate that issue, 
whether this auto industry is important to America.
    What I am going to say is that our Founding Fathers, 230-
some-odd years ago, started to move away from a plan where the 
king picked who the winner was. They said they wanted to found 
a nation where people could be rewarded for their own merits, 
for their own ideas, their own entrepreneurship. They wanted to 
get away from where the government or the king was picking the 
winners and losers.
    And one of the problems that this Congress faces is that we 
have injected ourselves, gone down a road of where we now have 
the government, the United States Government, picking winners 
and losers in various industries. And, quite honestly, it is 
not the role of government to pick winners and losers. Markets 
pick winners and losers.
    I have heard testimony previously that you have given, and 
you know more than anybody about competing in a very 
competitive environment. And what we do know is that markets 
are very efficient. When you have a good idea, and you have a 
good product, and you have a good business plan, you have been 
rewarded for that. Where you have not had a good product or a 
good business plan, you have not been rewarded for that.
    And, as I talk to the people in the 19th Congressional 
District of Texas who are sitting back home and they are 
saying, ``You know what, we are passing out money we don't 
have''--if we give a $50 billion bailout to your industry, we 
are going to have to go borrow that money. We are going to have 
to go put the American taxpayers on the hook for those funds. 
It is difficult for me, as a United States Congressman, to be 
able to say, ``You know what, we are going to put the 
taxpayers' money in there because the marketplace that you 
attract capital is unwilling to put additional capital in your 
companies.''
    Why is it that this body, this Congress, knows better how 
to invest American taxpayers' money better than themselves? 
Because, in fact, themselves have been reluctant to invest any 
more money in the current business plan and business model that 
your companies currently have.
    And so, one of the questions I have for you is, what do we 
say to the people across America, the small-business people, 
who, quite honestly, while your industry creates a lot of 
jobs--and we are all, indeed, thankful and grateful for that, 
but, as most of us know, 95 percent of the jobs in America are 
created by small businesses, all across America; I was a small-
business man in Texas. And you know what, small businesses 
every day in America fail because they just didn't make it, 
they didn't have the right business plan, they didn't have 
enough capital, they didn't have the right model, they didn't 
have the right product. And how do we say we are going to 
distinguish and treat you differently than those small 
businesses all across America that would like to have an 
opportunity to be bailed out themselves?
    That is really the fundamental problem with the road we 
have started down in this country, that not only are we picking 
winners and losers, but we don't know where to cut the line 
off. If people who stood in line to participate in this 
hearing, they had to get in line and they only let a certain 
number of people in the room at the same time, and so the 
question is, is how many more people do we let in the room, and 
where does this stop? Where do we start really having to let 
the marketplace do what it does best, and that is to sort 
through your business plans, your products, your business 
models, and determine who to reward and who not to reward?
    So I would ask that, in the remaining few minutes I have 
here, for you to respond to those people back home that say, 
you know, where does this stop, and why should we give you 
money, quite honestly, that we don't have?
    Mr. Wagoner. Yes, I think the way I would respond is, the 
auto business has taken painful and dramatic moves to reduce 
its cost structure, which was high, based on a history of a 
program where the U.S. Government encouraged manufacturers to 
provide health care and retirement benefits. And it has been a 
hard adjustment for us to move away from that, but, after many 
years of working on that with the union, we are at the point 
where we can be fully cost-competitive.
    We have products that are winning car and truck of the year 
regularly. We have demonstrated technology leadership in a lot 
of areas. And the industry as a whole has a massive footprint 
across the United States. As the Congressman said, we are the 
biggest purchasers of aluminum, of steel, of computer chips, of 
textiles--I mean, you name it. So it is just a huge industry.
    Unfortunately, in the midst of massive plans and 
significant progress, we have run out of capital. And I think 
it is directly because--it can be traced right to the financial 
crisis on Wall Street. So these are extraordinary times.
    I can assure you, Congressman, we don't like being here 
asking for this. And even through June of this year, we were 
cutting, cutting, cutting ourselves to not have to be here. But 
the fact is, the collapse of the financial markets has taken 
away, not just credit availability, but the ability to go to 
the equity markets, and dramatically diminished financing 
opportunities. And so, at this point, without injections of 
liquidity, I think it is reasonably probable that some portion 
of, if not all of, the domestic industry will not survive.
    So it is not something we like asking for. I think that is 
the way I would explain it to your constituents, that bridge 
financing is going to prevent the United States from entering 
into an economic depression, in my view.
    Mr. Nardelli. Sir, I wonder if I could just offer one 
thought. What makes this different from the examples that you 
gave us is this isn't about losing a company; this is about 
losing an industry, an industry that has an overarching effect 
on literally thousands of small businesses, to your point--we 
call them dealers--literally thousands of suppliers; for 
example, the tanning company that provides the leather for our 
cars.
    So I think this isn't about just a single company and 
making the decision to let it go down. This is about an entire 
industry whose tentacles reach broadly from east to west, north 
to south, and will have unbelievable impact on the entire 
economy and the small-business men and women in this country.
    Mr. Mulally. I think the only thing I would like to add is 
that it is just so important that we are a part of the solution 
to the economic recovery. We just cannot contribute to 
degrading the economy further.
    Mr. Kanjorski. Thank you.
    Mr. Miller?
    Mr. Miller of North Carolina. Thank you, Mr. Chairman.
    Much of the debate today and in the country in the last few 
weeks has been about whose fault is this. Many critics of your 
industry have said that you have been lumbering when you needed 
to be agile, that you have fought CAFE standards when you 
should have been making more fuel-efficient cars. You all have 
defended yourselves today, members of this committee have 
defended you, said that you have been agile, you have been 
developing more fuel-efficient cars, but have criticized other 
industries and other companies.
    Imagine an industry or a company about whom those 
criticisms might be valid. How do we hold them accountable?
    Americans were very unhappy with their government. And in 
the last two elections, they have changed their government. My 
party will be held accountable, too, if we do not meet the 
expectations of the American people.
    I know we praise small business, but we have to have 
massive economic undertakings to perform complex manufacturing. 
We have to have companies of your size. And ownership of those 
companies necessarily is going to have to be very diffuse, you 
know, individual investors, mutual funds, retirement funds. But 
it seems that the bigger the company is and the more diffuse 
the ownership, the more impervious the leadership of that 
company is to any challenge.
    There have been a lot of shareholder rights groups that 
have suggested there need to be changes in the way that stocks, 
shares of street name are handled. The principal opponent of 
those changes, those reforms, have been the Business 
Roundtable, which I assume the three of you belong to.
    Do you think we have a problem with a lack of 
accountability by corporate leadership, by the lack of the 
ability of the Americans who actually own the companies?
    And you all are employees. You may own a piece of your 
company, too, but the reason you are sitting there is you are 
employees, just as Mr. Gettelfinger's members are employees.
    How do we hold these companies accountable? Do you agree 
that there is a problem?
    Mr. Wagoner. We have, over the years, received a number of 
shareholder proposals through our annual meeting process. And 
while it is true that, I think, most of the time the 
recommendations of the board are accepted by shareholders, it 
is not always true. In the last 4 or 5 years, there have been 
at least 3 or 4 instances where the shareholders have voted for 
changes in bylaws or whatever. And so, when we get those kinds 
of directions from the shareholders, we have tried to be 
responsive.
    So my sense is that, at least as I have observed it 
operating firsthand, we get a lot of input from our major 
shareholders and, really, from all of them. They do submit--
they are quite active in submitting shareholder proposals as 
part of our regular meeting process. And, you know, on 
occasion, a shareholder proposal will be adopted by a majority 
of shareholders, and we try to respond to it.
    So, at least in our case, I feel like we get a good voice 
from the shareholders, and we try to respond to it.
    Mr. Miller of North Carolina. Mr. Nardelli?
    Mr. Nardelli. Obviously, we are in a slightly different 
position, as being the first privately held auto company in 50 
years. But I can tell you that our owners have been very 
supportive, very encouraging of change and to move quickly, to 
move decisively to try and save some of the iconic brands in 
the auto industry--Chrysler, Dodge, and Jeep.
    So we are totally open. We want to be totally transparent 
in this process. And we believe that coming forward and asking 
for this support would allow Chrysler and its brands to be able 
to continue to be a viable entity and hopefully contribute to 
the recovery of the auto industry.
    Mr. Mulally. Clearly, as a publicly traded company, our 
number-one priority is to create value over the long term. And 
you only do that if you have products people want and value and 
you have a cost structure and a productivity that is 
competitive.
    And I think all of the actions that we have had a chance to 
lay out today and the actions we have taken over the last few 
years to dramatically transform this company are a direct 
result of the principles of creating value for the long term 
for all of us.
    Mr. Miller of North Carolina. Mr. Gettelfinger, you are 
making common cause with management today, but many in the 
labor movement have been among those who criticized the 
accountability of corporate management. What are your thoughts 
on this?
    Mr. Gettelfinger. Well, I think what we do, if we look back 
at the conclusion of negotiations last year and, as Mr. Wagoner 
pointed out earlier, and look at the value of their stock then, 
which was over $42, it begs the question, why is the stock 
where it is at today? And you look at the subprime mortgages, 
you look at the stock market, you look at what has happened 
across the board to our economy, this major downturn.
    I am not one right here who is focused on reflecting where 
the problem originated in the past. I think that we have to 
focus on where we are at now, look at the improvements that 
have been made, look at the innovation that is under way, and 
look at the direction that we are trying to go in.
    And I am not bashful to criticize this management. Every 
one of them will tell you privately that our union tells them 
exactly what we think. And, to me, I sat here with glee at some 
of the comments that were made to them, because I am sure it 
echoes what they have already heard from us.
    So I am not here focused on that. I am focused on the 
bigger picture, which is what happens if this industry goes 
down and the spiral effect.
    And I just noticed here, on these companies, the number of 
parts that they buy compared to the foreign brands that are 
manufactured here, and what it would mean if it would just cut 
back. If they just cut back to the content of the manufacturers 
that are here today, it would create a loss of thousands of 
jobs.
    So this is an important industry to our country, and that 
is why we are here standing with them on behalf of our 
membership to appeal to Congress to give this the most serious 
consideration possible.
    Mr. Kanjorski. The gentlelady from Illinois.
    Mrs. Biggert. Thank you, Mr. Chairman.
    Like Mr. Ehlers that just asked a question, for years many 
of us in Congress have been pushing for technologies in our 
national labs, like Argonne in my district, that can help you, 
I think, provide what the consumers want, which is energy-
efficient cars. And I think many of us grew so weary of the 
lack of progress that we voted for CAFE standards, which is 
something I thought I would never do.
    But Americans don't want to buy the expensive cars, pay for 
the high fuel costs, and be dependent on foreign oil. In fact, 
I had a Jeep for 11 years, which served me well. But when I 
wanted to buy a new one, I couldn't get a hybrid. No Jeeps were 
made for that.
    So why should we be bailing you out now when you have 
really been dragging your feet, I think, on the kind of cars 
that are in the 21st Century and aren't being made? So are you 
not selling cars because no one wants cars that get 12 miles to 
the gallon or because of lack of financing?
    I will start with you, Mr. Nardelli, since I talked about 
the Jeep.
    Mr. Nardelli. We have 6 or 7 cars that are getting over 28 
miles per gallon. Our Caliber is getting 30 miles per gallon. 
We are working feverishly, will spend probably in excess of a 
billion dollars this year on technology to improve our fuel 
efficiency on the combustion engine.
    We spent over $350 million in our efforts to develop a 
hybrid. We will spend almost an equal amount, as we announced 
in September, on three electric vehicles, one for each brand--
Dodge, Chrysler, and Jeep. And one of those vehicles will be in 
the marketplace in 2010.
    Mrs. Biggert. But that is still 2 years.
    Mr. Wagoner?
    Mr. Wagoner. Yes, we have 20 models that get more than 30 
miles per gallon highway, more than twice any other 
manufacturer today. We have six hybrid models; we will offer 
three more next year. We are the global leader in biofuel 
vehicles. And, obviously, we have a significant commitment to 
the electric vehicle, with cars like the Chevy Volt, and fuel 
cells.
    So I think we have a good story to tell, and we are going 
to keep trying to tell it. Many of our new cars, like the Chevy 
Malibu in the mid-size class, have better fuel economy than the 
Japanese competitors. So I think we are very much in that game 
now.
    Mrs. Biggert. Mr. Mulally?
    Mr. Mulally. Yes, nothing else to add on the 
competitiveness. We have a terrific lineup.
    And to your question, the entire industry is down. And all 
the manufacturers, whether they are the three Detroit companies 
or the Japanese, their sales are all off, along with the credit 
and the economy. So I think we are all--the whole industry is 
down.
    Mrs. Biggert. Then would a bailout loan to your companies 
go to your finance or to the operations arm, just which one? We 
will go down the line.
    Mr. Wagoner. What we are talking about now is support for 
the operating side of the business.
    Mr. Mulally. Same.
    Mr. Nardelli. Same.
    Mrs. Biggert. Same, okay. What percentage of a loan would 
go toward financing consumer auto loans to start moving the 
inventory?
    Mr. Nardelli. Right now, none of the money that we are 
asking for today would go toward loans. We are working a very 
aggressive and parallel path with our affiliate finance 
companies to either get bank holding status, to get ILC 
approval, to be able to gain access to the window so that they 
can reach the secondary market, increase liquidity, and gain 
capacity.
    Mrs. Biggert. Anybody else?
    Mr. Wagoner. Same.
    Mr. Mulally. Same.
    Mrs. Biggert. Well, I have heard that some of the loans 
that are being made are 9 percent loans, and somebody has to 
have a 750 FICO score to qualify for those loans.
    Mr. Wagoner. I think it is fair to say that the 
requirements for consumers are much tougher today to be 
eligible for loans. It is absolutely true.
    Mrs. Biggert. How are you going to sell cars if--
    Mr. Wagoner. Well, that is one of the things that is 
contributing to the lower industry sales. As Mr. Nardelli said, 
our finance companies cannot access significant credit. And 
then their ability to take these loans, package them together, 
and sell them into the asset-backed security market has 
radically shrunk and is very dependent on only buying high 
credit paper.
    So lower sales is part of a system-wide problem. And we are 
doing everything we can to try to help people be able to afford 
to buy cars.
    Mrs. Biggert. Well, how would you do that, then? I mean, if 
you are going to take a bailout for the operations, and yet you 
are not going to have people who are going to be able to afford 
to buy the car even if you improved it.
    Mr. Wagoner. What we are trying to do is work with other 
potential sources of credit. We talked earlier about working, 
for example, with credit unions, which traditionally have 
wanted to be bigger players in automotive financing. We have 
gotten some positive input from that.
    But if we are successful, for example, in our case, of 
achieving a bank holding company status at GMAC, then GMAC will 
be able to take more deposits, reduce their cost of funds, and 
be significantly more aggressive in consumer financing.
    Mrs. Biggert. Just one other quick question. How many of 
your dealers are not getting paid? Are they all being paid, or 
are you withholding any of the money from them?
    Mr. Nardelli. No.
    Mrs. Biggert. They are all being paid on time?
    Mr. Wagoner. Yes.
    Mrs. Biggert. Okay. Thank you.
    I yield back.
    Mr. Kanjorski. Mr. Scott?
    Mr. Scott. Thank you very much, Mr. Chairman.
    I think that we really, at this point, need to put this in 
perspective. This picture is much bigger than all of us, 
General Motors, Chrysler, and Ford. The issue before us is not 
whether or not we can afford to help you. The issue before us 
is whether we can afford not to help you.
    This is a big, big issue facing the survival of America. It 
is an American issue. We are at a time similar to the Titanic. 
If you recall, it wasn't because the Titanic ran into the 
iceberg. The problem with the Titanic was it didn't turn in 
time. And on the bleached bones of many past great 
civilizations and nations are written those pathetic words, 
``too late.''
    Where are we now? Here we are at a time where I hope we 
don't move too late. What are our options? They are very few. 
And I think we should focus on them.
    One is we have a bundle of money available that the 
Congress has approved, not $700 billion, but $350 billion. Now, 
the Treasury Secretary has seen fit to already spend and 
allocate $290 billion of that, and in a way that was not the 
way that many of us had first designed to get the troubled 
assets. That leaves us with $60 billion. The two most critical 
needs, as I see it, are to stop the drain on the housing 
foreclosures and to help the auto industry. And we have just 
enough money to do that.
    Now, ladies and gentlemen, the big picture is that we are 
moving into the most critical time in this economy, when 
clearly 48 percent of the retail sales will be made during this 
next 6 weeks. You think we have problems now, if we come out of 
this period in January without consumers spending money or 
having confidence enough to do so, we really are going to be up 
the creek without a paddle.
    I think the two best signals we can send--and I would hope 
this Congress would realize that the American people are 
watching us to see whether or not we will do like the Titanic 
and move to turn the ship too late to help the consumer.
    Now, we have thrown $290 billion at the banks--they have 
theirs; some of them didn't even want it--to try to get them to 
lend it. And they are not even lending it to your dealers, many 
of whom are on the verge of going out of business. That is who 
the consumer deals with, the dealer.
    So I want to take just a moment here to ask each of you if 
you would agree that, if we give you this money--and, by 
George, I hope we do, because I think--not only do I think, I 
know, you need it.
    I represent a district in Georgia in which the Hapeville 
motor plant was closed, Ford--you know where that is--in my 
district. The Lakewood General Motors plant closed; that is in 
the middle of my district. And then on the north end, the 
Doraville General Motors plant closed. That is three. But 
something funny has happened: We have had several Kia plants 
open.
    And now we are sitting on a deal in Foreign Affairs that we 
are fighting tooth and nail that says we want to increase our 
trade. And nowhere is our picture more clearly defined than in 
this fact: Last year, 700,000 Korean automobiles were imported 
into our country. You know how many American-made cars were 
exported from us into Korea? Less than 5,000. We have a 
terrible problem here.
    And so I want to ask you, because we talked about the 
dealers, if you would agree to setting up, if we give you the 
$25 billion, to get assurance from the Treasury Department that 
we could have a billion dollars in a receiving or revolving 
loan fund that could range from 7 to 10 years at below-market 
rates--in other words, have a mechanism that will allow dealers 
to obtain access to critically needed capital directly through 
the Treasury Department. Your dealers need that. The banks are 
not lending the money. If we don't put some mechanism in here 
to help you to make sure that some of this money--$1 billion is 
not that much of it--to set aside to help the dealers.
    And then secondly, if you would declare or help us to make 
sure--you take the lead. You are asking for the money. None of 
your dealers are suffering as are the minority dealers--the 
African American, the Hispanic, these guys who are just coming 
on. We need to make sure, if we give you this money, that you 
would ask that either the President or the SBA Director would 
declare ethnic minority disaster loans under the current SBA 
authority.
    If we do those things, we will be helping most directly not 
only the overall industry--but I would like to ask if each of 
you would just simply--now, I know my time is out, but if you 
could nod your head or say, yes, we would support getting this 
capitalization and available capital for our dealers.
    Is that yes?
    Mr. Wagoner. Yes, sir.
    Mr. Scott. Good.
    Is that yes?
    Mr Nardelli. Yes.
    Mr. Scott. Good.
    Is that yes?
    Mr. Mulally. Yes.
    Mr. Scott. Excellent.
    Thank you very much.
    Mr. Kanjorski. Thank you, Mr. Scott.
    Mr. Hensarling, you are allotted 7 minutes.
    Mr. Hensarling. Thank you, Mr. Chairman.
    My apologies to you gentlemen. I missed most of your 
testimony and earlier questioning. I think you know by now that 
this hearing was scheduled against some leadership elections. 
So my comments may be redundant, my questions may be redundant. 
Forgive me, but it is you who are asking for the money.
    You need not convince me of the tragic economic 
circumstances to our Nation should your three firms go belly 
up. I don't need to be convinced of that. But I do need to be 
convinced that, if you get an additional $25 billion, somehow 
that is actually going to make the difference.
    What I haven't seen come across my desk, come across my 
transom, or what I have not heard is a plan that convinces me 
that, with the $25 billion, that you will achieve 
sustainability. How do I know that you will not become the next 
AIG--$25 billion now, $25 billion next month, $25 billion the 
month after that?
    And I am sorry we are in this tragic circumstance. There 
are people in my district who will be affected by this. But you 
know what? It is not the fault of the taxpayer; it is not their 
fault. It is not the consumers' fault. If there is any fault 
that lies here, it is with you gentlemen before me and your 
predecessors.
    Now, Mr. Nardelli, I drove a 1998 Jeep Cherokee here to 
work. I have had it for 10 years. It is a great vehicle. There 
is a small problem with the back hatch staying open; we can 
talk about that afterwards. I like the car. But clearly, a lot 
of Americans don't.
    There is no doubt that your labor costs are substantially 
higher than your competitors', and there is no doubt that on 
most consumer satisfaction surveys, the Big Three are scoring 
toward the bottom. Again, it is not the consumers' fault.
    And so I wonder, when I look at the $25 billion, I ask 
myself several questions. Number one, this is the second $25 
billion. I want to help you. I may not want to help you the way 
you want to be helped, but I want to help you. It wasn't 60 
days ago that you already received $25 billion.
    Now, you have environmental goalposts that you have to 
negotiate. I would be more than happy to stay here with my 
colleagues and try to work on legislation that would give you 
access to that money for your immediate needs. But I haven't 
heard that from you. And, again, forgive me, maybe I missed 
that in your earlier testimony.
    I would be willing to help you with your health-care costs. 
I would be willing to help you with your tort costs going 
forward. I know that we have the highest tort costs in our 
manufacturing of any of our competitors. We have the most 
expensive tort system in the world. I would be happy to 
introduce legislation today--frankly, I have already introduced 
it--to zero out the capital gains tax for 2 years to invite 
capital off the sidelines to invest in your firms.
    But what you are doing is you are asking for $25 billion 
out of a pot of money that I did not support in the first 
place, and so I ask myself several other questions.
    $25 billion and $25 billion is a lot of money. And, right 
now, all across America, certainly in the 5th District of 
Texas, the major employer is small business. The average 
capitalization of a small business in America is $25,000. With 
the amount of money that you have either received or are 
receiving, I mean, we could start 2 million small businesses in 
America today, or maybe we could save 2 million small 
businesses that are on the verge of going bankrupt. Now, we 
haven't heard of their names. They don't have representatives 
or lobbyists who are walking our hallways. But they are out 
there. This money has opportunity costs. And if we give you $25 
billion, that is $25 billion that can't go to small businesses.
    I hear the argument, ``too big to fail.'' Well, I come from 
Dallas, Texas. American Airlines is headquartered in Dallas-
Fort Worth. They have gone through some tough economic times. 
They may go through future tough economic times. Are they too 
big to fail? If we give you the money, are they next in line? 
And who is after that? At what point does Starbucks get in 
line? Who doesn't get in line for the $700 billion? These are 
questions that have to be answered.
    I have other concerns. Again, I understand the credit 
crunch, but what industry hasn't been impacted by the credit 
crunch? And, at some point, when, as a Nation, do we decide we 
are going to quit borrowing money from the Chinese and send the 
bill to my 5-year-old son and my 6-year-old daughter and all 
the children and grandchildren across America?
    These are questions that I have. So you can clearly tell 
which way I am leaning, but I hope I still have an open mind. 
It is not an empty mind, but it is an open mind. I still stand 
ready to be persuaded.
    So the first question I would ask is, number one, where is 
the written plan? And if you have the written plan, are you 
willing to make a commitment to the United States Congress and 
the American taxpayer that, if you get this money, you will not 
be back?
    And I will start with whomever cares to answer the 
question.
    Mr. Wagoner. I, prior to your being here, commented on that 
matter. We, like all businesses, build our plans on key 
assumptions, the best ones we can come up with, starting with 
what is going to be the state of the economy, what is going to 
be the state of the credit market, what is going to be demand 
in the auto sector, for example.
    So what we try to do is put together what we think is a 
conservative plan for the next year and figure out how much 
funding, based on the best guess we have today, would be 
required, in view of the absence of the availability of 
traditional funding sources we relied upon to get us through 
that time period. So, you know, it is through that process that 
we individually and then as a group have come up with this 
amount of $25 billion.
    Congressman, I would like to guarantee you that that is, 
under every circumstance we imagine, enough money. I can't make 
that statement. I don't know. I know, based on a reasonable 
scenario, that I think it is enough.
    Mr. Hensarling. Well, Mr. Wagoner, maybe I missed it, but 
what plan have you or are you willing to put on the desk of 
Members of the United States Congress to convince us that at 
least there is a fighting chance that you will achieve 
sustainability? Where is that?
    Mr. Wagoner. We have developed a detailed plan. I think the 
nature of it--traditionally, those kind of things are highly 
competitively sensitive and SEC disclosure matters and things 
of that sort. But we would be glad, with the right kind of 
format, just to make sure we are aligned with SEC requirements 
and others, be glad to review that kind of data with the 
appropriate people. And we have detailed plans, sir.
    The Chairman. The gentleman from Texas, Mr. Green.
    Mr. Green. Thank you, Mr. Chairman.
    Mr. Chairman, in a metaphorical sense, I rise to speak on 
behalf of union workers. I speak on behalf of union workers 
because I understand the importance of unions and what unions 
have done for the quality of life and the standard of living in 
this country. I understand that, but for unions, we might not 
have a 40-hour work week. But for unions, we might not have 
child labor laws. But for unions, we might not have the health-
care system that we have. But for unions, we might not have the 
pension programs that we have. But for unions, we might have 
wages that we relate to in terms that are unpleasant--slave 
wages.
    Unions have made a difference in the quality of life for 
all of us. And I rise on behalf of unions because this debate 
has turned on whether or not unions have created a problem. 
Unions have worked to make life better. And in so doing, not 
only for their members, they have done it for the rest of us 
who may not be affiliated or associated with a union.
    I am of the opinion that unions of all kinds do us a 
service. This is why I support the Chamber of Commerce; it is a 
union. I support business people having the right to organize 
and do what is in the best interest of business. And, by the 
way, they don't have to get the consent of workers to do it. 
They don't have to have a vote of the workers to unionize. And 
I support that. I also support workers having the right to 
unionize without the consent of management. Freedom of 
assembly, freedom of association is a very basic, fundamental 
right.
    So I rise to speak on behalf of unions and working people. 
And I can find no fault in working people wanting to enjoy the 
quality of life that they create. Many people in this country 
work full-time and live below the poverty line. Many people in 
this country have multiple jobs and work many, many different 
places in the course of a week so that they can make ends meet.
    I think unions are a blessing, and we ought to be 
appreciative that we have the standard of living that unions 
have helped to create.
    I will close with this. I am deeply saddened that we are 
now claiming--some of us, not all--that blue-collar workers are 
making too much. We have CEOs who make more in 1 week than some 
union workers make all year. There is a gap, a disparity 
between the wages of the top earners and those at the bottom 
that is continually widening. And that has to be closed. I 
don't think we will close it without the help of unions.
    I ask that we, as we consider these issues, that we not put 
the blame on the working people who have helped to produce the 
quality of life that they would like to enjoy.
    And I yield back the balance of my time.
    The Chairman. I just want to announce that I think 2:30 is 
a reasonable time to release this panel, so I am going to cut 
this off at 2:30; that will cover everybody who is in the room 
now.
    And I would say to my colleagues who aren't here, we will 
not miss you greatly if you don't join us at this late date. 
And we won't be able to accommodate you if you do, in fairness 
to the staff and the witnesses and the next panel.
    Ms. Bachmann, for 7 minutes. That is an opening statement, 
as well.
    Mrs. Bachmann. Mr. Chairman, thank you.
    And thank you for--
    The Chairman. I am sorry, Mr. McHenry is first, for 5 
minutes.
    Mr. McHenry. Thank you, Mr. Chairman.
    Most large corporations that would be facing similar 
situations that the three of your companies are facing, they 
would be at work on a reorganization plan before they would 
file for bankruptcy. And this is what the discussion has been 
on the news, and it has been intimated here that if you don't 
get this money then you would file for bankruptcy.
    So what is the state of your preparations for bankruptcy?
    Mr. Nardelli. I can speak for Chrysler. You know, 
obviously, as we are looking at this economic trough, we have 
looked at all aspects of whether it is a prepackaged, whether 
it is prenegotiated, whether it is bankruptcy. And every aspect 
of that, sir, I can tell you is certainly more negative and 
more costly than--
    Mr. McHenry. That is not my question. So you do have plans. 
Yes?
    Mr. Nardelli. I would say that we have gone through and 
have outside advisors to help us think through the various 
aspects should our liquidity become an issue.
    Mr. McHenry. All right.
    Mr. Wagoner?
    Mr. Wagoner. Because of our studies of the ramifications of 
bankruptcies on consumers, we have concluded that we should put 
virtually all of our effort on any actions we can take to avoid 
bankruptcy. Because the consequences would be devastating, we 
think, for the Nation and the economy.
    Mr. McHenry. So you have no plans for how you would go 
through that process, either Chapter 7 or Chapter 11? You have 
no plans?
    Mr. Wagoner. It is my view, based on the research that I 
have done and our experts have done, that Chapter 11 would be 
an unlikely outcome of a filing by one or more of the auto 
companies.
    Mr. McHenry. So, therefore, you have studied it?
    Mr. Wagoner. Our experts have knowledge in this area, yes, 
sir.
    Mr. McHenry. Okay.
    Mr. Mulally?
    Mr. Mulally. Yes, we have studied that option. We believe 
it is not a viable option, and so we have no plans for 
bankruptcy.
    Mr. McHenry. Well, a far more positive comment from you.
    So, as a potential vote on whether or not to lend you 
money, I believe it will be a fair assessment to say that you 
should turn over those plans on how you would enter bankruptcy 
and what your state of preparation is for Chapter 7 or Chapter 
11. As somebody that you are seeking money from, I think I need 
to have that information in order to make a proper assessment 
of whether or not you are creditworthy.
    Because the truth is the doom and gloom of Mr. Wagoner, he 
says, you know, this is not what--it would be devastating, it 
would go to Chapter 7. Therefore, what you are telling me and 
what you have said in your testimony is that you would go into 
liquidation. Well, that is a hell of a thing to tell somebody 
before you ask them for money.
    Therefore, you are telling me that inherently you are not 
creditworthy. Therefore, we should loan you money? Explain this 
to me.
    Mr. Mulally. I think you are significantly misinterpreting 
what I said, sir.
    Mr. McHenry. Well, you said you have plans for Chapter 7.
    Mr. Wagoner. Let me be clear. I did not say that, in fact. 
I said that my expectation was, based on independent research 
which indicates that 80 percent of consumers would not buy a 
car from a company that was in bankruptcy, that whether one 
initially went into Chapter 11 or not, the likelihood would be 
you would end up liquidating the company, very simply because 
you wouldn't have revenue.
    What we are doing with all of our actions, including our 
own $20 billion worth of cost-cutting and restructuring actions 
since the beginning of this year through the end of next year, 
is to try to do everything humanly possible to stave off the 
risk of bankruptcy, to avoid that dire consequence on the 
Nation, because we think our basic business model, based upon 
my opening comments, would be quite viable under a normal 
circumstance--
    Mr. McHenry. Okay. Reclaiming my time, I would submit to 
you that there are many industries in America that are watching 
you now, and they are going to be next. We have retailers that 
employ more people than the Big Three combined. We have full-
service restaurants that employ multiples of the automotive 
industry. We have gas stations, even, that employ more people 
than you representing your industry today. They are next. So 
you are encouraging them to come forward, because of the tough 
economic times, to ask for a bailout.
    I would conclude by just commenting that, in my region, we 
lost textile and furniture industry jobs, and there was no 
bailout. We employed tens of thousands, in fact, hundreds of 
thousands of people in this country without a bailout. That 
industry is gone. There was no help from the government.
    I would finally say to you that many in America today are 
watching the fact that you flew here on your jets. And I am not 
an opponent of private flight, by any means, but the fact that 
you flew in on your own private jets at tens of thousands of 
dollars of cost just for you to make your way to Washington is 
a bit arrogant before you ask the taxpayers for money.
    The Chairman. The gentleman from Missouri.
    Mr. Cleaver. Thank you, Mr. Chairman.
    I have six questions. I think we can get through them if 
you cooperate with me with very concise answers.
    The first one is, why $25 billion? I mean, why not $26 
billion? Why not $23 billion?
    Mr. Nardelli. From our standpoint, as I said earlier, we 
looked at the balance of this year, we looked at our cash 
position, we assumed our exit rate of this year would be the 
industry rate next year--
    Mr. Cleaver. Okay. Thank you. So are we going to divide 3 
into 25?
    Mr. Nardelli. No, we are asking for $7 billion.
    Mr. Cleaver. So we are going to do--
    Mr. Nardelli. Chrysler.
    Mr. Cleaver. No, Chrysler, General Motors, Ford, $7 billion 
apiece, that is $21 billion.
    Mr. Nardelli. No, sir, we are asking, Chrysler is asking 
for $7 billion.
    Mr. Cleaver. Okay, what is General Motors--
    Mr. Wagoner. We had indicated against a suggested package 
of $25 billion that, proportionate to our relative market 
share, would be $10 billion to $12 billion for GM.
    Mr. Cleaver. Ford?
    Mr. Mulally. It would be the rest.
    Mr. Cleaver. Sir?
    Mr. Mulally. It would be the rest, based on the market 
share calculation.
    Mr. Cleaver. We are just spending $25 billion loosely. I 
mean, this is loosey-goosey, ``Whatever is left, I will take.'' 
Okay, thank you.
    Now secondly, the question that is somewhat troublesome was 
what Jerry York, former GM board member, said this morning on 
one of the news talk shows. He says that Ford has more money in 
their coffers as a result of an investment in the market they 
made a few years ago than GM or Chrysler. And he goes on to say 
that GM turned down a deal with Nissan a few years ago that 
would have arguably given them a cash flow that would not have 
made it necessary for you to be here. And he said that Chrysler 
seems to be in difficulty, whether they get money in a rescue 
package or not.
    Do any of you have a short response to what Mr. York said?
    Mr. Wagoner. I speak in the case of GM. It is a completely 
inaccurate conclusion.
    Mr. Nardelli. I can say relative to his comments, Chrysler 
I think has made pretty public that we are looking for 
alliances, partnerships, opportunities to get further synergies 
across the auto industry, certainly here in the United States 
or on a global basis. So we are totally open to any 
recommendations or thoughts that would result in a more 
efficient, more viable, and more productive auto industry, 
whether it is consolidation in technology or in manufacturing 
or in purchasing, etc.
    Mr. Mulally. His summary was very accurate. We went to the 
markets very early and aggressively to be able to fund our 
transformation plan. The progress we made on the product and 
the productivity has gotten us in the position today that I 
think we can make it through this recession if it doesn't get 
worse. Or absolutely with our partners in the industry, if this 
gets worse, we would like to have this vehicle in place so that 
we can save and be part of the solution of the economy recovery 
going forward.
    Mr. Cleaver. GMAC receives a part of this money although 
they are a nondepository institution. I mean, it is a lending 
institution. And I was at a dealership 2 weeks ago and it is a 
GM dealership. And the owner told me that GMAC had sent out a 
letter to all of the dealers telling them not to even send them 
any potential customers whose credit rating was below 700. If 
we are putting more money into the market--we are trying to 
thaw a frozen credit market. What in the world is going on if 
we are putting money into GMAC and they are still not making 
loans?
    Mr. Wagoner. Just to be clear, we own 49 percent of GMAC. 
So we don't have control at this point.
    Mr. Cleaver. But you ought to be really angry with them 
whether you control it or not. The point is they are not making 
loans.
    Mr. Wagoner. Yes. The issue is they have, just as we have, 
been significantly unable to raise credit. The availability of 
credit to them in the markets has been dramatically reduced. So 
unfortunately, in order to manage their cash flow to be able to 
provide wholesale financing at dealers and be able to finance 
some customers' sales, they have had to severely tighten their 
credit conditions. They would like nothing better than to get 
broader access to credit, which they are working on in this 
case to try to perhaps become a bank holding company to expand 
their deposit base to enable them to provide more credit. So 
they would like to have access to more credit and to be more 
proactive in the marketplace. We are working with other lenders 
who have a little more availability to see if they could help 
our customers out.
    The Chairman. The gentlewoman from Minnesota is recognized 
for 7 minutes.
    Mrs. Bachmann. Mr. Chairman, thank you. Once again our 
committee is convened to hear the pleas of yet one more 
industry to ask the taxpayers for a bailout. This time from our 
great industry of the automakers, the Big Three, Ford, GM, and 
Chrysler. My family and I currently own a GM and a Ford, and 
one of our favorite cars was the Chrysler minivan. So it is 
with great love for your vehicles that we want to see you 
succeed. But it is also appropriate that we again total the 
taxpayers' current bailout tab, $29 billion for Bear Stearns 
this year, $200 billion for Freddie and Fannie, $300 billion to 
expand the Federal Housing Administration, $150 billion for 
AIG. Who knows where that will end? $700 billion for the 
Paulson plan plus another $110 billion in sweeteners to pass 
that plan. Then you have to add on the original bailout bill, 
which would be the stimulus package; that was $168 billion 
earlier this year. And then we had also the deficit spending of 
this Congress in the 110th of $455 billion. That is a whopping 
$2 trillion. And recognize that only 40 percent of Americans 
even pay taxes.
    Secretary Paulson and Chairman Bernanke chose to start this 
bailout mania over 8 months ago. But since then the American 
people have been told over and over that the woes of our 
financial markets will subside. They haven't. Yet after bailing 
out bad decisionmakers time and again to the tune of over $2 
trillion, the financial markets seem to remain in even more 
turmoil than before. What we are asking now is for the American 
taxpayer who was never part of these initial contracts to solve 
the spiraling problem that is facing the City of Detroit.
    We share in the grief that Detroit has had to deal with and 
in fact the entire State of Michigan. It is not pretty. No one 
would want the problems that you have to deal with. But we are 
looking at other problems as well. And the American people 
suspect that there are long-term management issues at these 
companies and productivity problems as well. I don't know that 
we want government bureaucrats, certainly I wonder if we want 
to have Members of Congress giving you orders for how to run 
your companies. It has been reported for years that CEOs at 
Ford, GM, and Chrysler have not made the necessary changes to 
rein in labor costs and have not downsized facilities to ensure 
the company's longer-term viability.
    Again, I don't want to see Congress second guessing your 
business decisions, but these are concerns that the American 
people have. In fact the Big Three are paying out an average of 
$30 more per hour than your competitors. That is what we are 
told. And you support a large number of retirees under what are 
now considered outdated contracts. GM, for instance, we are 
told actually supports more retirees than they support current 
workers. The auto industry has also been criticized for failing 
to invest in enough competitive innovative products that 
American consumers want to buy. And what we are also told is 
that the Big Three has failed to look into the future and take 
steps to prepare for the rise in gas prices, although I don't 
know how anyone could do that.
    Taxpayers are again being asked to throw their hard earned 
money behind a short-term unproductive investment which may 
perhaps only prolong your companies' failures at a cost that 
could even be higher down the road. I have received no 
assurances to date that this money will not simply go down a 
rabbit hole, none of us have in this committee. Plus, much of 
the urgency that would force the Big Three to make tough 
restructuring choices would be reduced if the Federal money is 
made available to you.
    It is an interesting conundrum. Like AIG, it is easy to 
predict that you will be back at the taxpayer's trough in no 
time at the rate that money is being burned in Detroit. Some 
say the bailout is needed under the premise that consumers just 
can't get access to car loans due to the broader credit crunch 
and that this is causing your companies to suffer. But there 
are automakers that have remained profitable even through these 
tough times, Toyota, Honda, and Nissan. They are Japanese-
owned, but they operate huge manufacturing firms here in the 
United States, in Kentucky, Tennessee, and Ohio. These 
companies also employ thousands of American workers who are 
paying their taxes and struggling to put food on their 
families' tables. When we take money from this group of 
taxpayers to save the three ailing companies before us, it is 
not only unproductive, it is just plain wrong.
    This Congress has already spent $2 trillion in bailouts 
this year, and if we move forward with this proposal I don't 
know where or when this bailout bonanza will end. I think there 
are other alternatives that we can consider. For instance, if 
the Big Three would restructure and reorganize under bankruptcy 
courts, it is possible that you could be saved without a 
taxpayer bailout and that you could fix your long-term 
management and labor problems. If you file for Chapter 11 
bankruptcy, it doesn't mean that your company has to go belly 
up and that all jobs will be lost. It would mean that the 
company actually might have the ability to make structural 
changes to keep itself afloat without the threat of outside 
lawsuits, enter a comprehensive payment plan. The taxpayers 
just want to know.
    My question that I would have, Mr. Chairman, would be for 
Mr. Wagoner from GM, and it would be two things. One, I noticed 
today you wrote an editorial in the Wall Street Journal on why 
GM deserves support and you said that we know we can't just 
slash our way to prosperity. And my question for you would be 
this: Isn't that just a Draconian way of stating the realities 
of supply and demand in the marketplace, that your company 
needs to adjust in good times and in bad? If you are smart and 
looking for the future, shouldn't your companies be treated the 
same as other separate companies who have to make those 
vagaries of life decisions?
    And also in your testimony, sir, you reference that what 
exposes us to failure now is the global financial crisis. Well, 
if the global financial crisis is the sole cause of your 
current troubles, then why aren't we seeing the other car 
manufacturers in other countries reaching out to their 
respective governments with similar requests for cash? And 
similarly, why aren't we seeing Toyota, Honda and Nissan here 
at the table today?
    The Chairman. There are 7 seconds left for the response.
    Mr. Wagoner. Many other countries are discussing whether 
automakers' funding support would be the first answer. It is 
happening in countries all around the world that are being 
affected. And virtually every manufacturer in the world has 
slashed their earnings forecast and cash generation forecasts 
in view of the plummeting demand in the auto sector globally. 
Frankly, we came into this with a very weak balance sheet 
because we had over the period of 75 years accumulated a huge 
retiree and health care benefit commitment that was part of the 
policy of this country at that time, not the policy of most of 
the countries that we compete against by the way. Those 
benefits are paid publicly. So we paid $103 billion over the 
last 15 years to fund health and pension benefits. Thus, our 
balance sheet is weaker than it would have been. People say 
well, why didn't you stiff the retirees? We didn't think it was 
the right thing to do. We thought we had an obligation.
    The Chairman. The gentleman from Colorado.
    Mr. Perlmutter. Thanks, Mr. Chairman. And, gentlemen, thank 
you for your time today. We have had a lot of questions and you 
have heard a lot of comments. And we appreciate your 
perseverance. First, there are a couple of places where I 
differ with the chairman. One, just as full disclosure, I am a 
Chapter 11 lawyer. So I don't see that as the absolute end of 
the world, that there are plenty of ways through an 11, through 
prepackaged, as you said, Mr. Nardelli, kinds of approaches to 
deal with this.
    The second thing is I do see a difference between 
manufacturing and underwriting or supporting the manufacturing 
industry as opposed to trying to keep the banking industry in 
some kind of shape that would facilitate our economy.
    So I do look at this a little bit differently. These are my 
questions. But I did want to say and I do want to applaud all 
three companies for really having moved into this century with 
your Volts and your Escapes and all your different cars that 
are much more fuel efficient, and I know you put a lot of money 
into that R&D and that development. So thank you.
    The first question. And this goes to you, Mr. Wagoner. What 
was--in the third quarter of last year, did you make money or 
lose money, 2007, and what was it?
    Mr. Wagoner. Third quarter of 2007, I don't remember the 
specific quarters but I believe that is the quarter where we 
had to reverse the deferred tax assets. So I think we had a 
significant loss is my recollection.
    Mr. Perlmutter. What about the third quarter this year?
    Mr. Wagoner. We also recorded a loss.
    Mr. Perlmutter. How big?
    Mr. Wagoner. The total was, as I recall, about $2.9 
billion, net-net.
    Mr. Perlmutter. What is your forecast for this quarter?
    Mr. Wagoner. We don't provide financial guidance in 
earnings.
    Mr. Perlmutter. This is an interesting way to negotiate a 
loan, wouldn't you say? You are asking us to be your lender. 
You are asking the United States of America to be your lender. 
And I am just saying, do you have a forecast based on--let me 
ask you this: How do your sales in November compare to your 
sales in October?
    Mr. Wagoner. I would say it looks like at this point 
industry sales are running about the same level.
    Mr. Perlmutter. So still down steeply, 50 percent or--
    Mr. Wagoner. Ours aren't down quite as much. We had a 
strong prior September, so we had a little weaker October. We 
are not down quite that much. But we think the industry is 
still going to be running in the 11-ish range. Maybe a little 
less, maybe a little more. So very weak by any standard.
    Mr. Perlmutter. Okay. Mr. Nardelli, what was your quarter 
like this past third quarter?
    Mr. Nardelli. We lost money in the third quarter.
    Mr. Perlmutter. How much?
    Mr. Nardelli. We burned about $3 billion in cash.
    Mr. Perlmutter. What is your break-even on a monthly basis?
    Mr. Nardelli. On a monthly basis relative to--
    Mr. Perlmutter. What are your operating expenses? How much 
do you have to do to pay your salaries, no bonuses, everybody 
gets paid?
    Mr. Nardelli. We have about a $4- to $5 billion obligation.
    Mr. Perlmutter. So $4- to $5 billion per month. And, Mr. 
Wagoner, I meant to ask you that.
    Mr. Wagoner. Well, our total expenses in let us say North 
America maybe in a normal industry would run around $80 
billion. So divide that by 12 would be, you know, maybe $6- or 
$7 billion a month would be a rough guess.
    Mr. Perlmutter. And, Mr. Mulally, how did you do last 
quarter?
    Mr. Mulally. We lost $4 billion.
    Mr. Perlmutter. Okay. And what is your monthly nut?
    Mr. Mulally. In the third quarter, we had a run rate of 
7.7, but we think that going forward it will be substantially 
less than that because we brought down the production of a 
number of our vehicles. So it was kind of an extraordinary 
quarter.
    Mr. Perlmutter. Okay. I think somebody mentioned--and it 
may have been you, Mr. Wagoner--that taking a conservative look 
going forward you need to sell 11,700,000 units or--to--next 
year is something you are projecting?
    Mr. Wagoner. That was an industry forecast, U.S. industry 
forecast, light vehicles, yes.
    Mr. Perlmutter. Okay.
    Mr. Wagoner. I hope it is better than that, but--
    Mr. Perlmutter. Because what I saw or at least as of 
October, the annualized rate was 10 million or something other 
units.
    Mr. Wagoner. It was 10.8 in October, right, which is 
significantly the worst month of the year, but obviously very 
concerning to us.
    Mr. Perlmutter. If there were a bankruptcy--and this goes 
to you, Mr. Gettelfinger. One of the things I have been 
thinking, do we put the money in up front and allow things to 
go forward and hope that the economy improves and we don't have 
to come back, you don't have to come back for more money or do 
you take a Chapter 11, set the legacy benefits on the side and 
then we underwrite that through PBGC?
    Mr. Gettelfinger. I think if there is a Chapter 11, first 
of all, one of the companies--it will drag at least one other 
with them if not all of them. And I do not believe Chapter 11 
is where it will end. It will go to liquidation. I firmly 
believe that. I would not be sitting here with these executives 
today because again I want to stress we brought in Steven 
Girsky, who is or was the top auto analyst in this country for 
17 years. He is now at Center Bridge. He had worked at GM at 
one time and we asked him to come in and assist us. And that is 
why I am here today because of the urgency of this crisis that 
we are in.
    And again, I firmly believe Chapter 11 leads to Chapter 7, 
which is liquidation.
    Mr. Perlmutter. Thank you.
    The Chairman. The gentleman from Illinois, for 5 minutes.
    Mr. Foster. Thank you, Mr. Chairman. Can you tell me, 
gentlemen, the three of you, what the terms of the loan are 
that you are suggesting? Is it in perpetuity? Is there a date 
certain and is it with interest, without interest? Just sort of 
in a nutshell. Just sort of choose one among you.
    Mr. Wagoner. We had talked about an interest bearing loan, 
5 percent for the first 4 years, I think, and then 5 percent 
for the next 5 years, and then 9 percent after that. And, you 
know, warrants, things of that nature, additional compensation 
opportunities for taxpayers if we are successful.
    Mr. Foster. Thank you. What is it that animates the hope in 
you that sales are going to be robust enough to put you in a 
position to repay the loan?
    Mr. Wagoner. Well, I think, while things are difficult 
today, it is the lowest level that the industry has run in the 
United States alone on a sales per capita basis in over 50 
years, in the post-World War II period. So I would say this is 
an extraordinarily difficult period. What we have tried to do 
is say let us assume we don't stay at the bottom forever but 
assume after a year or so we begin to see some gradual 
improvements. And we have assumed a rather slow improvement 
from, let us say, roughly 12 million units, 13, 14. The 
industry was running about 17 million units--17 to 18 for 6 or 
7 years in a row. We think that was actually probably in 
retrospect higher than a normal trend because of the low energy 
cost and the cheap credit. So we have assumed the industry will 
gradually return and we believe we can generate positive cash 
flow and be a profitable business under an assumption--
    Mr. Foster. So you are assuming we are essentially at the 
bottom of that?
    Mr. Wagoner. We expect to say there for a while, yes.
    Mr. Nardelli. We are taking within Chrysler a more 
conservative approach. We took out $2.2 billion of fixed costs 
to change our break-even point. We are planning for a much 
flatter, more of a bathtub curve relative to the economy coming 
back. And as I said before, we are not only trying to 
restructure ourselves for a leaner period, but we are certainly 
open to any kind of collaboration, consolidation, sharing 
facilities, sharing synergies to make sure we do get through 
this economic trough.
    Mr. Foster. One of the things that essentially the three of 
you opened yourself up to is incredible public scrutiny of 
yourself when you are here. You get the joke, right? You are 
here and it is not a pleasant experience for you, but it is not 
a pleasant experience for a Member of Congress to contemplate 
authorizing a loan for people who are highly compensated.
    So it is my understanding, and I wasn't here earlier, but 
it is my understanding that Mr. Nardelli has made a commitment 
that he is essentially willing to walk away from compensation 
for a year or something, and not to demagogue, but I just want 
to have really clearly what you are offering at a personal 
level and just as an aside, the symbolism of the private jets 
is difficult, you know. You are talking to people who are 
schlepping back and forth, going through all the drama in the 
airports every day along with the American public. My 
suggestion is that those set a tone.
    So, Mr. Wagoner, could you tell us what, if anything, you 
are personally willing to do in terms of your compensation?
    Mr. Wagoner. I am willing to continue to do what I have 
been doing. I have had no cash bonuses for 3 of the last 4 
years. Basically, I have a significant amount of General Motors 
stock, including a lot which I bought myself, which basically 
is valueless. I voluntarily reduced my own salary a few years 
ago by 50 percent. So in the spirit of sacrifice, I will be 
glad to participate in that as well.
    Mr. Foster. Okay. Are you willing to go the other 50 
percent, down to a dollar?
    Mr. Wagoner. I don't have a position on that today.
    Mr. Foster. Okay. Mr. Mulally?
    Mr. Mulally. We have eliminated all of our bonuses also and 
also any salary increases. We think that is absolutely 
appropriate. Plus on the other assets--on all of our assets we 
have reduced and consolidated all of our assets on the travel, 
too.
    Mr. Foster. Are you willing to go down to the dollar?
    Mr. Mulally. I understand your point about the symbol and 
clearly the intent of what you are asking. But I think not just 
for me, but we are trying to fill a skilled and motivated team 
also. And it is so important that as we do this plan that we 
have the team that we need. So I understand the intent, but I 
think where we are is okay.
    Mr. Foster. Just so I am clear, I am not asking about the 
team. I am just asking about you.
    Mr. Mulally. I understand.
    Mr. Foster. And the answer is no?
    Mr. Mulally. I think I am okay where I am.
    The Chairman. Time is up. The gentleman from Indiana. We 
have three more gentlemen.
    Mr. Donnelly. Thank you, Mr. Chairman. Sometimes the 
toughest time to see that there is headway being made is in the 
middle of a storm and we have had all sources or many of the 
sources of credit collapse for you, extraordinary difficulties 
from end to end. But I don't want the American people to think 
that you haven't been working on this, and that is the point I 
think that has been made, that in fact when we have heard 
everybody say, you know, why are we not cost competitive and it 
has been said time after time that was addressed in the last 
contract, including the retiree benefits which have been 
mentioned by many. And my question to the folks from Chrysler, 
who came to my office the other day because they are such a big 
employer in my district was how are you going to be cost 
competitive with Honda and Toyota and that is what Americans 
want to know and the fact is that this contract should do that. 
Additionally, what you hear so many times is why don't GM and 
Chrysler and Ford make fuel-efficient vehicles? I think that 
has been laid out.
    So what I am hopeful and what these things have indicated 
is that we are a lot closer towards the other side of the 
shore, toward completion of this than we are from the start. 
And so we are in extraordinarily stormy waters right now, but I 
am hopeful as the volume picks up, that we are in a position to 
succeed because in my State of Indiana and in my congressional 
district, we have 15,000 people just in my district who work in 
automotive-related products. It would be an extraordinary 
calamity for this country, not only my State, but this country 
to see our manufacturing base be destroyed.
    And when we look at the TARP funds of $700 billion, what 
you are asking for, which is hard working taxpayer funds, this 
is 4 percent of that. And I think our manufacturing base, which 
has been the heart and soul of much of this country, is worth 4 
percent of what we have allocated to get through difficult 
economic times.
    And so things have been done. Work has been made to create 
this progress, and I guess the question I would ask you is, $25 
billion has been allocated already under section 136. If those 
funds were used by you now for these purposes, to get to 
January or February, if an additional $25 billion were 
allocated in January or February for the 136 purposes, in 
effect a swap, is that something that can help you get there 
and continue in operations to achieve success?
    Mr. Wagoner. I am not sure I exactly understood what you 
meant.
    Mr. Donnelly. There is $25 billion in the section 136 
funds, the retooling funds. If you use that now for the 
operational purpose, if we gave authority to do that, the 
things we wanted to do in retooling and other, could that wait 
until February as--in effect a swap of the funds?
    Mr. Wagoner. Well, you know, the legislation written for 
136 doesn't permit that.
    Mr. Donnelly. That is what I am saying, if an adjustment 
was made. Is that the kind of thing that could work? You 
mentioned before it is interchangeable to you. Is that across 
the board?
    Mr. Wagoner. I think it could, yes. A lot of the spending 
we will do under 136, you know, we are sort of starting right 
now. So it is not a huge amount of money that we would 
otherwise be spending under 136 under that relatively short 
timeframe.
    Mr. Donnelly. And then the next thing is in my district, 
and we are really proud to make Chrysler transmissions in my 
district, and they have worked hard to meet the China prices, 
as Mr. Gettelfinger and Mr. Nardelli know. But we sure don't 
want to see these funds used and then a month from now hear 
that there has been a merger, that these funds were in effect 
used to help merge two of the three companies. Can you give us 
an assurance that is not on the horizon?
    Mr. Wagoner. I can tell you what we have said when we had a 
chance to talk to the Speaker and her leadership group recently 
was that because of the urgency of the funding crisis we have 
sort of set aside any consideration of that, and as we have 
looked at an opportunity to merge without naming potentially 
with whom, we identified that there were significant potential 
cost savings that could conceivably make the business more 
viable. So I guess what I would say is, if we think in the 
future it makes sense to do it, we would be glad to come back 
and review the rationale with any super oversight board or 
other group and let them provide counsel as to whether that is 
acceptable or not.
    Mr. Donnelly. Mr. Nardelli?
    Mr. Nardelli. Yes, sir. I would say that the $25 billion we 
are asking for is to meet the immediacy of liquidity needs. I 
would hope that this committee and Congress certainly wouldn't 
restrict us from looking at opportunities to make our companies 
in this industry even more competitive by sharing resources, 
sharing technologies, and sharing our purchasing power in a 
collective way. So I can assure you this is not funds for 
restructuring and mergers, but I would not want to misrepresent 
that those--those are certainly opportunities we should have an 
open mind to strengthen the auto industry.
    Mr. Donnelly. But as of right now, your plans are to move 
forward as individual companies and achieve success as such?
    Mr. Nardelli. We are doing everything humanly possible to 
survive this current period.
    Mr. Cleaver. [presiding] Thank you. Ms. Speier, you have 5 
minutes.
    Ms. Speier. Thank you, Mr. Chairman. I want to thank you 
all for being here and for weathering an almost 3\1/2\ hour 
hearing. I sat through most of it and I am going to just give 
you what I think the public is seeing right now.
    The public is seeing that basically, Mr. Wagoner, GM is on 
the ropes. Mr. Nardelli, Chrysler is on the ropes. Mr. Mulally, 
you somehow have made it work. And for those of us here as 
Members of Congress now, a twisted set of circumstances have 
become the people's bank of the United States and you are 
asking us as bankers to assess your viability as credit risks.
    Now, let me just share with you a couple of things that 
have been said about you. This is from Deutsche Bank, and it is 
about GM: ``A government bailout is not likely to help shares. 
Even if GM succeeds in averting a bankruptcy, we believe that 
the company's future path is likely to be bankruptcy-like. We 
believe that the United States may ultimately need to provide 
GM with at least $10 billion in loans to keep the company 
afloat to 2010 and potentially as much as $25 billion to fund 
GM's cash burn and restructuring.'' And then J.P. Morgan says 
the following: ``Absent liability reform, the GM bailout alone 
could easily reach $30 billion. D.C. should not be fooled into 
believing GM simply needs enough to get to 2010. Its 2010 
operating cash burn will be $5- to $7 billion by our estimates. 
All said, the GM bailout will be as much as 30 billion absent 
liability reform.''
    So my questions to you are the following. The people of 
this country need to get something out of this. I am not 
absolutely convinced we should give it to you. But if we do 
give it to you, we are a bank and you need to think of us as a 
bank and we need to have some level of security and knowing 
that this loan is going to be paid back. This is--you reference 
it as a bridge loan. If you read some of the investment banks 
and what they are saying, it is more like a life raft.
    So my question to you is the following: In 2007, the 
Congress passed new CAFE standards. They were watered down 
because of what was going on in Detroit for the most part. I 
for one want to see those standards met by 2015. And my 
question to you is, if we give you this loan, will you make a 
commitment to meet those standards by 2015?
    Mr. Wagoner. Just to be clear, you are talking about moving 
the 2020 standards to 2015? To be honest, I would love to be 
able to tell you yes, but I have to be honest in saying our 
teams are working right now to meet the standards as they are 
laid out. And, frankly, they are requiring all of our 
technologies, massive amounts of retooling. And I think, at 
this point, we commit that we are going to do our best to meet 
them as stated. It would be very difficult, in my view, to 
advance them a full 5 years.
    Ms. Speier. Mr. Nardelli?
    Mr. Nardelli. I would say, in a similar fashion, the only 
thing that would allow us to advance those is a major 
breakthrough, as we are trying to do right now with our 
electric vehicles. And what we are trying to do is put that 
technology into existing platforms so that we aren't spending 
money for new top hats but we are able to put our precious few 
dollars into the technology. If that is successful, obviously 
we are going to continue to go as fast as we can in 
retrofitting what we have.
    We also have the hybrid that is coming out in a truck. We 
have the new diesel coming out in a truck.
    So we are doing everything we can. We aren't pacing 
ourselves to the 2020 guidelines. Obviously, it would be in our 
best interest to produce the most fuel-efficient, most 
environmentally friendly vehicle, assuming the consumer is 
going to buy that. We would be foolish not to do it.
    Ms. Speier. I understand that. What I am saying to you is, 
if we linked the 2015 date to this bailout, would you accept 
the money?
    Mr. Nardelli. I really don't know that--again, sitting here 
today, I can tell you we are open, we will look at it and we 
would be happy to come back and give you our real point of view 
on that, our technical capability of doing that.
    Ms. Speier. Thank you.
    Mr. Mulally?
    Mr. Mulally. Well, as a technologist, I would like to offer 
you a thought on that. I thought that what we did together on 
the 2007 Energy Independence and Security Act was phenomenal 
work that included all of the industry, not just GM and 
Chrysler and Ford, but also Toyota and Honda and the entire 
industry. And where we ended up was a very, very aggressive 
plan to use every bit of enabling technology to meet the 
standards that we committed to. I don't think it is technically 
possible to move that ahead.
    The Chairman. The gentleman from Massachusetts will be the 
final questioner.
    Mr. Capuano. Thank you, Mr. Chairman.
    Gentlemen, thank you for doing this. But I figure, for 3\1/
2\ hours, $25 billion is not a bad deal.
    Gentlemen, I am inclined to want to help. But I will tell 
you, I don't want to help for almost any of the reasons I have 
heard you say. I am really not interested in which companies 
survive. I mean, the last car made in my town was an Edsel, so, 
you know, it didn't go over too well that time. And I am not 
really worried about that. I am worried about one thing, and 
that is the gentlemen at the end. I am worried about jobs--
American jobs.
    And up until now, I really haven't heard any of the Big 
Three talk about jobs in America. Look, I am all for 
international stuff and all--I love all that stuff. But the 
truth is, if there aren't things being built in America, I am 
not really terribly interested in helping.
    It is interesting to me that you are being criticized by 
the very people that we just gave $700 billion to; I kind of 
figure that is a little strange. You know, why don't they open 
up their wallets and help you out, if they are so smart, if 
they are so caring about society.
    But I want to tell you very clearly, the people on Wall 
Street that we just gave the money to--I did it, I voted for 
it, hesitatingly like most of us, because we all know we have a 
problem. We know we have a problem in the auto industry. And it 
is really not even the industry; again, it is the jobs that you 
represent that I am interested in.
    I understand that. I want to save those jobs. I am not 
interested in a race to the bottom by taking wages away. 
Anybody here who said today or any other day that the problem 
is that we pay our workers too much, well, then, you know, my 
answer is then why don't they individually leave the middle 
class? Because, as far as I am concerned, the auto industry was 
one of the leaders in creating the middle class by negotiating 
good wages. I am not interested in a race to the bottom.
    I am very interested in my constituents, who basically do 
not trust you. They really don't trust me all that much, but 
they really don't trust you. And they don't trust you for lots 
of different reasons. I have only been here 10 years, and in 
that 10 years all you did, the industry--and that includes the 
union, as well--you fought me on CAFE standards. You said, no, 
we can't do it. Yet you just said we need more fuel-efficient 
vehicles, we want to sell them. Well, if you had listened to 
us, you would have had them. All you did was ask us for tax 
cuts for gas-guzzlers. For all intents and purposes, you were 
giving away vehicles that got 3 miles to a gallon because we 
stupidly--not this side, mostly the other side of the aisle--
allowed tax incentives that gave away trucks for nothing. And 
you didn't say a word. You said, thank you, shh, quiet, don't 
talk about it. You should have been here.
    I need some assurances, my constituents need some 
assurances, that you are not going to just blow this again, 
that you really did get the message. And the truth is, all the 
things you talked about today so far of what you have cut, we 
are not sure we trust you. I am not sure it really matters all 
that much. My fear is that you are going to take this money and 
continue the same stupid decisions you have made for 25 years. 
That may not be you, it may be your predecessors. I don't know 
who it is; I don't care. It is the industry.
    I want to want to buy an American-made vehicle again. I 
want that. I don't trust, necessarily, that you will provide 
that. I am afraid we are going to do this, it will be a short-
term bailout, and you didn't get the message. Give us the cars 
that we want that other companies have been able to give us. If 
you can do that, maybe some people in the Senate will actually 
listen to you.
    I think over here you will probably end up with people who 
want to help, but damn it, I don't want to help again and get 
it stuffed back in our ear at home that you took and money and 
you blew it. How can you reassure me and, more importantly, my 
constituents that you won't do it again, that you really did, 
honest to God, this time you got the message?
    Go right ahead, any one of you, just jump right in.
    Mr. Mulally. Well, I, personally, I couldn't be more 
aligned with you. I have dedicated my professional life to fuel 
efficiency in airplane design for 37 years. And the most 
compelling thing to me when I was invited by Bill Ford and the 
Ford Motor Company to join Ford to help was a vision of 
sustainability in fuel efficiency and high-quality cars based 
on safety, to get people where they wanted to go safely and 
efficiently. And I also was attracted by an American icon and a 
global icon.
    And it is about America; it is about jobs in America. I can 
remember when we sat down in the negotiations with Ron, and I 
can remember the day, and we agreed that we were going to work 
together to do whatever it took to increase our competitiveness 
so that we could make cars of all sizes--small, medium, and 
large--the most fuel-efficient, the highest quality, the safest 
vehicles, all sizes in the United States for Americans.
    And the agreement that we did absolutely is going to 
deliver on that promise. And, as we talked about earlier, we 
put that plan in place. We have now probably the best lineup of 
small- and medium-sized vehicles to match our wonderful SUVs 
and trucks that we had before. But we have a terrific, balanced 
portfolio. They are competitive with the best in the world. And 
we are doing it with the productivity to be competitive.
    So I am very, very positive about the future of the 
automobile industry. The fact that we are in the worst downturn 
that we have ever been in, as far as the economy and the 
credit, is something we are all dealing with. But when it comes 
to us having a vision of a viable and exciting and a 
sustainable automobile industry, I think you can look at our 
past performance and say we are absolutely going to continue to 
deliver that vision.
    The Chairman. The hearing is now ready to move on to the 
next phase. The witnesses are excused. And we will call up the 
next panel.
    Let's move out quickly, please. Please let the witnesses 
move out quickly. You can be nice outside. I want people to--
let's move out quickly so the next panel can sit down. We have 
been here long enough.
    We will now move on to the next panel, with my thanks for 
their willingness to testify and for their patience in our 
reaching that.
    Let's break up the conservation over there on the left side 
of the room.
    And let me begin by recognizing my colleague, the vice 
chair of the committee, Mr. Neugebauer, to make an 
introduction.
    Mr. Neugebauer. Thank you, Mr. Chairman.
    It is my honor to introduce Annette Sykora from Slaton, 
Texas. She is the first woman to ever chair the National 
Automobile Association, and we are very proud of her. What an 
interesting year she picked to be chairwoman.
    Annette is a third-generation car dealer. Her family has 
been in the Slaton area for a number of years. She and her 
husband, Pat, actually operate two dealerships, which were 
represented at this table earlier. She is not only an industry 
leader, she is a community leader. And it is a delight to have 
her testify today.
    The Chairman. In addition, we have: Mr. James McElya, who 
is chairman and chief executive officer of the Cooper-Standard 
Automotive and a return witness to this committee, although he 
previously has been here on a lot of international matters; 
Professor Jeffrey Sachs, who is director of The Earth 
Institute; and another individual with whom we work, Dr. 
Matthew Slaughter, now professor of international economics at 
the Tuck School, and a former member of the Council of Economic 
Advisors.
    I did want to note, I wrote a note of the presence of our 
colleague, Ms. Jackson-Lee from Texas. I should note that Mr. 
Pascrell of New Jersey--very interested, I believe has drawn up 
some legislation involving dealers--today is also here.
    With that, Ms. Sykora, we will begin with you, 5 minutes.

  STATEMENT OF ANNETTE SYKORA, CHAIRMAN, NATIONAL AUTOMOBILE 
                      DEALERS ASSOCIATION

    Ms. Sykora. Thank you, Chairman Frank, Ranking Member 
Bachus, and Congressman Neugebauer. Members of the committee, 
on behalf of the Nation's 20,000 franchise automobile dealers, 
thank you for this chance to put a different face on the 
legislation we are discussing today.
    Maybe it is a face familiar to you. Dealers are the public 
and local face of the industry in communities across our 
country. Our fate is directly connected to our manufacturers, 
and the success of our automakers is directly connected to the 
success of our dealerships.
    I am a Ford and Chrysler dealer from Slaton in Levelland, 
Texas, and the third generation of my family to carry on this 
small business. My dealership and thousands like mine are going 
through very difficult times.
    For decades, the Nation's automobile dealerships have been 
a true indicator for the state of our economy. Typically, car 
sales go up in good times and down in bad times, but this is 
not a normal economic downturn. The meltdown on Wall Street and 
the real estate crisis have all but destroyed consumer 
confidence. Auto sales have fallen off a cliff, and they are at 
a 15-year low.
    The sales slump is not only affecting the current bottom 
line but the future of my dealership and others. I have spoken 
with dealerships across the country that have had to cut costs, 
they have reduced their advertising budgets, support for the 
town's little league team, and, unfortunately, many of them 
have had to make the difficult cuts in staff. In my two 
dealerships, I reduced my staff by 20 percent.
    Additionally, we are considering closing my dealerships 
earlier on Saturdays to cut costly overtime. Many of my 
employees count on this overtime to put money in their pockets 
to spend on their homes, at the grocery store, and on their 
children's college education.
    Mr. Chairman, some members are considering voting against 
this legislation, suggesting that bankruptcy is a viable 
alternative for the auto industry, as it was for the airline 
industry several years ago. I would like to explain how I see 
the difference.
    We don't simply take a person from point A to point B for a 
few hundred dollars. A vehicle is one of the largest purchases 
a family will make. And customers depend on our local presence 
for warranty work, maintenance, and repairs.
    Like Mabel--she is a customer who has done business with my 
family for more than 50 years. And although she probably only 
buys a vehicle about once every 10 years, she counts on us for 
her warranty work, to keep that car running good, to perform 
the safety recalls and the front-end alignments that keep her 
safe. It doesn't make sense for Mabel to have to drive 40 miles 
to get this done.
    We have also done business with four generations of another 
family. They have bought 70 vehicles from us, the same family 
over the years. And, although we have this tremendous 
relationship with this family, they are not likely to buy a 
vehicle from a company that has gone bankrupt. Would you? Well, 
neither would most Americans.
    Auto dealers are also feeling the pain of the credit crisis 
in their operations. We finance the inventories you see on our 
lots. These loans are usually in the millions of dollars, even 
for a small dealership. Many banks have already eliminated what 
we call ``floor planning,'' loans to any domestic dealers. And 
this is just because of the uncertainty that their 
manufacturers are currently facing. Imagine how banks would 
react to a dealer who has asked for millions of dollars to 
finance new and used inventories from an automaker going 
through reorganization.
    Let me give you another example. Just yesterday, one of our 
used-car dealers who buys some of the vehicles that we don't 
keep on our lot, a wholesale dealer, had to return a vehicle to 
us because his bank had tightened his floor plan credit and he 
was not able to keep it. So now I have to keep this truck, find 
a way to finance it, and that impairs my ability to make other 
purchases. Furthermore, a bankrupt automaker could lose many of 
its dealers.
    I recently sat down with Jim Toliver, Slaton superintendent 
of schools. We started discussing what would happen if one or 
more of the dealerships in my hometown were to close. The loss 
of tax revenue would force them to cut programs and teachers. 
Many displaced dealership families would most likely leave town 
in search of work in other places, compounding this loss. And I 
found out, while I was sitting here in this hearing, that this 
is a real possibility for one of the GMC stores in my town. 
This same scenario would play out in hundreds of communities 
across the United States. Time truly is of the essence.
    Well, according to NADA, 660 dealerships have closed in 
2008. But I want you to remember that dealerships are not 
company stores. As independent businesses, we make significant 
investments in land, buildings, equipment, and personnel that 
provide manufacturers a retail presence in hundreds of 
communities. We don't take vehicles or parts on consignment. We 
assume the risk of financing this inventory. We have heard this 
morning no manufacturer has the resources to internalize the 
cost that dealers bear. We even pay for the company sign on our 
dealership lot.
    To get the economy back on track, we must restore consumer 
demand, and the only way to do that is restore consumer 
confidence. We need to give consumers the motivation and 
confidence to visit their local dealership and see what is 
possible. And consumer tax incentives are a great way to boost 
sales.
    Representative Pascrell from New Jersey introduced 
legislation, H.R. 7273, that makes interest payments on car 
loans and sales tax deductible from a family's income tax. 
Senators Mikulski and Bond introduced this measure in the 
Senate earlier this week. This will help get people in 
dealerships.
    We need immediate access--
    The Chairman. Ms. Sykora, we really need you to wind up. We 
don't have jurisdiction over taxes, so there is not a lot to be 
said more about that.
    Ms. Sykora. Well, we just urge you to move quickly.
    I thank you for your time, and I will be happy to answer 
questions.
    [The prepared statement of Ms. Sykora can be found on page 
212 of the appendix.]
    The Chairman. Thank you.
    Next, Mr. James McElya. I am sorry if I mispronounced the 
name, but I mispronounce a lot of things.

  STATEMENT OF JAMES S. MCELYA, CHAIRMAN AND CHIEF EXECUTIVE 
           OFFICER, COOPER-STANDARD AUTOMOTIVE, INC.

    Mr. McElya. It is ``McElya.''
    Good afternoon, Mr. Chairman, and members of the committee. 
I am the executive chairman of Cooper-Standard Automotive. And 
Cooper manufactures a variety of products for the auto industry 
and employs over 5,000 people across the United States.
    I am also the chairman of the Motor and Equipment 
Manufacturers Association, which represents almost 700 
companies that manufacture motor vehicle parts for the light 
vehicle and heavy-duty original equipment and aftermarket 
industries.
    Today's auto industry is interdependent, such that it is 
economically impossible to separate the economic success of the 
suppliers from their manufacturer or customers. A potential 
bankruptcy by a major vehicle manufacturer will cause serious 
disruptions and will directly impact the ability of the entire 
industry to function.
    MEMA urges Congress to immediately pass legislation 
providing direct financial assistance to the automotive 
industry, including auto manufacturers and suppliers.
    Motor vehicle suppliers are the Nation's largest 
manufacturing employer. Our high-skilled jobs are critical to 
the industrial base of the country and are located throughout 
the United States. Every supplier job contributes an additional 
5.7 jobs to the local economy, with a total of 4.5 million 
private industry jobs depending on the supplier industry.
    We hear sentiments from people all across the country, and 
today, that the government should just let them fail. But just 
exactly who are they referring to when they say ``them?'' Well, 
let me clarify. The group that comprises ``them'' is a whole 
lot larger than the Detroit Three that were just here at the 
table. It starts with the manufacturers, of course, the Big 
Three and others, but it also rolls down to the suppliers, our 
sub-suppliers, followed by the many professional services that 
serve the industry. After that, it hits the local level in the 
small towns across the country where all these manufacturing 
plants are located. It will affect the owner of the diner 
across the street from the plant, the barber, and even the 
schools, as school tax revenues diminish or even go away.
    Motor vehicle manufacturers and the supplier industry are 
leaders in the development of safety and energy technology 
critical to today's vehicles and those of the next generation. 
Suppliers account for over 40 percent of the total automotive 
investment in research and development and continue to take on 
a greater role in the design, the testing, the engineering of 
new vehicle parts and systems, a role that is expected to grow 
significantly over the next 5 years.
    Some analysts have indicated that as much as half of the 
supply base is in financial distress. The U.S. light vehicle 
sales dropped to 12.8 million units this year, far below the 
16.15 million average over the last decade. It is critical to 
resolve the financial crisis and return credit availability to 
the consumers and turn the economy around.
    The dramatic and sudden contraction of the auto industry 
will directly impact the supply base, but the failure of the 
supply base will impact the wide range of car manufacturers. 
Vehicle manufacturers, including Toyota, Honda, and Nissan will 
likely have to close or limit production while awaiting for new 
sources of supply.
    It is the inability to get credit that has pushed these 
seemingly unrelated factors into a crisis. There have been 
recent and serious repercussions. On November 13, 2008, 
Standard & Poor's rating service took an unprecedented step of 
placing 15 North American auto suppliers on CreditWatch based 
on their significant exposure to Ford, General Motors, and 
Chrysler.
    The bottom line is that all automakers, not just the 
Detroit Three, will be dramatically impacted if consumers 
cannot access credit to purchase new vehicles. Without sales, 
even the healthiest vehicle manufacturer cannot survive a 
prolonged sales slump like the one we are currently 
experiencing.
    The country is faced with two interwoven dire conditions in 
the auto industry. First, a potential bankruptcy of a major 
automobile manufacturer will cause a chain reaction of unpaid 
payables with subsequent additional bankruptcies that will 
severely and negatively impact the entire sector. And, 
secondly, on a parallel course, the inability of automotive 
suppliers to get sufficient working capital from its 
traditional sources will have a similar impact.
    Congress must pass the legislation that addresses both of 
these challenges.
    Thank you.
    [The prepared statement of Mr. McElya can be found on page 
146 of the appendix.]
    The Chairman. Professor Sachs?

 STATEMENT OF JEFFREY D. SACHS, DIRECTOR, THE EARTH INSTITUTE, 
AND QUETELET PROFESSOR OF SUSTAINABLE DEVELOPMENT AND PROFESSOR 
      OF HEALTH POLICY AND MANAGEMENT, COLUMBIA UNIVERSITY

    Mr. Sachs. Thank you, Mr. Chairman. This is the 4th 
financial crisis that I have dealt with, with this committee, 
over the last 25 years, starting in Latin America, Eastern 
Europe, East Asia, and now it is our turn.
    The Chairman. One of us may be a jinx.
    Mr. Sachs. No doubt we are--right. Bad luck.
    But we are facing something that we have not faced since 
the Great Depression, as this committee knows better than any 
other committee of this Congress. And so, the normal business 
of this committee is not to be a bank. No one here wants to be 
a bank. No one here wants to think like a bank or grill the Big 
Three CEOs like a bank. But we have no functioning banks right 
now. That is why we are here.
    This is the most intense financial crisis we have had since 
the Great Depression. If there were capital markets, they would 
much prefer to go to the capital markets than to go to you, I 
am sure of it. It was no fun doing a loan request this morning 
for them. The only reason they are here is that we have no 
financial markets for the moment.
    All of the rhetoric we heard about ``let the markets work'' 
would be fine if we had markets right now. We have no financial 
markets; this is the essence of the moment.
    In a year, we are going to have financial markets working 
again. TARP will be working. We will have a President; they 
will have a strategy. The markets will be working again. When 
they need more money, which they will, they will go to the 
markets, they won't come to you, because there will be 
financing available. So this, I think, is the essence of it.
    Believe me, this is not the only Congress or parliament 
that the auto industry is going to. It is all over the world 
right now. This is a global contraction the likes of which we 
have not seen since the Great Depression, and you are going to 
see bailouts necessary everywhere.
    The industry is a long-term viable industry. They would not 
have been here but for September 15th. Had Lehman Brothers been 
handled differently, not by the textbook of Chapter 11 but 
differently, we would not be with the $700 billion TARP and 
they would not be here today asking for 3.7 percent of that 
from the TARP. But Lehman was Lehman; panic worldwide ensued. 
Now the idea of using 3.7 percent of what you voted is 
absolutely the right thing to do. In fact, it is, to me, 
unthinkable not to do it. I can't even imagine it not being 
done.
    Let me say that Chapter 11 is completely unworkable in this 
context. The New York Times had one of those ``duh'' stories 
today where it says, ``Advantage of Corporate Bankruptcy 
Shrinks.'' You can't do Chapter 11 and survive when there are 
no financial markets. Section 364, debtor in possession 
financing, is a fantasy of my free-market ideologue colleagues 
in the economics profession. There is no financing even for 
non-Section 364, much less for bankrupt companies.
    It is a fantasy, this idea, put it through bankruptcy, let 
them do that. And when you probe just a little bit, they say, 
oh, no, no, no, under bankruptcy, the government is going to 
have to do it anyway. So try explaining to your constituents 
that you are not going to do it now--only when they go 
bankrupt--then you are going to give them $25 billion. I like 
that explanation. That is absurd, in my view, frankly.
    The only thing I would add is whether you want to have, in 
the board that you are setting up, some more public 
representation in addition to the Cabinet. That would be my 
only question. For the Congress to represent you, to represent 
the broader interests, to bring the National Academy of 
Engineering in, somehow to have a couple more voices than only 
the Executive Branch when this gets deliberated so that you 
just are able to get the rounded issues.
    Other than that, I think you are on exactly the right 
track. I can't imagine, frankly, even a little bit, why we are 
here, because you already voted on the money. This would only 
be using 3.7 percent of it, for what happens to be the leading 
industry of the United States. Other than that, you know, it 
just is a little bit hard to figure out.
    So, please, do this before we turn a recession into a 
depression. That is my request. You know, it is for all of us. 
There is nobody who will not be affected. And this idea of let 
markets work when there are no markets is the idea of how 
Lehman Brothers triggered the biggest worldwide crisis in 
generations. Don't do it again with this industry. Two in a 
row, we are really into depression.
    Thank you very much.
    The Chairman. Professor Slaughter.

      STATEMENT OF DR. MATTHEW J. SLAUGHTER, PROFESSOR OF 
  INTERNATIONAL ECONOMICS, TUCK SCHOOL OF BUSINESS, DARTMOUTH 
                            COLLEGE

    Mr. Slaughter. Committee Chairman Frank, Ranking Member 
Bachus, and fellow members, thank you for inviting me to 
testify on these important and timely issues. Let me start by 
saying that the Big Three automobile companies have very 
dedicated and hard-working executives and fellow workers, and 
that they have a lot of collective talents and strengths. I 
base my testimony to you today on two deeply held convictions.
    One is that, although the dynamic forces of globalization 
and technological change have generated and has the potential 
to continue generating very large gains for the United States 
overall, these gains do not flow to every single worker, 
company and community. The other, given its first, is that one 
of the paramount policy challenges facing America today is how 
to share these gains more broadly across the full spectrum of 
American workers.
    Despite these convictions, or rather as I will explain in 
my testimony largely because of them, I do not believe that 
automobile companies merit any new bailout assistance from the 
Federal Government. Any such assistance would actually incur 
large costs to the American economy in different ways.
    Let me list three such costs. First, and perhaps most 
importantly in the long run, would be the economy-wide cost of 
substituting product market competition with resource 
allocation set by political rather than economic forces. A 
bailout of automobile companies could set a precedent to be 
followed for many years by many other companies in many other 
industries.
    These bailouts would displace productive investments from 
firms elsewhere in the economy and thereby impede economic 
growth and rising standards of living. I acknowledge that this 
is indeed a long-term cost. But that does not make it any less 
important. If anything, it makes the cost all the more 
important given the many long-term challenges facing our 
country such as a slowdown in educational attainment and the 
unsustainable growth of entitlement spending.
    A second important cost of any bailout would be damage to 
America's engagement with the global economy. Here let me 
highlight the cost that would fall on U.S. headquarter 
multinationals of all kind, key U.S. companies which employ 
over 22 million Americans and account for a remarkable 78 
percent of all private sector R&D. The success of these 
companies depends critically on their ability to access foreign 
customers. It is unlikely that U.S. Government bailouts will go 
ignored by policymakers abroad. Instead, U.S. bailouts will 
likely entrench and expand the protectionist practices already 
underway in many countries that we have already been discussing 
here. This would erode the foreign sales and competitiveness of 
U.S. multinationals and would thereby reduce their U.S. 
employment and other activities.
    And a third and more important direct cost would be the 
likelihood that any new taxpayer assistance would go largely or 
entirely unpaid.
    So the relevant question I would like to pose in my 
remaining time for taxpayers becomes whether a different 
deployment of any public funds could support the workers and 
communities affected by the struggling Big Three. Here I would 
point out in response to Professor Sachs' comments, I think it 
is fair to say there is a more diversity of opinion among at 
least academic economists and finance folks on the viability of 
various bankruptcy schemes that could go forward for one or 
more of these companies.
    That said, let me in my closing time comment on what are 
three important areas where I believe the Federal Government 
could offer assistance to the struggles to the American economy 
that are presented by the Big Three automakers.
    First, the Federal Government could help expedite any 
bankruptcy proceedings. One important role that has been 
discussed in this committee already could be ensuring 
warranties on new and or existing cars to help maintain demand 
for the products of the Big Three.
    Second, the Federal Government could extend targeted aid to 
workers in communities deemed to be adversely affected by a 
bankruptcy filing or other industrial restructurings. The Big 
Three are geographically concentrated in certain Midwest 
communities and States. Many of these areas already face 
hardships from the national economic slowdown in general and 
from falling home prices in particular. Plans could be laid now 
for extending supplemental benefits beyond standard 
unemployment insurance amounts. In light of the size of the 
bailout funds currently being proposed, the potential pro-
worker supports are extremely large. This could be allocated 
per worker across several years of unemployment income 
benefits, of wage loss insurance upon reemployment, of 
retraining and relocation expenses, whatever combination we as 
a country might deem appropriate for these and perhaps other 
affected workers.
    And third and perhaps most importantly, the Federal 
Government could use this auto industry crisis as an impetus 
for meaningfully expanding the economy-wide social contract 
that I mentioned at the outset to better distribute the gains 
of our dynamic economy. We as a country could do this in many 
ways: Through a more progressive tax code, through a 
fundamental overall of our unemployment insurance and trade 
adjustment assistance programs and through new insurance 
mechanisms that would allow communities to smooth out their tax 
revenues. There is no time like the present to begin 
deliberating and hopefully implementing such policies.
    Let me close by thanking you again for inviting me to 
testify today, and I look forward to answering any questions 
you may have.
    [The prepared statement of Dr. Slaughter can be found on 
page 207 of the appendix.]
    The Chairman. Thank you. Professor, one side point, on 
putting other members on the board, we run into the problem of 
the appointments clause. You cannot give a board that has any 
power any membership other than a presidential appointee. We 
could add a presidential appointee who was not in the Cabinet 
but it couldn't be a congressional appointee. That is why in 
the TARP we have two boards, one that is congressionally 
appointed that is oversight but no power and then one with 
power but it is all the Administration. So it doesn't do as 
much good.
    But beyond that, part of your mandate at Columbia, in which 
you have done such a good job, is on the whole question of 
sustainability. And one of the criticisms we have in the auto 
industries has come understandably from people concerned about 
the environment because of their past record. One proposal we 
got--in fact it is the Bush Administration's approach, which is 
to take away from the $25 billion that was already voted the 
conditions on that that were--that said it had to be used to 
promote energy efficiency; that is, their view is all right. We 
gave them $25 billion for the specific purpose of retooling 
credit deficiency. Let's just take those conditions off. What 
would your response be to that?
    Mr. Sachs. First, before getting to the specifics of 
section 136, we should not ease the conditions. We should see 
this as an opportunity to enforce the conditions. I actually am 
more optimistic than the three CEOs that we heard that they 
could be accelerated even more because when you consider the 
Chevy Volt promises to be a leapfrog technology, in fact 
because we will go from hybrid to plug-in hybrid, we are on the 
verge in my opinion of getting back to U.S. technological 
leadership. GM also has invested more than $1 billion in 
hydrogen fuel cells. And Chrysler, I think very impressively, 
is looking at extended range electric vehicles. Don't ease the 
conditions, that is for sure.
    My only question would be, you know, section 136 could be a 
bridge. We could see the money as a bridge to the Chevy Volt, 
to the EREV, and so forth. So it doesn't seem to me to be 
contradictory in that way. I think the approach this committee 
has taken is the right one though. The TARP really fits, in my 
opinion. This is a financial crisis. The money is there, adjust 
it in a modest way and get a very pragmatic result.
    Section 136, if it had to be a fallback position, seems to 
me to be a viable one but not by easing the conditions at all. 
Indeed, by seeing the money is precisely to get us to that 
Chevy Volt. It is to get us to the EREV. Please don't ease the 
conditions. That would send every wrong message for the 
country.
    The Chairman. On page 3 of the bill, we in fact have a 
section that says, no provision of this title shall be 
construed as altering, affecting or superseding the provisions 
of the environmental one. Professor Slaughter, I appreciated 
your testimony as I have admired much of your work. And I have 
to say, in your closing comments about the need for a safety 
net, you immediately qualified as my favorite witness that the 
Republicans ever suggested that we have. I wish they would send 
us more like you. But I do have one question, and I would like 
to do that.
    There is no question. I think you make a good point. Had we 
in the past done that on the social sector, this would be an 
easy decision to make, if people weren't faced with the loss of 
their health care and if indeed health care had been built into 
the costs of the car. But I do want to say, there is one 
argument you made, with all due respect, it seemed to be a 
little bit of a make waste. That was, that if we do this, other 
countries will get indignant and be more protectionist. It is 
not my impression that they have a morally superior position to 
us today in the automobile industry on the whole with regard to 
openness to automobiles. That is, I think--no, I don't think 
anyone--we have about as open an automobile market as you can 
have. A number of other countries, Korea, China, we have 
already heard have less of one. I am skeptical that this would 
be any basis for them being any tougher on our automobile 
industry than they already are.
    Mr. Slaughter. It may not be a matter of morals. I think of 
it as a matter of first and foremost dollars and cents.
    The Chairman. But you really think this would motivate--
what country is now open without--is better than us in access 
in automobiles that would suddenly tighten up? It is also the 
case, by the way, we would hardly be unique in the world in 
subsidizing our automobile industry in some way.
    Mr. Slaughter. I fully agree. I think, Mr. Chairman, that 
many other countries have become more closed and inward FDI 
policies--U.S. companies to establish and expand operations 
there. And the likelihood that the response of our policies 
that we take will be to further make it more difficult for our 
United States--
    The Chairman. There I disagree. You might argue that it 
won't get them to change but they haven't been changing anyway. 
It seems to me that the argument that this would motivate them 
to get tighter, as I said--just to be honest with you, it 
smells like a make waste to me. There are better arguments to 
be made.
    Mr. Slaughter. If I could get a two-hander on that. When 
you look at U.S. headquarter multinationals overall, for every 
dollar in exports that the parent operations send abroad in 
terms of servicing foreign markets, they in 2000--
    The Chairman. You are making a different point than mine. I 
am not contesting the economic value of multinationals. What I 
am suggesting is that there are very few countries that I can 
think of that can say, oh, you stopped your Big Three autos 
from failing. Therefore, we are going to stop being so open to 
you. I just don't think that is a likely reaction.
    Mr. Slaughter. If I may, CEO Wagoner earlier commented on 
the important role China plays for General Motors. They have 
been the largest share of the Chinese market for several years 
running. Last year they sold over 1 million units.
    The Chairman. And he noted he has to do a joint venture in 
China, which the Chinese do not have to do here. The only point 
I am making is there is already a lack of reciprocity to our 
disadvantage. So I am not prepared to be told that we can't do 
anything that is in our own legitimate economic interest if you 
think it is. If you don't think it is, it is different because 
they will get mad at us.
    The gentleman from Texas.
    Mr. Neugebauer. Thank you, Mr. Chairman. Annette, I want to 
go back to your testimony about the financing piece of it 
because there are so many pieces to this, and I think what our 
committee has to look at is those pieces where we probably have 
some jurisdiction. In the financing piece, how many--do you 
have a handle on how many people are coming to your dealership 
and would like to buy a car but you are not able to arrange 
financing for them? Is that 100 percent of the time, 90 percent 
of the time, 20 percent? Can you give me a handle on what you 
are facing on a retail financing contract?
    Ms. Sykora. Well, Congressman, the first problem we have is 
getting the people to come to the showroom because there is a 
lack of consumer confidence and they begin with the feeling 
that there is no credit available. So even if they come to the 
showroom, they are already feeling that credit might not be 
available.
    Now, retail credit is available. You have to have a stable 
job and you have to have good credit. But because they are in 
many--and we heard that earlier today. There are many banks and 
credit unions that do have money to lend on the retail side. 
The problem is there are kind of three pieces here. You have 
working capital for the dealers, you have the inventory 
financing, or what we call floor plan, and then there is 
retail. And we are working with Treasury because of the 
tightening and elimination of the securitization on the lines, 
and that is what is impacting the availability of retail 
credit.
    So, you know, I think that is where we need immediate and 
urgent help, is access.
    Mr. Neugebauer. See, my concern is that when you look at 
the burn rate of these three companies that were testifying 
here today, I mean they are losing billions per quarter. And 
they are asking for $25 billion. At the current rate they are 
losing money, that is basically maybe a quarter or two. I don't 
know see how that fixes your problem. That may somehow prop 
them up. But the question--the concern I have is, if we are 
going into, as some economists say, into an economic slowdown 
where consumer spending is going to be down, then this request 
that the auto industry is making is really not a fix. It is a 
postponement. I think from a congressional standpoint, I am 
interested in, you know, fixing things and not necessarily, you 
know, postponing things. So I think we have to--and I think 
certainly I know that the financing arms of the three captive 
finance companies are trying to--and we had Chairman Bernanke 
and Secretary Paulson here yesterday. I think they have been 
working with the industry to be able to allow them to come to 
the Fed window, which would hopefully work on the retail side, 
maybe also help some on the floor plan side as well.
    Ms. Sykora. Can I address that? I think you are asking me, 
are we delaying the inevitable? And I wouldn't be here. I 
wouldn't be sitting here today if that is what I believed. And 
I kind of like to make my point that dealers are independent 
businesses. Because you can see I am sitting here by myself. 
The manufacturers, they are not here. So I am representing the 
dealers. And I am giving you the opinion that, you know, I do 
think it is viable and we need this help.
    Mr. Neugebauer. Mr. Sachs.
    Mr. Sachs. Congressman, we are in a downturn for sure, and 
it is going to be a very bad one. And even with all the 
emergencies, this will be the steepest recession that we have 
had in decades. And the fight is to keep it from turning into a 
depression right now. So your question is a very good one. But 
as I have heard all three of the CEOs testifying, what they are 
doing is assuming a burn rate based on sales at about 11 
million units all through 2009. That is a collapse. We have 
gone from 17 million units down to 11 like that because this is 
a free fall. We have not seen this, Congressman, for decades. 
What they are assuming in their assumptions is not a further 
collapse but what is a collapse. And so I don't think that it 
is a wildly optimistic assumption.
    But the main point that I would stress is the following: We 
will have a deep recession, and then the question is, are we 
coming out of something or was this just an industry in 
decline? Now first, I don't believe it was an industry in 
decline. And I don't think the evidence suggests that it was an 
industry in decline.
    Second, I think they have a bridge to actually a whole new 
set of technologies and a post-SUV era. Everybody loved their 
SUVs, but now everyone is reconsidering. And it takes a lot of 
retooling and that is what is happening right now. So I think 
we are--in terms of make and model and technology, we are 
actually going somewhere.
    But there is a third point for Congress that I think is 
very important. They are going to come back to banks, not to 
you because we are going to have a banking system working again 
in this country and that is going to be very important. They do 
not want to come back to you for the next round. They will go 
back to the bond markets. They will go back to the banks. And 
they will have a viable business.
    Mr. Neugebauer. My time is up.
    Mr. Watt. [presiding] The gentleman's time has expired. I 
recognize myself for 5 minutes.
    Ms. Sykora, are there any banks out there that are still 
providing the floor planning financing or is all of that now 
being done by the industry?
    Ms. Sykora. Only a handful of banks were providing this 
type of inventory financing in the beginning.
    Mr. Watt. I got a call from one of the dealers actually 
from Florida. I am not even from Florida. And I got a call 
earlier this week saying the Bank of America had pulled out of 
that market, pulled out of loaning anything to any automobile 
dealer, not customers to buy cars. They want out of that too, 
he said. But they just wanted out of the automobile industry 
altogether. Is that what you are experiencing? Or is it 
different than that?
    Ms. Sykora. No, we have heard from dealers across the 
country that have experienced the same thing. Where one dealer 
who had been with the same bank for 40 years, they had never 
had a problem, weren't having a problem. Their balance sheet is 
fine. No more. No more floor plan inventory financing with that 
bank. And yet this is a GM dealer. So he didn't have the 
alternative to go to GM.
    Mr. Watt. Okay. Professor Sachs, I notice you nodding your 
head and I want you to weigh in on that. What I am really more 
interested in is having your assessment of is a world without a 
domestic U.S. automobile manufacturer where all of our product 
comes from other--from manufacturers in other countries or 
based in other countries, even though some of them may be 
making their automobile. I am just trying to imagine the 
implications of that. And I think you are probably--maybe Dr. 
Slaughter would want to comment on that, too, as the two 
economists on this panel. Talk about that world for me. It just 
seems like it would be so alien to everything we have 
experienced and have so many dramatic consequences on not only 
the existing manufacturing base, but our whole concept of who 
we are in the world.
    Mr. Sachs. Let me just talk first about the transition if 
we went there. If there is a major failure, if GM goes down and 
it is busted apart, the cascade effects, as Mr. McElya said, 
are absolutely real. Cascading failures will run through 
thousands of enterprises because this is a big business, many 
percent of GNP. And what is interesting about it also is 
because of the machining in this industry, if you lose a 
supplier, you could actually interrupt production not even of 
the failing companies but of all the companies. There are real 
risks of cascading bankruptcy and then supply-side seizures. If 
one says, well, that is a worst-case scenario, you are just 
frightening us, that is what they said about Lehman Brothers on 
September 15th. We will show how markets work. Let's close them 
down. Then you add cascading failures that have shocked the 
world like we have not seen for 75 years.
    Now, with our economy absolutely on its back, that is one 
of those things that I would not try at home. I have spent a 
career watching financial crises. We do not want to let a major 
company go bankrupt right now like this. This would be a 
disaster. Just a disaster. We would end up with certainly 
double digit unemployment rates in this country. We would end 
up with 15 to 20 percent unemployment rates throughout the 
Midwest. I never thought I would live to see us approaching a 
depression. I was trained for and I have taught for 30 years at 
Harvard and Columbia that we have learned all the tricks. You 
know, that doesn't have to happen. We are flirting with that 
right now.
    I thank you for voting for the TARP legislation, as painful 
as it was politically, because we are going to need that, and 
it is going to get designed better and done better over the 
next few months, that is for sure. It had to be done in a panic 
because of the way that the panic was set off on September 
15th. But don't do this one on top of that mistake of Lehman 
because we will trigger things we don't even know right now.
    So I know your question, Congressman, is about the long-
term sense of the United States. But I am worried about the 
next year, 2 years, 3 years, or 4 years. I don't want to have a 
depression in this country. And I want us to take minimum 
responsibility to use 3.7 percent of what you voted to avoid a 
depression. It is a no-brainer, in my view. This is not a hard 
one. It is hard for you to be a bank, but you already voted for 
the $700 billion. Get the Treasury to be the bank. And get on 
to avoid a disaster.
    This is not an industry, by the way, that is in collapse. 
We are not saving the buggy whip industry. This is an industry 
where world production rose from 60 to 70 million units per 
year in the last 8 years, 62 to 70 million units. This is an 
expanding global industry.
    Mr. Watt. Dr. Slaughter, briefly because I am way out of my 
time. So--
    Mr. Slaughter. Very briefly, Congressman. Just to echo what 
Professor Sachs said, this industry is already becoming very 
global. It was the Big Two for a while in the sense that--if 
you recall, Daimler owned Chrysler for some number of years. 
The other thing I would emphasize comes back to what 
Congressman Green talked about, the importance of jobs. The 
industry is continuing to grow in part because of the stunning 
productivity growth that is realized in large part because of 
the global engagement, meaning the Big Three today in the 
United States, they directly employ a little over 200,000 
workers. That number is likely to continue to go down in terms 
of the number of the people who work for them. One of the big 
public policy challenges we all face again is thinking about 
where the good jobs and good wages are going to come from in 
the future, because one of the things productivity growth does 
in those companies is it takes it away from those firms itself.
    Mr. Watt. That is another discussion for another day of 
where they are coming from.
    The gentleman from California.
    Mr. Campbell. Thank you, Mr. Chairman. I wanted to make 
first just a comment, a little bit on something you mentioned 
Mr. Sachs about the CAFE regulations and so forth. Let's 
remember the Chevy Volt may be a great car but they are not 
going to make any money with it, at least not right away. 
Toyota has not made any money off of Prius. In fact, they have 
lost money on every single copy in spite of its enormous 
success in the marketplace. Toyota is having a profitability 
problem now because the Sequoia and the Tundra, the big trucks 
and the big SUVs where they make all their money, too, aren't 
selling. Now eventually maybe these higher technology mileage 
cars will become profitable. But they are not now. And maybe 
the model of the Mini Cooper which is a small but expensive 
car, which is very profitable for BMW, can be adopted by other 
automakers. But that also is not going to happen in the next 2 
months or 3 months or 6 months or a year because of the lead 
times in the auto industry.
    So I just hope that as we all are looking at this thing 
that we don't give with one hand to the auto industry and take 
with the other. And let's remember, we can't get out of this 
thing unless car companies make money, and right now they can't 
make money on hybrid vehicles. They may be able to eventually 
but right now they can't do it. Let's not--I hope we don't make 
them sell something that they can't make money on and not sell 
something that they can and have some transition involved in 
this as this whole thing goes forward.
    That is just a comment I wanted to make. But then I wanted 
to ask, Ms. Sykora, I remember after 9/11, remember the after 
effects here. Nobody bought cars, nobody bought houses, nobody 
went on airplanes, nobody went to restaurants. Everything was 
shut down. I still think that we don't give enough credit to, 
but that General Motors actually pulled us out of that when in 
December of 2001 they came out with their 0 percent financing 
on every car and truck they offered for 60 months and 
everything. That people were afraid at that time. They had 
fear. It was security fear. Different than the fear now. Now it 
is financial fear. It was a security fear. And people said, 
well, I am scared but that is a heck of a deal. I had better go 
check that out. Ford matched it, Chrysler matched it. And we 
went from there. And in my 25 years in the car business, nobody 
had ever offered a deal like that, anywhere close to that, and 
it got people up.
    Obviously, we wouldn't be here today if it weren't for the 
fact that General Motors is not strong enough to do that 
anymore. But the Federal Government may be. I think in your 
testimony that you didn't get to, you talked about a refundable 
tax credit or some other things. What can we do or what should 
we be doing because eventually for anything to work, we do have 
to have consumers back in showrooms at least looking at cars? 
And then hopefully we can get them financed and they can buy 
them.
    Ms. Sykora. I think the point you make about an economic 
stimulus to get consumers in the showroom is very important. 
And the legislation that was introduced today, H.R. 7273, that 
is making the interest payments on car loans and sales tax 
deductible, is a great way to start that. Senators Mikulski and 
Bond have that same measure in the Senate.
    The other thing that Congress could do would be to fund 
State programs, cash for clunker type programs like the ones in 
Texas and California that encourage vehicles to trade their 
older vehicles in for more fuel efficient models. And I think 
there was a Representative earlier here today who said his 1999 
Jeep might qualify for something like that. But these types of 
programs, that is what stimulates the economy, and yet they 
still provide that environmental benefit as well.
    Mr. Campbell. You talked about the sales tax. My concern is 
that it is not immediate enough, that it is not--as you well 
know, people, you know, cash in their pocket. When you are 
selling a car, you need to put all the numbers together, the 
down payment and the payment and make sure it works for the 
customer or they don't buy the car. And to say that--and tax 
deductibility, that is great. But to say that you might get 
some money back on your tax return 12 months from now doesn't 
help somebody buy a car today.
    Ms. Sykora. You are right. We are seeing consumer 
confidence at a record low. And failure to act to restore 
confidence, failure to do anything is going to have severe 
consequences. I don't think we can take the chance of further 
eroding consumer confidence.
    Mr. Campbell. Okay. Thank you very much. I yield back my 
time.
    Mr. Watt. The gentleman from Texas, Mr. Green.
    Mr. Green. Thank you, Mr. Chairman. Mr. Slaughter and 
everyone, welcome. I would like to visit with you for just a 
moment if I may. I have a summary of the draft of the rescue 
bill before me, and I am interested in knowing what part of it 
do you find deficient.
    Mr. Slaughter. Congressman, I don't have any particular 
comments on the bill per se. I guess it is the idea of whatever 
Federal taxpayer dollars we are going to allocate to supporting 
the automobile industry broadly defined, thinking about whether 
we want to use it to support the companies themselves or use it 
to support their workers in their communities in whatever 
eventuality is going to play out in the product market in terms 
of mergers--
    Mr. Green. Let me ask you this if I may, because time is of 
the essence. This is a loan, so it is not a bailout. It may be 
considered a means of helping them out. But it is a loan. The 
bill specifically indicates this, and it indicates that there 
are terms, 7 years, 5 percent the first 5 years, 9 percent 
thereafter, no prepayment penalty. We have a superior position 
with the obligations that are accorded us. What part of this 
loan creates a problem? We did lend to Chrysler before. They 
did repay. We did make money. What part of the loan is a 
problem?
    Mr. Slaughter. I would point out, Congressman, that the 
operating losses of the companies this would be extended to 
have been large and accelerating in the past--recent times. So 
if you would looked at calendar year 2007 and the first 9 
months of 2008, for Ford and General Motors, between the two of 
them their total operating losses were $76.1 billion over that 
21-month period.
    Mr. Green. Did you support the loans to AIG?
    Mr. Slaughter. I am sorry. Could you repeat the question?
    Mr. Green. AIG has received loans from the government.
    Mr. Slaughter. I do support the extension of loans made--
    Mr. Green. You support $85 billion, September 16th, to AIG. 
Do you support $37.8 billion, October 9th, to AIG?
    Mr. Slaughter. I do.
    Mr. Green. Do you support an additional $40 billion on 
November 10, 2008, all of this in 2008, to AIG?
    Mr. Slaughter. I do.
    Mr. Green. Why would we assume that AIG is more deserving 
than the Big Three? AIG, Big Three, all in need. Why AIG and 
not the Big Three? Why an entire industry? Why would we neglect 
that entire industry? AIG is a privately held company. This was 
the largest bailout of a privately held company in U.S. 
history. Why would we bail out AIG and not the Big Three?
    Mr. Slaughter. In principle, Congressman, it is because of 
the systemic risk that firms and capital markets face and 
present to the whole economy when they--
    Mr. Green. I think that is a fair comment. What about the 
systemic risk that people who are working for the Big Three 
face if they lose their jobs to a Chapter 11 that becomes a 
Chapter 7 by virtue of a lack of credit?
    Mr. Slaughter. I agree that the Big Three have linkages to 
the other firms in the economy, the suppliers and the dealers 
that we have talked about. However, it is my belief that the 
degree of systemic risk and the magnitude of that to the 
overall economy is less than what is presented by the trouble 
we have seen in our capital market companies in recent times.
    Mr. Green. And one final comment. We have allowed AIG to go 
to the coffer, the public trough, if you will, one, two, three 
times. If the auto industry does not succeed with this first 
offer of help as opposed to a bailout because it is a loan, and 
we are talking about saving an industry, is it abhorrent to 
think that there may be some additional help needed to save an 
industry?
    It was indicated earlier--and some things bear repeating. 
The Japanese are not going to allow their industry to fail. The 
Germans are not going to allow their industry to fail. And by 
the way, I salute them. This is not saying it in a demeaning 
fashion. This is just a matter of fact. We don't know the 
consequences of allowing this industry to fail. It may take 
historians looking through the vista of time to properly 
comprehend what happened and what will happen to us as a 
result. If we must err, maybe it is on the side of trying to 
save an American industry that has an impact on every life in 
the United States of America.
    Thank you, Mr. Chairman. I yield back.
    Mr. Watt. Mr. Manzullo is recognized.
    Mr. Manzullo. Thank you, Mr. Chairman. I appreciate you 
folks coming today. As I go down the list of people who want 
money, we start with the banks. And I find it interesting that 
Bank of America would get $25 billion and then cut off 
somebody's credit.
    Mr. Watt. Just $15 billion.
    Mr. Manzullo. Just $15 billion. And Mr. Chairman, I would 
like to see us have another hearing to bring in the chairman of 
the Bank of America and ask him what he is doing with that $15 
billion. But that is the problem. Your problem is lack of 
sales. If you had sales, you wouldn't be here. You would be 
back home selling cars and taking care of the manufacturers. 
But if you think that the Federal Government could be 
successful in helping you out, you can start first with the 
Bank of America on getting $15 billion and then, Ms. Sykora, 
cutting out one of your own on a line of credit. That is how 
government programs work. They stink. They don't work. And then 
what you are proposing is that the dealers be included in that. 
So then some big guru in charge of dealers will make a decision 
on which ones get the money, and the ones that have worked all 
their lives and paid off most of their debt will probably be 
the least likely to get some type of a loan. And then if you go 
down the line to the folks at MEMA, you have 700 suppliers but 
tens of thousands of subcontractors. Where do you draw the 
line? And who determines who gets the money there?
    And sitting in the audience here, we have people from 
cities, States, counties, the universities are here. California 
wants $5 billion a year for the next 3 years. The money is not 
there. It is not there. If it were there--I mean, after a 
while, we are going to be like the old German republic and to 
buy a car, you are going to go with a wheelbarrow full of 
currency and the people who work at the dealership would get 
paid every hour because of inflation. That is why I voted 
against the bailout because of the fact that people like 
yourselves would look to Washington to say, we want part of 
this, but it is really not going to help. If you want to get 
something to help, the easiest thing to do is for Congress to 
pass a law--we could do it today. The President would sign it--
which would to say if you buy a new or a used car, because if 
you have a tax credit that applies to used cars, what is going 
to happen to your used car inventory? And that is where you 
guys make your money, is on the cars that are traded in. But if 
you have a tax credit that applies just to--that applies if you 
buy a new or used automobile, then the intended source is 
immediate. In other words, if you buy a $20,000 automobile but 
you know you are going to get a $5,000 tax credit, that is 
quite a discount on the car. That infuses the money into it 
directly.
    But I have a question. Is it ``Sykora?''
    Ms. Sykora. Yes.
    Mr. Manzullo. Who does your floor financing?
    Ms. Sykora. I finance mine with Ford Motor Credit.
    Mr. Manzullo. Did they cut you off?
    Ms. Sykora. No. But they have taken a look at what they 
call rate of travel, how quickly you are moving their vehicles 
and giving us boundaries that we must stay within.
    Mr. Manzullo. Could you pull the microphone a little bit 
closer? You are very soft spoken. Thank you.
    Ms. Sykora. They have restricted what we are allowed to 
finance, how much money we can have on that floor plan line by 
our rate of travel, how often we are selling those vehicles. So 
they have taken us from unused from a 60-day to a 45-day, 
trying to get us to a 30-day rate of travel. So that restricts 
my abilities.
    Mr. Manzullo. Has that restricted your ability to sell 
automobiles to prospective buyers?
    Ms. Sykora. What is restricting our ability to sell 
vehicles right now is the consumer confidence.
    Mr. Manzullo. Right. Right. So even if you qualified for 
the bailout and somehow this money found its way to--how many 
dealerships are there across the country? Is it 5,000?
    Ms. Sykora. 20,000.
    Mr. Manzullo. Even if funds made it to 20,000, you have the 
problem of who among them gets the money, how much, who 
determines that, who metes it out. Then you go down the line to 
MEMA, the subs, the subs' subs, and then the cities and the 
villages. I don't think that is going to work.
    Ms. Sykora. Well, point of clarification, we aren't asking 
for any of the money. Now some of the Representatives have 
proposed that as questions to the automakers if they would be 
opposed to having some of that for the dealers. But as dealers, 
we are not here asking for that.
    Mr. Manzullo. Okay. MEMA is?
    Ms. Sykora. MEMA.
    Mr. Manzullo. All right, thank you. I think--I guess, Mr. 
Chairman, if you want to let him answer the question, but that 
is up to you.
    Mr. McElya. First of all, we have heard a lot from the 
supply--or from the car companies over the last 2 days. One of 
the big concerns that the supplier industry had was if one of 
these car companies go bankrupt and all the receivables that 
the suppliers have, it would be just a huge collapse in the 
supplier industry. We are on thin edge as far as our financing 
and liquidity. What we heard--I think I heard--hopefully it is 
in the record--was that the car company said that if they get 
the bailout, the one thing they will do is pay their suppliers. 
That is how they are going to use the money. That is the main 
concern for the supply base. This is a huge, huge problem. Once 
one of these companies go, statistically, of the top 100 
suppliers to Chrysler, 96 of those 100 are common to Ford and 
General Motors.
    Mr. Manzullo. I understand that. But Bank of America was 
supposed to take the money and infuse it into the line of 
credit and help people out and they took the money and they 
went through the line of credit and you have no guarantee--
    The Chairman. Time has expired.
    Mr. Manzullo. Thank you, Mr. Chairman.
    The Chairman. The gentleman from Colorado.
    Mr. Perlmutter. Thanks, Mr. Chairman. And Ms. Sykora, 
listening to you and then also talking to some of my friends 
from Colorado, it is sort of a twofold problem that you see at 
your dealership. One, your demand is down and, two, people who 
come into the stores, many who may have qualified at some point 
in the past don't really qualify now. So it is a credit and a 
demand, is that what you are seeing?
    Ms. Sykora. Yes, especially in some certain regions where 
credit is already constrained because of other problems. In 
some regions, that is not the case. So that is why we are 
wanting customers to, you know, go to their local dealership 
because if they have a good job, good credit, we are probably 
going to find credit available. It is one of the reasons that 
dealers have multiple sources of financing available for 
customers. It is obviously a good thing we do.
    Mr. Perlmutter. Well, and this maybe goes more to the 
economists on the panel. But it is almost as if demand for just 
about everything has fallen off the table in the course of the 
last 45, 60, maybe 90 days. I mean, I was trying to ask a 
question. I don't think I asked it right of the prior panel. 
How much are they going to need? What is it per month? Is $25 
billion going to get us there? Is there some other way to 
approach this?
    So gentlemen, look into your crystal ball and tell me, you 
know, you heard their numbers as to what they lost last 
quarter. This quarter is probably going to be about the same I 
would imagine, or worse. I don't know. What do you think?
    Mr. Sachs. I think there are two endpoints to this process, 
successful endpoints. One is that there is a recovery. 2010. 
Next year is not going to be a good year. It is going to be a 
very tough year. 2010 we should, if things are not in 
calamitous shape--of which a GM bankruptcy, for example, would 
make a calamity--have a recovery. The second thing that should 
happen, and not just normatively but I expect to happen, is 
that the banks start working again. And that means that when 
they go for more, they will go back to banks and they will go 
back to the bond markets. We are having risk spreads that have 
never been seen in history right now. So they can't borrow in--
they can't even borrow 7-day or 30-day much less for 5-year or 
10-year notes, which would be a normal way for them to fund 
through a recession.
    Recessions are not extraordinary. What is extraordinary is 
no banking sector. We are a $15 trillion cash and carry economy 
right now. And TARP has not yet worked really--it has done for 
overnights and it has brought LIBOR down a little bit and it 
has things starting to unstick. And it will work, especially 
with a new government, with coherent vision and so forth. But 
we don't have that yet. And there is no bond market for them to 
turn to either.
    So the two ways out of this are economic recovery and 
financial market functioning again, because they will go back 
to financial markets. And I would say to the Congressman's 
question, it is not only the consumer demand. It is actually 
financing the new models. It is financing their several 
programs that they have in place, which is quite expensive, a 
tremendous amount of tooling that needs to be done. And that is 
billions of dollars of spending.
    Mr. Perlmutter. Okay. So my question and then--what do you 
think in terms of how long is the $25 billion going to last?
    Mr. Sachs. I think you will get through 2009, and I think 
that you will start to use section 136 for some of this also. 
And I expect that they won't come back to you. I expect that 
they will go back to the financial markets. At least, that is 
what I would hope.
    Mr. Perlmutter. Dr. Slaughter?
    Mr. Slaughter. If you think of the $25 billion being 
applied to cover the operating losses the companies seem to be 
realizing in realtime and across the three companies, given 
what information they have put in the public domain and what 
information they have provided about the future, I would think 
something in the neighborhood of 3 to 6 months. As Dr. Sachs 
said, there are a number of other intangibles that feed into 
what is going to be the performance of these companies. I will 
come back to, for a lot of these companies, it is their foreign 
sales and profits in certain foreign markets that have really 
been balancing out the sharp decline in the U.S. market that 
they have seen in recent times.
    So part of the answer to that question depends on what 
happens with economic growth all over the planet literally.
    Mr. Perlmutter. Are you optimistic on the dethawing of the 
financial markets so that there will be a place for them to 
borrow money if necessary?
    Mr. Slaughter. I am optimistic in the sense that it is 
thawing. I mean some of the spreads that Dr. Sachs referred to 
have been coming down in the past several days and a few weeks 
relative to the levels they hit in mid-September. I, like many 
other people, don't have great visibility about when we might 
get back to the type of lending activity we had 12 to 18 months 
ago.
    The Chairman. I would ask indulgence from the two 
economists who just said what they said. Would it be fair for 
us to say that the passage of the $700 billion bill is some 
part of the reason why we are seeing the credit markets 
improve?
    Mr. Sachs. Absolutely. Without that, we would be in a 
disaster.
    The Chairman. Professor Slaughter?
    Mr. Slaughter. Yes. Yes. I fully agree.
    The Chairman. Thank you. You have justified for me a very 
long day.
    The gentleman from Illinois.
    Mr. Foster. Thank you. First, I was wondering if you could 
give us some estimate of what you consider the aggregate 
overcapacity of the automobile industry and just in normal 
economic times right now in terms of the--the aggregate 
overcapacity. I think there is a general consensus that even if 
things are maintained, you know, relatively normal economic 
conditions, there was an overcapacity both in terms of the 
number of vehicles built per year, the number of dealerships, 
the number of brands supported by the manufacturers and so on. 
And so you could talk about those in optimistic scenarios in 
which things return to normal or pessimistic ones in which they 
continue. And I was wondering if you have any numbers on that.
    Mr. Sachs. Let me say, first of all, at a global scale, 
this is an expanding industry and a pretty rapidly expanding 
industry, actually. Because the car penetration in places like 
China and India remain very low. But that is not 
inconsequential for American built automobiles because if we 
have open markets we can also export from here. So I would not 
discount that possibility. Of course we have to break through 
trade barriers. But in terms of capacity, as you ask, 
Congressman, it is a growing global industry. Domestically I 
think it is quite interesting. We have 240 million vehicles 
more or less on the road right now in the United States. And if 
you just look at the replacement rates at a 15-year cycle for 
those vehicles, you are already up to 15, 16 million units a 
year, at least, not even taking into account further growth.
    So I don't view this as an industry in significant decline 
where we are trying to break the decline. I don't view it that 
way. I view it as an industry in significant technological 
change because we can't go on with the kinds of cars that we 
had before. The physical environment and our energy security 
won't permit it anymore. So we are in a transformation. But I 
don't think we are in a terrible downward consolidation. That 
is my own assessment.
    Mr. Foster. Are any of the Big Three net exporters or 
importers? Are they all net importers?
    Mr. Sachs. Well, some models they are exporting, other 
models they are importing. Net, I don't know the most recent 
data.
    Mr. Slaughter. Two things, just to build on what Professor 
Sachs said. One, it is very hard to answer that question, 
particularly in the North American region. We have had 
integration between the automobile markets in Canada, the 
United States, and Mexico dating back to the auto pact in 1965, 
and it was extended further with the North American Free Trade 
Agreement. That speaks to one of the fine points Dr. Sachs 
made, which is it is hard--another factor in trying to answer 
your question is the productivity gains that the Big Three, 
like the foreign auto producers in the United States, have made 
that the CEOs discussed earlier, part of what that means is how 
much overcapacity there is is really a moving target in the 
productivity gains that they are making and what seems to be 
happening with demand not just in the United States but in a 
lot of these foreign markets as well.
    Mr. Foster. And then the issue of dealerships, which you 
can see mentioned in the press, the disparity and then 
dealerships per car sold for the Detroit Three versus the 
imports. I was wondering if there were any numbers worth 
talking about on that.
    Ms. Sykora. Because I am from Texas, I talk a little slow, 
and I didn't get to some of that point in my oral testimony, 
but in the 1950's, we had 50,000 dealerships and there has been 
an orderly decline in the number of dealerships through market 
conditions. But it has always come at a cost. It comes at a 
cost of convenience to the consumer and competition that keeps 
prices low for consumers. But I think what is really important 
to realize here is that dealers aren't a cost problem to the 
manufacturer. We bear the external costs of providing the 
distribution network, something that they don't have the 
resources to do, and that our dealer network actually does 
increase convenience and competition.
    Mr. Foster. I guess Professor Slaughter, there is the sort 
of floor workouts that people talk about. There is the direct 
loan to avoid a bankruptcy, which I take it you are not a fan 
of. And then there are workouts that are comparable to Chapter 
11 but actually have no bankruptcy filings. It is sort of 
similar, I guess, to what happened to Chrysler. Then there is a 
Chapter 11 but with the government-backed debtor in possession 
financing to ensure that no liquidation takes place and then 
finally a full Chapter 11 with no guarantee of not liquidating. 
I was wondering if you see that the medium--the middle two 
things, the government, sort of a government supervised and 
guarantee of the--to make sure no liquidation takes place but a 
bankruptcy filing or some government organized--something that 
is a virtual Chapter 11 where you get everyone in the room and 
say, okay, everyone, all the concerned parties do the same sort 
of negotiation as a Chapter 11 but not actually having that for 
all the market reasons that people are talking about.
    Mr. Slaughter. I would briefly respond by saying I think 
all those scenarios you lay out are possible. I can imagine 
another scenario, which is a firm being in Chapter 11 and the 
government guaranteeing some of the debt that someone might 
step up to provide in the same way that Treasury and to some 
extent the Federal Reserve have been putting guarantees on 
certain debt instruments in recent times.
    Mr. Sachs. Congressman, we are quite overwhelmed right now 
in our economy and management to be able to manage a very 
delicate operation with thousands of firms and suppliers and a 
catastrophic headline of a bankruptcy of one of these 
companies. My view is it would be an unbelievable gamble under 
normal times and unthinkable right now. So I just wouldn't go 
that way at all for this under the conditions of recession 
verging on collapse. We don't have the bandwidth right now to 
handle another crisis of that magnitude and to negotiate that. 
If in 6 months or 9 months the situation is spiraling downward, 
and the $25 billion was not enough, you are going to come to 
one of those. But this is not the time to come to it right now.
    The Chairman. The gentleman from Missouri. And I apologize 
for overlooking him.
    Mr. Cleaver. Thank you, Mr. Chairman. I have three 
questions and I will do it quickly. I know you have been here 
all day.
    First, Ms. Sykora, I raised this question earlier with the 
CEO from General Motors. But I am very concerned that even with 
an injection of cash, GMAC has not increased the number of 
loans to potential auto buyers. I mean, it is making me nervous 
because how much money do we have to put in to see that the 
credit is unfreezing? Will your association have some 
indication of when a thawing is taking place? And are you 
seeing anything right now? I am going to support this rescue 
package because I think God gave us a neck for a purpose and 
that is to stick it out. So I am going to do that. But I have 
concerns.
    Ms. Sykora. Well, you bring up a good point. And no, we are 
not seeing that thaw for working capital financing for 
dealerships or the inventory financing for dealerships. But I 
think what you heard also the GM execs say is that the Treasury 
funds haven't been used. The TARP funds haven't been used for 
the finance companies yet or they are not experiencing that 
yet. And we are working with Treasury on proposals to help free 
that up so that it makes retail credit more available, which is 
I think what your intent was.
    Mr. Cleaver. Yes. But they are not doing it.
    Mr. Sachs. Not yet.
    Ms. Sykora. Not yet. We feel very encouraged.
    Mr. Cleaver. I mean you can't answer the question about 
when, but--
    The Chairman. If the gentleman would yield, as the 
Secretary sort of indicated to us yesterday, he doesn't plan to 
use any of the additional money except if we were able to push 
him into mortgages. He is talking about doing something, the 
credit facility he has been talking about. That would 
ultimately be helpful there. But that is apparently not until 
the next Administration. So there does not appear to be 
anything that would be responsive to this need on the horizon 
until late January at the earliest.
    Mr. Cleaver. Professor Sachs, this may be more 
philosophical than scientific. But you had mentioned the 
hydrogen car earlier, which was what Chevy had been 
experimenting with, and which also troubles me a little because 
hydrogen is the most gregarious animal on the planet. It likes 
to have a lot of other things around it. And so therefore, a 
great amount of electricity is needed if we are going to 
produce these hydrogen automobiles. And the amount of 
electricity may exceed the cost of using fossil fuel. So is 
this a worthwhile venture for Chevy? Since we are going to 
probably end up giving some money, we need to have some comfort 
with the first $25 billion.
    Mr. Sachs. Yes. Let me be clear. What GM is going to bring 
out in 2010 is a plug-in hybrid, not a hydrogen. So the Chevy 
Volt is a hybrid technology plus a lithium ion battery. And its 
specs are to get 100 miles per gallon for a daily 80-mile 
drive. It is quite exciting. Now, what they are also doing is 
investing on a time horizon that they think is a decade to look 
into so-called fuel cell technology, which is hydrogen fuel 
cells. That is for something maybe in 2020. That is not the 
current but they are investing a lot of money, and I am glad 
they are.
    I wish our government--well, in fact, President-elect Obama 
talked a lot about $150 billion research and development 
program for technology over the next 10 years. One of the 
things of that will be fuel cells to look into it. Your concern 
is a lot of engineers' concerns. Is this the right way to go or 
not? Now how would you produce the hydrogen in that scenario? 
It would be produced in the Mojave Desert with solar power. It 
would be produced in North Dakota with wind power. It would not 
make sense to burn coal to produce hydrogen to put it into a 
fuel cell. So the model of it is an effective fuel cell 
combined with a renewable energy source to hydrolyze water or 
to get hydrogen some other way.
    Mr. Cleaver. Thank you for spending the day with us. Thank 
you.
    The Chairman. Since all Members have completed questions, 
we do have our colleague from New Jersey who is the author of 
the bill. I will recognize him for 2 minutes, if there is no 
objection.
    Mr. Pascrell. Thank you, Mr. Chairman. It is refreshing to 
have a panel talking about Main Street issues. And I must say, 
although the two professors are coming down different paths, 
they have been absolutely nonideological. That is very 
refreshing. And I am sure it is a salute to both you and the 
ranking member.
    Mr. Chairman, I know that this committee does not have the 
authority to amend the Internal Revenue Code of 1986, but I 
think Ms. Sykora has made a very, very compelling argument that 
she feels--and I am not putting words in your mouth so you 
correct me if I am--to allow an above-the-line deduction 
against individual income tax for interest on indebtedness and 
for State and local taxes, sales and excise with respect to the 
purchase of certain automobiles.
    Myself, and Senator Mikulski, have calculated that, on a 
$25,000 car, that would be a savings of around $2,300 or 
$2,400. Do you personally feel, with all the data that is 
surrounding us, that that would be an incentive enough for 
people--and that, by the way, the bill only calls for 1 year 
for this to happen--will that be incentive to get traffic back 
at the places that you are interested in so that people can 
stay in business and people can buy cars?
    Ms. Sykora. First of all, let me thank you for introducing 
that legislation, because we do feel like that is very 
beneficial. Since I don't have a crystal ball, I will just kind 
of take a look back in history and tell you that, you know, 
when that was phased out in 1986, it was over a 5-year period 
of time. And in those final months of 1991, we did experience a 
significant increase in traffic in consumers who wanted to take 
final advantage of that deductibility.
    So it was something they were aware of. Many of the 
consumers that I have talked to remember it, and so I think it 
could be an important stimulus.
    Mr. Pascrell. Mr. Chairman, in conclusion, I hope that you 
will communicate this. I think this is good data.
    The Chairman. Excuse me, but are you no longer on the Ways 
and Means Committee?
    Mr. Pascrell. Yes, sir.
    The Chairman. So who am I supposed to call, you?
    Mr. Pascrell. Being here today, they might throw me off. I 
don't know.
    The Chairman. Members will have the appropriate time to 
submit any further material for the record.
    The hearing is now adjourned.
    [Whereupon, at 4:03 p.m., the hearing was adjourned.]
















                            A P P E N D I X



                           November 19, 2008

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