[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
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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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