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




 
                      REVIEW OF INDUSTRY PLANS TO
                   STABILIZE 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

                               __________

                            DECEMBER 5, 2008

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 110-147

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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                 BARNEY FRANK, Massachusetts, Chairman

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

        Jeanne M. Roslanowick, Staff Director and Chief Counsel


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    December 5, 2008.............................................     1
Appendix:
    December 5, 2008.............................................    97

                               WITNESSES
                        Friday, December 5, 2008

Altman, Edward, Max L. Heine Professor of Finance, Leonard N. 
  Stern School of Business, New York University..................    60
Dodaro, Hon. Gene, Acting Comptroller General, U.S. Government 
  Accountability Office..........................................    59
Friedman, David, Research Director, Clean Vehicles Program, Union 
  of Concerned Scientists........................................    63
Gettelfinger, Ron, President, United Auto Workers (UAW)..........    15
Lester, Damon, President, National Association of Minority 
  Automobile Dealers (NAMAD).....................................    65
Mulally, Alan R., President and Chief Executive Officer, Ford 
  Motor Company..................................................    16
Nardelli, Robert, Chairman and Chief Executive Officer, Chrysler 
  LLC............................................................    18
Rohatyn, Hon. Felix G., FGR Associates, LLC......................    62
Sachs, Jeffrey D., Director, The Earth Institute, and Quetelet 
  Professor of Sustainable Development and Professor of Health 
  Policy and Management, Columbia University.....................    68
Wagoner, G. Richard, Jr., Chairman and Chief Executive Officer, 
  General Motors Corporation.....................................    20

                                APPENDIX

Prepared statements:
    Barrett, Hon. J. Gresham.....................................    98
    Kaptur, Hon. Marcy...........................................   100
    Klein, Hon. Ron..............................................   104
    Lynch, Hon. Stephen..........................................   106
    Moore, Hon. Dennis...........................................   107
    Perlmutter, Hon. Ed..........................................   108
    Roskam, Hon. Peter J.........................................   109
    Altman, Edward...............................................   111
    Dodaro, Hon. Gene............................................   136
    Friedman, David..............................................   150
    Gettelfinger, Ron............................................   154
    Lester, Damon................................................   165
    Mulally, Alan R..............................................   169
    Nardelli, Robert.............................................   210
    Rohatyn, Hon. Felix G........................................   220
    Wagoner, G. Richard, Jr......................................   225

              Additional Material Submitted for the Record

Frank, Hon. Barney:
    Letter to Hon. Nancy Pelosi and Hon. Harry Reid from 
      Attorneys General of the States of Vermont, California, 
      Connecticut, Maryland, Massachuestts, Oregon, and Rhode 
      Island, dated November 17, 2008............................   262
    Statement from Ford Motor Company entitled, ``Systemic Risk''   264
    Statement from General Motors Corporation entitled, 
      ``Collateral Damage''......................................   266
Capuano, Hon. Michael E.:
    Written statement from the University of Oregon, dated 
      December 3, 2008...........................................   268
Waters, Hon. Maxine:
    Letter to G. Richard Wagoner, Jr., dated December 5, 2008....   271
    Letter to Robert Nardelli, dated December 5, 2008............   272
    Letter to Alan R. Mulally, dated December 5, 2008............   273
    Letter to G. Richard Wagoner, Jr., from Hon. John Lewis, 
      dated December 1, 2008.....................................   274
    Article from The New York Times entitled, ``Auto Dealerships 
      Teeter as Big Three Decline,'' dated November 30, 2008.....   279


                      REVIEW OF INDUSTRY PLANS TO
                   STABILIZE THE FINANCIAL CONDITION
                  OF THE AMERICAN AUTOMOBILE INDUSTRY

                              ----------                              


                        Friday, December 5, 2008

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 9:30 a.m., in 
room 2128, Rayburn House Office Building, Hon. Barney Frank 
[chairman of the committee] presiding.
    Members present: Representatives Frank, Kanjorski, Waters, 
Maloney, Watt, Ackerman, Sherman, Moore of Kansas, Capuano, 
McCarthy of New York, Lynch, Miller of North Carolina, Scott, 
Green, Cleaver, Bean, Moore of Wisconsin, Hodes, Klein, Wilson, 
Perlmutter, Donnelly, Foster, Speier; Bachus, Castle, King, 
Royce, Lucas, Manzullo, Biggert, Capito, Hensarling, Garrett, 
Brown-Waite, Barrett, Gerlach, Price, and McCotter.
    Also present: Representatives Kaptur and Levin.
    Also present: Senator Stabenow.
    The Chairman. This hearing will come to order. We are going 
to be very strict with time today. Because this is an important 
issue, there is a lot to be done. Members will be held strictly 
to 5 minutes, which means if you ask a question that takes 4 
minutes and 47 seconds to ask, you will get a 13 second answer. 
And we cannot accommodate, frankly, sloppiness in asking 
questions, and then let that be an excuse for extending the 
time. Under our rules, the minimum amount of time we can do for 
opening statements is 40 minutes. The Minority has requested 
the full allocation, so we will proceed immediately to our 40 
minutes of opening statements. We started a half hour early, so 
we will get started at 10:00.
    We are going to dismiss this panel at 12:30. Because we did 
not want it to be simply the auto industry itself, we have a 
second panel as well, so we will move as quickly as we can 
under the 5-minute rule.
    I will begin with my opening statement, and the clock 
starts now. Context is especially important this morning. A 
failure to some extent of three of our major domestic 
manufacturing entities would be a very serious problem in any 
case, but in the midst of the worst economic situation since 
the Great Depression, it would be an unmitigated disaster. The 
Labor Department reported this morning that during the month of 
November, there was an increase in unemployment that was quite 
substantial; 533,000 jobs were lost. On a year-to-year basis 
from December of last year to December of this year, we are 
down 1.9 million jobs. We are on track now to lose well over 2 
million jobs obviously in that period. We will lose close to 2 
million jobs in this year alone. Given that, any effort to 
denigrate the negative impact of substantial job loss and 
economic cutbacks in this industry has to fall. We operate, as 
we said, in this very difficult context.
    It is important to note here that--and, again, I guess the 
issue is, should we just be very hard-nosed and say let them go 
bankrupt? There is a consensus that substantial reorganization 
is needed, there is a consensus that a change in the product 
mix is needed, there is a consensus, and I congratulate Mr. 
Gettelfinger in the Union that economic times being what they 
are, everything has to be looked at, including further 
concessions which the Union had already made, and there was 
some very important ones that were put out there. All of that 
can be done by rational people in a sensible atmosphere. What 
bankruptcy adds is the ability to walk away from debt. The fact 
is that while we have this serious job loss, we continue to 
have a serious credit crisis in this country. We have a double 
whammy. And permission to these three large entities to stop 
paying their debts, that is called bankruptcy, would greatly 
exacerbate the credit crisis.
    I was given by my colleague from Michigan, Mr. Levin, who 
has been, along with the other Members from Michigan, both 
Democratic and Republican obviously, very much involved in 
this, as well as the Members from Ohio, very important numbers 
about what the impact would be if we were to have these 
entities stop paying their debts. Now, we have had a pattern of 
intervention that this Administration has led of trying to 
prevent people from not paying their debts. Not because of 
concern for them, but because of the impact it would have on 
other people, on the creditors. We have not, on the whole, 
bailed out debtors. We have gone to the rescue of creditors.
    In every one of those cases, there have been restrictions 
imposed on the debtors. That will clearly have to be done here, 
and everyone should understand that. The companies have made 
some proposals. I hope we will do something, because I think 
for us to do nothing, to allow bankruptcies and failures in 1, 
2, or 3 of these companies in the midst of the worst credit 
crisis and the worst unemployment situation that we have had in 
70 years would be a disaster. And one of the things that I do 
want to note, that people have said, well, you know, a lot of 
mistakes were made, the companies made mistakes, Congress made 
some mistakes, we didn't increase CAFE standards, etc. Yes, a 
lot of mistakes were made. The relevance of that it is partly 
this.
    It would be nice if we could line up all the people who 
made the mistakes and punish them in a way that would make no 
impact on the innocent. I think all of us remember in school 
the teachers we hated most were the teachers who said if one 
person misbehaved, the whole class would get extra homework. I 
don't want to give the whole country extra homework because 
automobile executives in the past misbehaved. We have to 
separate out unhappiness and anger over things not done in the 
past from the consequences now, and that is what we have 
focused on. Yes, a lot of mistakes were made. The auto 
companies made mistakes, unions made mistakes, politicians made 
mistakes. The media hasn't always distinguished itself, 
although you are not supposed to say that. The consequence of 
all those mistakes is that the country is to some extent held 
hostage. We need to free the country. And that is the focus.
    Yes, there have to be changes that are made and sacrifices 
made. But the focal point is not to punish those who made the 
mistakes. It is to prevent further damage to the country, and 
it is in that context that this committee will proceed. The 
gentleman from Alabama is now recognized for how many minutes?
    Mr. Bachus. Five.
    The Chairman. Five minutes.
    Mr. Bachus. Thank you, Mr. Chairman. Mr. Chairman, I want 
to begin by noting that before the present financial crisis 
hit, many of the trends in the domestic automobile industry 
were positive. The unions had made concessions, the cost had 
come down, the quality was up. Perception, I don't think, has 
caught up with reality in that regard. The reality is that 
Detroit is making good cars. Having said that, our number one 
obligation must be the taxpayer. But we must also recognize 
that a failure of GM or Chrysler would have a detrimental 
effect on America, particularly at a time when our economy is 
under such stress. All of us should remember that government 
has no money of its own. In order to give, it first has to take 
from the American people. As I have said since day one, taking 
from the vast majority of citizens whose wages, health 
benefits, and pensions plans are less generous than those of 
the management and labor force at the Big 3 appears neither 
right nor fair.
    Personally, the only course I could possibly endorse would 
be limited transitional assistance to allow the American 
domestic automobile industry to return to solvency and 
profitability. But then, only if there is a reasonable 
expectation of success. I am convinced that short of a 
protected restructuring of General Motors or Chrysler, the 
domestic automobile industry will not be successfully remade 
and there will be no lasting solution to the considerable 
challenges that it faces.
    Such a restructuring is essential, not only for GM and 
Chrysler, but for the future of Ford and the hundreds of 
companies which supply and support all automobile makers in the 
United States, foreign and domestic. That is why I have invited 
Professor Edward Altman to testify at today's hearing. He 
proposes not a bailout, not a bridge loan, but a restructuring 
that promises to place the U.S. automobile industry on a path 
to long-term viability. Professor Altman's solution--or ones 
like it--certainly appears to be preferable to the continued 
deterioration and ultimate failure of the domestic automobile 
industry with its devastating consequences for the country, the 
economy, and the workers and families whose jobs, pensions, and 
health care benefits are dependent on the industry.
    Let me close by saying it is a solution not by Congress 
that I am proposing, but by the industry itself, but with a 
supporting role by the U.S. Government, preferably through the 
participation of those financial institutions which received 
hundreds of billions of dollars of taxpayer money under TARP or 
various Federal Reserve credit facilities intended to be used 
for loans to the American businesses and manufacturers like GM 
Ford and Chrysler and their suppliers. In the event--and I am 
very disappointed that lending has not been available--that 
taxpayer monies are still necessary to support the 
restructuring, monies already appropriated under the 136 
program could be utilized. What we need is a solution, not a 
first installment. Mr. Chairman, I would like to reserve the 
balance of my time.
    The Chairman. The gentleman has used 4 minutes. The 
gentleman from Pennsylvania is recognized for 5 minutes.
    Mr. Kanjorski. Mr. Chairman, we meet today again with 
familiar faces, and I hope we are truly driven to success, all 
of us today. It is not a question of whether or not we want to 
have an automotive industry. I have not met too many people who 
think America does not need one. It is a question of whether we 
can, and if we can, how do we get to that resolve. I just want 
to say that over these last troubling 2 weeks of preparing for 
this hearing, I have come to the conclusion that we are still 
talking at each other instead of to each other. I am a little 
disappointed with the plans submitted because although they are 
much better than the plans submitted 2 weeks ago, they are 
still tentative and not final.
    I listened intently to the testimony yesterday before the 
United States Senate, and several elements of that testimony 
struck me as being very important and something we should carry 
on here. One part of it was the testimony of the expert on the 
question of how much would it really cost. In his analysis, I 
believe it was Dr. Anders or Ambers, indicated his estimate was 
$75 billion to $125 billion. You know, I think at least we have 
one realist and that is pretty good. Nothing wrong with that. 
At least we know when we buy into this picture, what we are 
buying into. As the folks left here 2 weeks ago, it was a $25 
billion request. The new submission is a $35 billion request, 
and they are adding on the additional $25 billion that is in 
the energy bill. That is already $59 billion, so we are not too 
far from the good doctor's estimates. He is giving us another 
$15 billion to $55 billion. I think that is a reasonable range.
    Now, the question is whether we should. As I have concluded 
in my own mind, we should maintain an American automotive 
industry. There is no question about that. I hear some 
arguments made, particularly by Labor, who are friends of mine, 
and they said, well, if you could give $200 billion or $700 
billion to Wall Street why can't you give $34 billion to the 
automotive industry? If we made a mistake in giving $700 
billion to Wall Street, and I don't think we did, I think we 
made a mistake in how we gave it to them. I don't think the 
conditions were sufficient to make sure we accomplish the ends 
that we should have had in providing that kind of liquidity to 
the market. But that is--even if we made a mistake, it is not a 
justification for this Congress to make a second mistake. And 
it is time to me that we don't set this off. I think the 
automotive industry is as important as Wall Street. And I think 
it is all part of the total picture that we have to get to and 
correct.
    So I wish that argument was not made in terms of, well, you 
gave it to them, you now have to give it to us, and then we 
have a line out in front of the building here of 432 other 
industries, corporations, and others that have needs. Some of 
them are going bankrupt in my district, and I am sure they are 
going to ask me, ``Well, Congressman, if you gave the 
automotive industry all that money why can't you take care of 
me and allow me to continue to operate my business and take 
care of my family and have a reasonable existence.'' We are not 
going to be able to do that. Whether we can take care of the 
automobile business really should be determined here and in a 
very short few days ahead. I do not think we have time to right 
the real conditions and the real provisions that are necessary 
for the total recovery of the automobile industry. However, I 
suggest we do have time to come up with the $4 billion 
necessary for General Motors and potentially $4 billion 
necessary in a very short, very small bridge loan for the next 
60 or 90 days to give this Congress a chance to return in 
January, continue working now until January, but in January in 
the new Congress to enact the type of legislation necessary to 
accomplish this end.
    If we are being practical that is what we should be doing. 
This idea that it is late guys, and you have to pass it, you 
have to do it, or nothing; I am afraid a lot of people are 
overestimating the willingness of a goodly number of Members of 
Congress to play chicken. And I think it would be terrible to 
experience that game of chicken and see the automotive industry 
go down because of it. So I suggest that we need some very 
strong activity here to work in conjunction with the Executive 
Branch, both the existing Administration and the future 
Administration, and the Congress to come up with the conditions 
necessary to accomplish an end and finance long-term, for 
viability, the automotive industry of America.
    The Chairman. Next, the gentleman from Delaware is 
recognized for 2 minutes.
    Mr. Castle. Thank you, Mr. Chairman. I have no doubt the 
extended immediacy of the problem. You don't have to spend a 
lot of time, as far as I am concerned, trying to convince us of 
that. I think we all know it is there. I also have little doubt 
that we as Republicans and Democrats in the House and Senate 
would be willing to save the automobile industry in America if 
we can, but we need some sort of assurance it will work, not 
just your words, but plans, and we are trying to work through 
all that now. Then the question becomes, how do we make this 
work? Do we go to the bailout situation numbers, some $25 
billion to $35 billion? Mr. Kanjorski has just talked about 
doing something less on an immediate basis. Do we use the 
Financial Services' bailout dollars which have been discussed? 
Could the Federal Reserve get involved in that?
    Personally, I don't think that you are going to be able to 
borrow from the large financial institutions. In spite of the 
fact they have gotten advances on money, they don't want to get 
into dubious situations themselves at this point, so I think 
that is probably not correct. And I tend to agree with the 
statements about bankruptcy being probably more negative than 
positive in the long-term. So we have to come to closure as far 
as all of this is concerned.
    I am also concerned, as I think we all are, about the other 
jobs out there, the suppliers and the auto dealers. As I look 
at it, just based on your numbers, that is more than half of 
the jobs involved with the automobile industry before you get 
into the related things, such as those who supply those people 
and those kinds of issues. So one question I am going to have 
for you is the financial stability of those entities, and are 
they totally dependent upon you or are there other ways in 
which they are going to need help as well? I think that is an 
important measure in terms of what we have to worry about here.
    And finally, I think we have to worry about oversight and 
accountability. If we go back and look at the Financial 
Services bailout, that is an area where perhaps we did not 
distinguish ourselves, and that is probably not something you 
really want to hear. But we may need to be more involved in 
sitting down with your people and determining are these plans 
which are working, are the steps which are being taken pursuant 
to those loans actually working, are we turning this around? 
That is a significant part of it. And I hope you would not be 
dismissive of that, but embracing of it in a way that we can 
all work together. This is taxpayers' money we are dealing 
with. We want to protect jobs. We want to make darn sure we 
protect those dollars as well with some repayment as far as the 
future is concerned. I yield back the balance of my time.
    The Chairman. The gentlewoman from California is recognized 
for 2 minutes.
    Ms. Waters. Thank you, Mr. Chairman, for arranging this 
second hearing on America's automobile industry. Several weeks 
ago, the automakers came before this committee and spoke in 
generalities on why they need assistance from the Federal 
Government. At that time, there was no plan for long-term 
viability. Now that the automakers have submitted a plan, I am 
concerned--they have submitted a plan, but I am concerned about 
the plans that will be discussed today and how they will impact 
those, such as small car dealers, who are dependent on the auto 
industry to earn a living.
    Several weeks ago, we were told that a collapse of the Big 
3 would lead to the loss of 3 million jobs. Yet it seems that 
these plans still involve some paying for workers employed by 
the Big 3. GM, for example, states in their plan that they plan 
to cut at least 30,000 jobs by 2012. In bailing out the Big 3, 
we can't forget the needs of Main Street and the impact these 
plans will have on every day working Americans and the 
communities in which they live. This is true especially in 
light of the fact that we are still in the midst of a 
foreclosure crisis and America's struggling homeowners are in 
need of assistance. This brings me to the Nation's small car 
dealers. In their plans, each auto maker states that they have 
too many dealers and need to downsize. Ford says that it plans 
to work collaboratively with its dealers to reduce its dealer 
network. GM says that it plans to slash its dealer network by 
35 percent. Chrysler simply says that it plans to rationalize 
its dealer network without providing any specifics. What none 
of them say is what the impact this rationalization, 
consolidation, or reduction in the number of dealers will have 
on those dealers and the local communities and local economies 
they support. On November 30th, The New York Times published an 
article entitled, ``Auto Dealerships Teeter as Big 3 Decline.'' 
I am interested, Mr. Chairman, in trying to understand how this 
bailout will help the small dealers. I yield back.
    The Chairman. The gentleman from New York, Mr. King, is 
recognized for 2 minutes.
    Mr. King. Thank you, Mr. Chairman. I want to thank you and 
the ranking member for conducting this hearing. I want to thank 
the gentlemen for appearing today. And I associate myself very 
much with the remarks of Mr. Castle. There is no doubt that 
this has a severe impact on the economy. The concern I have is 
not whether we should do something, but do we know what we are 
doing, do we know exactly what it is going to achieve? There is 
no doubt that with the $700 billion, we thought we were doing 
one thing, and it ends up the Treasury Secretary is doing 
something else. And so my concern is, even though we are 
talking about taxpayers' dollars, if I thought that the money--
if I was reasonably convinced that the money was going to work, 
then I would support it. And I am not saying I won't.
    But really that is what I am looking for, is that we will 
have some reasonable expectation that whatever we do has a 
reasonable chance of working, because no one wants to lose 3 
million jobs with the impact it would have throughout the 
economy. As the chairman pointed out, I believe it is another 
half a million this month are unemployed, and hundreds of 
thousands more over the course of the next year, if not more. 
So what I am going to be listening to carefully today is, what 
are the chances of this working, can we do it in the amount of 
time we have available? Mr. Kanjorski is right, we should do 
something transitional. But the fact is that the time for 
posturing is gone, the time for partisanship is gone. We have 
to address this very, very seriously. I think this hearing is a 
very sound step in that direction, and I yield back the balance 
of my time.
    The Chairman. The gentleman from North Carolina is 
recognized for 1\1/2\ minutes.
    Mr. Watt. Thank you, Mr. Chairman, and thank you for 
convening the hearing. I have been conducting my own market 
research for the last 2 weeks, actually, in dealerships, 
talking to people like Ernel Simpson and George Duran and 
Reggie Hubbard and Anthony Wilder, who are salespeople and 
owners of local dealerships. And there is a serious problem 
exemplified most prominently by Ernel's statement to me that he 
didn't sell a single car in October of this year. We know there 
is a crisis. People are not buying. And if people are not 
buying, there is not going to be any working capital or 
turnover of money.
    I also went this morning and looked at the next generation 
of cars that are out in front of the Botanical Gardens. And I 
want to encourage my colleagues, if they have an opportunity 
today, to do that. All of them are in the development stage. 
But if these manufacturers go into bankruptcy, they will never 
get out of the development stage and into the implementation 
stage, which is what is necessary to maintain the manufacturing 
base here in the United States.
    So this is important. I am trying to keep an open mind, 
learning as much as I can about the crisis and what we can 
reasonably do to bridge this gap. I think we need to do 
something, and I am hopeful that we will come up with a 
solution. I appreciate the witnesses being here, and I yield 
back the balance of my time.
    The Chairman. The gentleman from Illinois, Mr. Manzullo, is 
recognized for 1\1/2\ minutes.
    Mr. Manzullo. Mr. Chairman, thank you for holding this 
hearing to give us an opportunity to discuss the restructuring 
plans. The main flaw I see in these plans is the assumption 
that the demand for cars will naturally rise during tough 
economic times. If Congress just gives the Big 3 a bridge loan 
to pay their normal operating expenses but does nothing to 
increase the demand for the vehicles, we have not solved any of 
the long-term problems, and not helped the tens of thousands of 
people in my congressional district who are impacted by this 
crisis, including the great workers at the Chrysler plant in 
Belvedere, which makes the world's finest compact autos, the 
Caliber, Patriot, and Compass.
    We need to encourage Americans to start buying cars again, 
and that is not in any of the plans. We should give Americans 
tax incentives, tax credits, to encourage them to buy cars. 
None of your plans has any statement, aside from one sentence 
on page 26 of GM's, about how we get sales moving again. On top 
of this, GM wants to become a commercial bank with the ability 
to handle consumer checking accounts and compete with local 
banks, credit unions, and local facilities of national banks 
that the Big 3 shoved out of the auto credit market years ago, 
and which, in fact, have plenty of money to lend to consumers 
who want to buy your cars, but which you say there is no money 
for American consumers to buy your automobiles.
    I look forward to your testimony. I want to make sure that 
the people I represent are helped out. But the plans that you 
have given and the new plans are woefully insufficient because 
they do not address demand.
    The Chairman. The gentleman from New York, Mr. Ackerman, is 
recognized for 2 minutes
    Mr. Ackerman. We don't always have a second chance to make 
a first impression. Welcome back. The situation in which we all 
find ourselves, certainly with this economy, is not one of your 
making. But the condition of the auto industry is one of your 
making. We are faced with a reality that we have given away 
almost $1 trillion in taxpayer money with what we thought was 
some strings attached to a bunch of financial industry people. 
You faced the fury around here with the American public of 
having really no accountability for any of that money. We are 
faced with dealing with that anger and that frustration, and 
you are the people who are in front of us right now.
    We want to be sure that if we are going to lend you this 
money, that you are going to be able to do the right thing and 
be able to run your companies. It seems to me that the last 
time you were here, maybe you didn't get it. And I think that 
coming up with a plan I think maybe you now do, indicated by 
the fact that by the seat of your pants, you thought you needed 
$25 billion, but when you really figured it out you need about 
$34 billion. I don't want to send you home again because it is 
just going to get more expensive in another 2 weeks, I am sure.
    So you arrive here with this problem in the midst of a 
perfect storm that occurred while the creek was already rising 
and caught you doing the same rain dance that you were always 
doing. And I think we seem to have gotten your attention last 
week. Your testimony is going to be very important to us 
because we are going to have to make an evaluation--
    The Chairman. The gentleman's time has expired. The 
gentlewoman from Illinois is recognized for a 1\1/2\ minutes.
    Mrs. Biggert. Thank you, Mr. Chairman. Like my colleagues 
here today, I am deeply concerned about the state of the U.S. 
economy. Rather than looking forward to a cheerful holiday 
season, most Americans are facing uncertainty about the 
economic times due to unemployment or losses in their savings 
and investments. Other Americans are cutting back because of 
fear about their future. They have a job and they have savings 
but they are worried about how bad the economy might get. They 
are not buying, they are holding back to see what happens. What 
we all want to know is this. Are the Big 3 auto companies not 
selling cars because Americans don't want their cars, they want 
better fuel efficiency from their cars, or they can't afford 
their cars.
    Is it because they can't get financing to purchase a new 
car, believe that bankruptcy will make the warranties on their 
cars worthless, or think we in Congress will enact some 
legislation down the road that makes it more attractive to buy 
their cars? Perhaps most importantly, is it just plain fear of 
making any large purchase at a time of uncertainty in an 
economy like this? We don't know. We don't know whether 
granting your request today will mean you won't be back here in 
2 or 3 or 4 months asking for more.
    I think to start with, I would like the witnesses to 
address how they will help dealers move inventory and encourage 
American consumers to buy more American cars. Second, I would 
like to hear thoughts on how Federal approval of GMAC's holding 
company application, and Ford and Chrysler's ILC applications 
may help to facilitate auto financing. And third, I would like 
to hear how manufacturers plan to ensure that their operations 
will become self-sustainable in the long term and guarantee 
that taxpayers will not simply be asked to foot the bill. With 
those questions in mind, I look forward to hearing from today's 
witnesses. Thank you, Mr. Chairman. I yield back.
    The Chairman. The gentleman from California is recognized 
for 3 minutes.
    Mr. Sherman. Thank you, Mr. Chairman. There are those who 
are concerned that this proposal is a departure from pristine 
capitalism. We don't live in a world of pristine capitalism. 
When we look at the heavy subsidies provided by Japan, Germany, 
Korea, France, and China to their auto industries, we realize 
how insane it would be for us to go forward without a U.S.-
based auto industry. The worst type of job for America to lose 
is a manufacturing job, and the worst time to lose a job is 
right now. But when we craft the bill, we need to put tough 
standards in the bill for three reasons: First, it will 
maximize the likelihood that the bill will pass on the Floor; 
second, it will minimize the number of executives from other 
industries who drive their cars to Washington making that plea, 
well, if you did it for the banks and the auto companies, you 
need to do it for us; and finally, it is important that we put 
tough provisions in these bills, because a careful reading of 
the written pronouncements of the automobile companies 
indicates that they themselves are not going to adhere to the 
kind of tough conditions that the American people expect and 
that the auto industry needs.
    At the last hearing, I asked a number of questions. For the 
record, I have gotten responses. My first was whether the 
companies would seek to keep open American plants and close 
down plants in other countries. They simply said, no, they 
could not provide that assurance. The bill needs to provide 
that you can't close a plant without the approval of the 
Administration, and hopefully they will use reasonable efforts 
to preserve American jobs. I asked whether there would be a 
warranty fund so that people buying cars today can be sure that 
their warranty will be serviced even if, God forbid, one of 
these companies goes bankrupt.
    There is no assurance in the plans of that. If we want to 
protect consumers and to protect their warranty rights, we are 
going to have to put that in the bill. I asked about executive 
compensation and whether there would be a $1 million, I didn't 
go for this $1 a year thing gentlemen, just $1 million a year 
limit on the salary, bonuses, stock options, and pension plan 
contributions, the whole executive compensation plan for any 
executive. The response was that, no, that assurance could not 
be given. If we want that limit to apply to the automobile 
industry, we are going to have to put it in the bill.
    Finally, and I know it has become symbolic and it can be 
regarded as a red herring, but I do think it is something the 
American people are now insisting on, and that is the use of 
private planes. I know that the executives drove here today, 
and that creates this image to the American people that the 
days of private luxury aircraft are over. Yet, I am told by the 
companies that is misreading the symbol, and so if we want the 
limit we have to put it in the bill.
    The Chairman. The gentleman from Texas, I believe, is next 
for 1\1/2\ minutes.
    Mr. Hensarling. Thank you, Mr. Chairman. We were last here 
a couple of weeks ago. What has changed is clearly some of the 
panelists found an alternative means of transportation to the 
Nation's Capitol. The request has gone from $25 billion to $34 
billion, so I will be interested to figure out what has changed 
there. Here is what hasn't changed. Nobody in this room wants 
to see the Big 3 fail. Now, it is a catastrophic consequence 
for our Nation. But what hasn't changed also is that every 
industry, every industry in America is hurting today. Show me 
one that isn't. Show me one that couldn't be assisted and made 
more viable and more profitable with an additional $34 billion.
    So why the folks before us and not other folks back home. 
Something else that hasn't changed is that this year, over half 
a million small businesses, the job engine of America, half a 
million small businesses will go under, a number of them in my 
district, the Fifth District of Texas. They could be saved by 
$34 billion. New small businesses could be launched with $34 
billion. Here is something else that hasn't changed. Unless 
consumers demand more of these vehicles, and unless the labor 
cost of the Big 3 become more competitive, $34 billion, $44 
billion, $54 billion, name your number, will not solve the 
problem. There is a concept of throwing good money after bad. I 
am anxious to hear about the plans.
    Last but not least, what hasn't changed is the taxpayer is 
already $25 billion light on sending money to the Big 3. Now, 
you gentlemen haven't received it because it is tied to fuel 
efficiency metrics. But there is bipartisan legislation that I 
would be happy to support to release those funds to you now, 
but seemingly the Speaker of the House doesn't want to move in 
that direction for fear of a political battle between the UAW 
and the environmental movement. But if it is truly an 
emergency, that money should be reprogrammed. I yield back.
    The Chairman. The gentleman from Georgia is recognized for 
2 minutes.
    Mr. Scott. Thank you very much, Mr. Chairman. Welcome back, 
gentleman. When you were last here, we talked specifically 
about helping the small businesses, the small auto dealers. In 
my district in Metro Atlanta, I represent about 31 towns and 
cities, and dealers are an integral part of that economy. And I 
asked each of you, and each of you agreed, that we would have 
this end, this plan. One, that we would make direct capital 
accessible for these dealers through the Treasury Department. 
That we would also have what we call disaster emergency loans 
that are right there available in SBA. Nothing off of your 
plate. All it would have to be would be the President or SBA 
Director be able to target these. This would help African-
American dealers whom I represent quite a bit in the 
Metropolitan Atlanta area. And secondly, to set that $1 billion 
aside to be able to give low-interest loans. The problem with 
the dealers is they can't get access to capital. And I think a 
major part of this would be for you to make sure that is in 
there. You agreed to do it at the last meeting. We want to make 
sure that is in there if this moves forward. The other part is 
the energy efficiency of automobiles. That is why the public is 
not buying the automobiles. They are not going to buy these gas 
guzzler SUVs. They want smaller cars, energy efficient cars. A 
part of the plan should be to make sure you got a marketing 
program in there to market these products over the next 90 
days, to hurry up and then appeal to the patriotism of America.
    America will rise to that and buy American cars if they are 
fuel efficient. The other thing I think we really carefully 
need to take a look at, and I talk to you Mr. Wagoner, and you 
Mr. Nardelli, about this, to really look at merging your two 
operations.
    The Chairman. The gentleman's time has expired. The 
gentleman from New Jersey is recognized for 1\1/2\ minutes.
    Mr. Garrett. Thank you. Mr. Chairman, obviously the panel 
sitting before you has a lot of experts on how to run an auto 
industry. I thank the chairman for holding this hearing. I 
understand also why the panel came before us several weeks ago 
asking for in essence a blank check with no strings attached. I 
think that was because Congress just previous to that gave away 
$700 billion to the banks likewise with no strings attached or 
no direction to the banks on operation or detailed information 
on how the banks will actually use the money. So I think that 
explains why you came before. I am pleased that the three 
companies have now submitted a more detailed proposal. I do 
still have some concerns how these new plans will be the saving 
grace for our domestic auto manufacturers.
    The purpose of the plans is to provide what is called a 
bridge loan to the Big 3 domestic auto manufacturers. My 
concern quite candidly is to make sure that this is not a 
bridge to nowhere. As I understand it, GM is essentially out of 
time right now. So the question is, as we close dealerships in 
2012, or restructure the union obligations in 2011, none of 
that is going to help us right now. Things have to be done 
sooner. I do have concerns with regard to the preemption of 
States' rights and how that impacts upon the dealerships, and I 
would like to hear some information on that with regard to what 
their actual cost savings are in there and how the implications 
of implicating the States' rights issues will play out. I also 
have concerns that the actual future sales numbers will be 
considerably lower than the projected ones in these reports.
    So in conclusion, if the Federal Government provides these 
temporary loans without the proper restructuring, I think all 
we are really doing is kicking the can down the road and 
delaying the day of reckoning at the expense of the taxpayer. 
And so for the reasons I said before, in addition to the ones 
on the demand side that have been raised by several others, I 
look forward to your testimony.
    The Chairman. The gentlewoman from Florida for 1\1/2\ 
minutes.
    Ms. Brown-Waite. Thank you, Mr. Chairman. Several weeks ago 
when you were here, we were thinking of Christmas and the three 
wise men. Your method of transportation proved that you were 
the three wise guys. I am glad to see that you have turned into 
the three wise men in choosing your own products as a method of 
transportation here. You are here to tell us that after a 
decade of declining sales volume, if it weren't for the 
financial crisis, consumers would be buying the cars from 
Detroit over the competition. However, the current crisis 
facing Detroit is not one created from short-term problems 
beyond your control, rather the crisis facing you all comes 
from long-term problems of overcapacity, poor corporate 
governance, and a lack of foresight.
    To be fair, Ford did have the foresight to make 
preparations for the future. General Motors and Chrysler, 
though, ignored their liquidity problems, probably planning to 
come to Congress rather than taking an objective look at 
reality. You all continue to act with negligent disregard 
toward your duty to plan for future emergencies. As a result, 
today we have over 3 million jobs at risk. Fortunately, the $34 
billion that you are asking for today is obviously more than 
what you asked for the last time and probably less than what 
everyone feels you will be coming back for within a reasonable 
period of time. That is pretty sad.
    As we learned with AIG, these situations can spiral out of 
control, and despite the recent lessons, some of my colleagues 
want to do for Detroit what already has been done for AIG. Mr. 
Chairman, thank you for holding this hearing. I look forward to 
hearing from the witnesses.
    The Chairman. You are welcome. The gentleman from Texas for 
1 minute.
    Mr. Green. Thank you, Mr. Chairman. Mr. Chairman, thank you 
for not only convening the meeting, but also for your 
leadership. It has been dynamic. Mr. Chairman, this is about 
the Big 3, but it is also more importantly about the American 
economy. At a time when jobs are being lost at an unusual rate, 
533,000 recently, unemployment is just up to 6.7 percent, at a 
time when we have a shrinking job market, can we afford to put 
more than 2 million people out of work? What will happen to 
them if this crisis continues to exacerbate to the extent that 
we lose the Big 3? They will have to have some sort of 
unemployment compensation, they will have to have some sort of 
medical benefits, they will have to have some sort of pension 
program that is already in place to be cultivated and to be 
continued. This is about the American economy. If we don't 
focus on the American economy, we will lose our way. Thank you, 
Mr. Chairman.
    The Chairman. We have three more statements. Let me just 
explain. We do this by time. On the Democratic side, we tend to 
use more time, and on the Republican side, less time and more 
Members. I do want to address, apparently some of my Democratic 
colleagues thought I had been discriminating against them in 
favor of the Republicans. I will remind people that when we had 
our last hearing, it unfortunately coincided unavoidably with a 
Republican conference, so some of the Republican members who 
were entitled to make opening statements were at the 
conference. When they returned, we combined the opening 
statement time that they were entitled to with their 5-minute 
question time. That is why some of them were given 7 minutes.
    Mr. Bachus. Mr. Chairman.
    The Chairman. The gentleman from Alabama.
    Mr. Bachus. We were told that if we came here on a horse or 
in a battery-operated car, we could get an extra minute.
    The Chairman. Well, I would say anybody who is here on a 
whole horse would get some consideration, but I am not sure 
everybody qualifies. The gentleman from South Carolina for 1\1/
2\ minutes.
    Mr. Barrett. Thank you, Mr. Chairman. Gentlemen, I am a 
little unclear what we are doing here today trying to evaluate 
the competitiveness of business plans and determine whether 
taxpayer money should be used to save your business. And I 
don't mean any disrespect, but 2 weeks ago you came here on 
private jets telling us how your businesses were failing and 
asking American taxpayers to bail you out. I understand your 
situation. I appreciate it and am concerned about the jobs that 
would be lost as a result of you closing your doors. None of us 
here want to see that happen. But as we sit here, thousands of 
people across this country who are watching this hearing are 
losing their jobs. I know these are tough times, but the 
discussions we are having here doesn't make sense to me.
    We are sitting here trying to evaluate the business plans 
of corporations. But trust me, Congress has no authority to 
tell people how to spend money efficiently and effectively, and 
we certainly can't prevent the direction of the marketplace. I 
am concerned that businesses are rightly going to start 
thinking they can just come to Uncle Sam and we will bail them 
out. And we are broke, flat broke. The Federal Government 
should be creating an environment where all businesses can 
succeed, not micromanaging the affairs of private businesses 
and industries and determining which businesses can fail and 
which can succeed. I would ask for my whole statement to be 
submitted for the record, Mr. Chairman.
    The Chairman. The gentleman from Georgia is recognized for 
1\1/2\ minutes.
    Mr. Price. Thank you, Mr. Chairman. Over the past year, we 
have seen an unprecedented level of government intervention 
into the market, and there seems to have been enough time and 
enough pain to pose this question, how is it working? One does 
not have to be an expert to judge the efficacy of recent 
government bailouts. Congress is appropriately in the position 
of asking some very difficult questions. One that must be 
addressed is whether or not the congressionally-backed taxpayer 
safety net that has been cast far and wide has only served to 
prolong and deepen our current financial downturn while at the 
same time burdening an unconceivable and enormous debt on our 
children, our grandchildren, and now, yes, even our great 
grandchildren.
    We are in real danger of politicizing our entire economy. 
And there is historic risk in that, for it has always been the 
absence of politics in the greater economy that has allowed 
more success for more people than any nation in the history of 
mankind. In a political economy, Washington is the judge. 
Washington picks the winners and losers. Washington decides 
what products and services we need. We all want the American 
auto industry to survive and to thrive. My sense is that the 
concessions necessary by all of the involved stakeholders to 
ensure a robust American automobile industry will require a 
legally expedited restructuring process. And I would ask our 
guests what is it specifically that prevents you from 
supporting this more tried and true, and dare I say American 
solution?
    The Chairman. The final statement, the gentleman from 
Michigan, Mr. McCotter.
    Mr. McCotter. Thank you, Mr. Chairman. A preliminary point, 
I am not going to inquire about your travel arrangements 
because I am a Congressman, not a Conde Nast travel agent. And 
right now, it is a very anxious holiday for working families in 
Michigan in our entire American manufacturing sector. For that 
reason, later today, I will be putting out what I hope will be 
four points for a principled bridge loan that can be approved 
by this Congress, the most salient of which for the current 
proceedings is that half of the bridge loan come from the TARP 
funds for the prevention of foreclosures and that half of the 
funds come from the Department of Energy loans for the 
preservation of the research and development of green 
technologies in which the auto industry already engages. And of 
course, the ultimate maximum taxpayer protections, the best 
protection of which is a viable restructuring plan, which I 
believe you have put forward. As to why this is necessary 
economically, we have heard much about a ripple effect, how one 
manufacturing job's loss can cause the loss of 7 to 10 more 
jobs.
    My friends, that is not a ripple effect, that is a tsunami 
effect, especially in these critical times. And as we debate 
this issue, let us look past the people in the room at the 
people who are employed in the manufacturing industry and 
remember the human cost of the decision that we will render. In 
the final analysis, I believe, I agree in some part with what 
the President said on this issue, ``No matter how important the 
autos are to our economy, we don't want to put good money after 
bad.'' Yes, I recognize the rich irony in that Administration's 
statement. But what I also recognize as we debate this issue is 
a simple proposition.
    In America, the only thing too important to fail is a 
working family. And as we address the bridge loan for the auto 
industry let us not fail these working families who have 
entrusted us with these positions in Congress. Thank you.
    The Chairman. We will now begin the statements. I, at this 
point, would ask unanimous consent to enter into the record 
submissions from General Motors and Ford on the extent to which 
failures on their part would have reverberation throughout the 
economy. The Ford statement is headed Systemic Risk, the 
General Motors statement is headed Collateral Damage. And there 
are other Members who are submitting things for the record; we 
will get unanimous consent to do so. I also ask unanimous 
consent that colleagues who are not on the committee be allowed 
to join us on the dais.
    I see the gentleman from Ohio who has a long interest in 
this. And any other Members, particularly from those States 
obviously where there is a significant manufacturing presence, 
if there is no objection, will be invited to join us on the 
dais, but not of course be able to ask questions because of the 
time constraints. Is there any objection? I hear no objection, 
so that request is granted. And
    We will now start with our statements. I am going to begin 
with the head of the United Auto Workers, Mr. Gettelfinger, 
because at least for many of us in this committee, the Union is 
not an afterthought. Mr. Gettelfinger.

 STATEMENT OF RON GETTELFINGER, PRESIDENT, UNITED AUTO WORKERS 
                             (UAW)

    Mr. Gettelfinger. Mr. Chairman, distinguished members of 
the committee, good morning. And thank you, Mr. Chairman, for 
giving the women and men of UAW a voice in this hearing. The 
UAW believes it is imperative that the Federal Government act 
this month to provide an emergency bridge loan to General 
Motors, Ford, and Chrysler. Without such assistance, General 
Motors and Chrysler could run out of funds in the near future 
and be forced to liquidate. The collapse of these companies 
would inevitably drag down numerous auto part suppliers which 
in turn could lead to a collapse of Ford. The UAW supports 
conditioning any emergency bridge loan funds both on strict 
accountability measures and on the companies pursuing 
restructuring plans that will ensure the viability of their 
operations in the coming years.
    For such restructuring plans to succeed, we recognize that 
all stakeholders, equity and bond holders, suppliers, dealers, 
workers, and management must come to the table and share in the 
sacrifices that will be needed. The UAW and the workers we 
represent are prepared to do our part. We are continuing to 
negotiate over ways to make the operations of General Motors, 
Ford, and Chrysler more efficient and competitive. Workers and 
retirees have already stepped forward and made enormous 
sacrifices. Thanks to the changes in the 2005 and the 2007 
contracts, the labor gap with the foreign transplant operations 
will be largely or completely eliminated.
    The UAW recognizes that the current crisis may require 
workers to make further sacrifices. For example, we recognize 
that the contributions owed by the companies to the retirees 
health care VEBA fund may need to be spread out, and that there 
may need to be adjustments in other areas of the contract. But 
the UAW opposes any attempt to make workers and retirees the 
scapegoats and to make them shoulder the entire burden of any 
restructuring. Wages and benefits only make up 10 percent of 
the cost of the domestic auto companies. The UAW also submits 
that it is not feasible for Congress to hammer out the details 
of a complete restructuring plan during the coming weeks. There 
is simply not enough time to work through the many difficult 
and complex issues associated with all of the key stakeholders, 
as well as changes in the business operations of the companies. 
What Congress can and should do is put in place a process that 
will require all of the stakeholders to participate in a 
restructuring of the companies outside of bankruptcy.
    This process should ensure that there is fairness in the 
sacrifices and that the companies will be able to continue as 
viable business operations. This process can begin immediately 
under the supervision of the next Administration. By doing 
this, Congress can make sure that the emergency assistance is 
indeed a bridge to a brighter future. Contrary to the 
assertions by some commentators, in the present environment, a 
so-called prepackaged Chapter 11 bankruptcy is simply not a 
viable option for restructuring the Detroit based auto 
companies. Research has indicated that the public will not buy 
vehicles from a company in bankruptcy.
    In addition, attached to my testimony is a detailed 
analysis prepared with the assistance of experienced bankruptcy 
practitioners. The analysis explains that a prepackaged 
bankruptcy is not a feasible option for the domestic auto 
companies because of the size and complexity of the issues that 
would necessarily be involved in any restructuring, including 
relationships with thousands of dealers and suppliers and major 
changes in business operations. The UAW believes that the 
recent actions by the Federal Government to provide an enormous 
bailout to Citigroup reinforces the case for providing an 
emergency bridge loan to the Detroit-based auto companies.
    If the Federal Government can provide this type of blank 
check to Wall Street, it should also be able to provide an 
emergency bridge loan to General Motors, Ford, and Chrysler, 
especially since these companies would be subject to strict 
accountability and viability requirements.
    In conclusion, the UAW believes it is imperative that the 
Federal Government act this month to approve an emergency 
bridge loan to GM, Ford, and Chrysler to enable them to 
continue operations and to avoid the disastrous consequences 
that their liquidation would involve for millions of workers, 
retirees, and families across our entire Nation. Thank you, Mr. 
Chairman.
    [The prepared statement of Mr. Gettelfinger can be found on 
page 154 of the appendix.]
    The Chairman. Thank you, Mr. Gettelfinger.
    Mr. Mulally.

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

    Mr. Mulally. Good morning, Chairman Frank, Congressman 
Bachus, and members of the committee. Since the last hearing, I 
have thought a great deal about the concerns that you have 
expressed. I want you to know I heard your message loud and 
clear. On Tuesday, you received Ford's detailed and 
comprehensive business plan, and I appreciate the opportunity 
to return here today and share Ford's vision and progress in 
becoming a profitable growing company. You were clear that our 
business model needs to change. I absolutely agree. That is why 
I came to Ford 2 years ago to join Bill Ford in implementing 
his vision to transform our company and build a greener future 
using advanced technology. Let me share with you what we have 
done to change from how we used to do business to how we do 
business now.
    It used to be that we had too many brands. Now, we have a 
laser focus on our most important brand, the Ford Blue Oval. In 
the last 2 years, we sold Aston Martin, we sold Jaguar, and we 
have sold Land Rover, and reduced our investment in Mazda. And 
this week, we announced we are considering the sale of Volvo.
    It used to be that our approach to the customers was, ``If 
you build it, they will come.'' We produced more vehicles than 
our customers wanted, and then slashed prices, hurting the 
residual values of those vehicles and hurting our customers. 
Now, we are aggressively matching production to meet the true 
customer demand.
    It used to be that we focused heavily on trucks and SUVs. 
Now we are shifting to a balanced product portfolio, with even 
more focus on small cars and the advanced technologies that 
will drive higher fuel economy in all of our vehicles, no 
matter what their size.
    It used to be that our labor costs made us uncompetitive. 
Now we have a ground-breaking agreement with the UAW to reduce 
labor costs, and we appreciate the UAW's continued willingness 
to help close the competitive gap. It used to be that we had 
too many suppliers and dealers. Now we are putting in place the 
right structure to maximize the efficiency and the 
profitability for all of our partners. It used to be that we 
operated regionally, European cars for Europe, Asian cars for 
Asia, and American cars for the United States. Now, we are 
leveraging our global assets--innovation, technology, and our 
scale--to deliver world-class products to every market.
    It used to be that our goal was simply to compete. Now we 
are absolutely committed to exceeding our customers' 
expectations for quality, fuel efficiency, safety, and 
affordability. This is the Ford story. We are more balanced; we 
are more efficient; we are more global; and we are more 
focused. In short, we are on the right path to becoming a 
profitable growing company for all of us.
    We have moved our business model in a completely new 
direction, in line with the most successful companies and 
competitors around the world. And as a result of our progress, 
we made a profit in the first quarter of this year, 2008. 
Unfortunately, we all are facing a severe economic downturn 
that has slowed our momentum. Despite this downturn, Ford does 
not anticipate a near-term liquidity crisis. In fact, we expect 
our automobile business to be profitable in 2011. But we do 
support a government bridge loan because it is critically 
important for the United States auto industry.
    Specifically, Ford requests access to $9 billion in bridge 
financing, something we hope we will not need to use. Instead, 
as we continue to drive change in our company, this line of 
credit will serve as a critical safeguard if events require it. 
And if we did need access to this loan, we would use the money 
to continue our aggressive transformation and restructuring.
    Ford is an American company, and it is an American icon. We 
are woven into the fabric of every community that relies on our 
cars and trucks and the jobs our company supports. The entire 
Ford team, from employees to shareholders, suppliers to 
dealers, is absolutely committed to implementing our new 
business model and becoming a lean, profitable company that 
builds the best cars and trucks on the road for our customers.
    There is a lot more work to do, but we are passionate about 
the future of Ford. In fact, we invite you to visit us in 
Dearborn to kick the tires, look under the hood, and talk to 
our employees. We hope you will join us and see for yourself 
the progress we are making to develop the vehicles of the 
future.
    [The prepared statement of Mr. Mulally can be found on page 
169 of the appendix.]
    Ms. Waters. [presiding] Thank you very much.
    Mr. Nardelli.

  STATEMENT OF ROBERT NARDELLI, CHAIRMAN AND CHIEF EXECUTIVE 
                     OFFICER, CHRYSLER LLC

    Mr. Nardelli. Thank you, Madam Chairwoman.
    I appreciate the opportunity to represent the one million 
people who depend upon Chrysler for their livelihood. Before I 
answer your questions regarding our loan request, let me state 
clearly why we are here.
    Chrysler requests a $7 billion loan to bridge the current 
financial crisis. And in exchange, Chrysler is committed to 
continue our restructuring, including negotiations and cost-
savings concessions from all constituents, invest in fuel-
efficient cars and trucks that people want to buy, and begin 
repayment of our government loan in 2012. I also want to 
reinforce the need for Chrysler Financial to receive immediate 
assistance from TARP, as their continued vitality is as 
critical an assumption as our request.
    Chrysler requires this loan to get back on the 
transformation that began 1 year ago. As a newly independent 
company in 2007, Chrysler was on track for financial 
profitability. We eliminated more than 1.2 million units, or 30 
percent of our capacity. We reduced our fixed cost, $2.4 
billion, and separated more than 32,000 workers, including 
5,000 on the Wednesday before Thanksgiving, or 25 percent of 
our salaried workforce. And at the same time, we have invested 
more than a half a billion dollars in product improvement in 
our first 60 days of independence. We improved our J.D. Power 
quality scores and reduced our warranty claims by 29 percent 
and, as a result, through the first half of 2008, Chrysler met 
or exceeded its operating plan and ended the first half of the 
year with $9.4 billion in unrestricted cash.
    We are here because of the financial crisis that started in 
2007 and accelerated at the end of the quarter of 2008. As 
consumer confidence fell and the credit markets remain frozen, 
the lowest U.S. auto sales in more than 20 years put tremendous 
pressure on our cash position. U.S. industry sales fell from 
$17 million in a year, in 2007, to a monthly annualized rate of 
$10.5 million just last month, a 6.5 million unit decline.
    So what does that mean for Chrysler? It is a 10 percent 
market share. It translates to the loss of 650,000 vehicles, or 
roughly $16 million in lost revenue opportunity this year 
alone. With such a huge hit to our sales and revenue, Chrysler 
requires the loan to continue the restructuring and fund our 
product renaissance.
    Chrysler has a sound plan for financial viability that 
includes seeking shared sacrifice from all constituents. We 
have identified approximately $4 billion of potential cost 
savings in improvements that have been included in our 
viability plan that we have submitted. We are committed to 
negotiate with all constituents to achieve our targeted 
savings.
    Our plan also includes producing high-quality, fuel-
efficient cars and trucks that people want to buy, while 
supporting our country's energy security and environmental 
sustainability goals.
    For the 2009 model year, 73 percent of our products will 
offer improved fuel economy compared with 2008. ENVI is our 
breakthrough family of all-electric and our range-extended 
electric vehicles, similar to the one that we have parked 
outside.
    Chrysler's long-range product plan is robust, realistic, 
and it is green. The plan features 24 major launches from 2009 
to 2012. It includes a hybrid Ram truck, our first electric-
drive vehicle will be out in 2010, with three additional models 
by 2013.
    A key feature of Chrysler's future is our capability as an 
electric vehicle company. Through our GEM or neighborhood 
electric vehicle division, Chrysler is the largest producer of 
electric-driven vehicles in the United States. Combined with 
new products from our ENVI group, we expect to have 500,000 
Chrysler electric-drive vehicles on the road by 2013.
    Chrysler will continue to aggressively pursue new business 
models that do include alliances, partnerships, and 
consolidation. This model is currently successful in helping 
Chrysler increase effective utilization of our manufacturing 
capacity. For example, in North America, Chrysler manufactures 
all Volkswagen minivans and, beginning in 2012, will produce 
all of Nissan full-size trucks.
    So let me say in conclusion that I recognize that this is a 
significant amount of public money. However, we believe this is 
the least costly alternative, considering the depth of the 
economic crisis and the options we face.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Nardelli can be found on 
page 210 of the appendix.]
    The Chairman. Before I get to Mr. Wagoner, I want to make 
an announcement for us. Managing this fairly is not always 
easy, but many of the Members got to ask questions of the auto 
industry and the Union last time, and then others asked of the 
second panel. I am going to reverse that. I am going to begin 
by recognizing any Member on the Democratic side who did not 
get to ask questions of this panel. We will then go to others.
    So I just tell you that in advance so you have a chance to 
formulate your questions. We will then pick up the regular 
rotation.
    Mr. Wagoner, please go ahead.

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

    Mr. Wagoner. Thank you very much, Mr. Chairman, and 
committee members.
    Let me start out by expressing our sincere appreciation for 
the chance to come back to talk to you again. We know this is a 
time when you normally are with your constituents.
    I also wanted to thank the Speaker and the Senate Majority 
Leader for the very clear direction which they have provided as 
to the expectations as to what should be included in the plan.
    General Motors this year is celebrating its 100th 
anniversary as a company. As we begin the preparation and 
finalization of this plan, we thought back over those 100 years 
and the many successes of the company, but we also thought 
about the mistakes that the company had made and how we have 
learned from those mistakes. We applied all of that knowledge, 
both our successes and our mistakes, as we put together the 
comprehensive plan which we have submitted to you.
    We thought about things we do best, such as when we are 
pursuing technological excellence in leadership. We thought 
about the fact that we always have to pay attention to make 
sure we are cost competitive, and that we do best when we have 
close alignment between our company's goals and the goals of 
the country.
    The plan that we have submitted is one that I and the whole 
General Motors team believes in and believes we can accomplish. 
The plan shows why GM needs temporary government funding, how 
that funding will be used, how we intend to repay taxpayers, 
and why funding is beneficial to the U.S. economy as well.
    In some ways, the plan accelerates and expands 
restructuring that we have been undertaking for the last 
several years. But in many ways, in fact, the plan is a 
blueprint for a new General Motors for our second century. The 
key elements of the plan are based on much more conservative, 
realistic industry volumes than we have historically had, and 
also it is comprehensive in that it addresses both operating 
competitiveness and balance sheet restructuring. The key 
elements of the plan are a commitment to new technology, 
particularly in the advanced propulsion area and the creation 
of green jobs, an increased production of fuel-efficient 
vehicles, a reduction in focus in a number of our brands, 
models and retail outlets, further manufacturing and structural 
cost reductions, full labor cost competitiveness with foreign 
manufacturers in the United States, a significant restructuring 
of our balance sheet, and continued suspension of common stock 
dividends, as well as changes to executive and board 
compensation and closure of our corporate aircraft operations.
    These and other tough, but necessary actions will position 
the company for medium and long-term success. This success is 
achievable if we can weather the global financial crisis and 
lowest level of U.S. industry sales in the last 50 years on a 
per capita basis. To that end, our plan requests, respectfully, 
$12 billion in short-term loans and a $6 billion line of credit 
to cover the downside scenarios. We are seeking an immediate 
loan of $4 billion and a second draw of up to $4 billion in 
January. Our intent is to begin repayment as soon as 2011, and 
full repayment by 2012 under the baseline industry forecast in 
our report, and warrants would allow taxpayers to benefit if GM 
share prices increase.
    We also propose as part of our plan the creation of a 
Federal oversight board which would facilitate the 
restructuring negotiations, review the plans on a regular 
basis, and act to protect taxpayers.
    GM has been an important part of American culture for 100 
years, most as the world's leading automaker. We are here today 
because we have made mistakes that we have learned from, 
because forces beyond our control in the credit markets have 
pushed us to the brink and, most importantly, because saving 
General Motors and all the company represents is a job worth 
doing.
    Thank you very much. I look forward to your questions.
    [The prepared statement of Mr. Wagoner can be found on page 
225 of the appendix.]
    The Chairman. Let me have on the Democratic side the first 
Member in seniority who did not ask last time, the gentlewoman 
from New York. Remember, 5 minutes.
    Mrs. McCarthy of New York. Thank you, Mr. Chairman. I 
appreciate the testimony that we have heard.
    Last night, I had the opportunity to look at your business 
plan models, but I think we still have the problem of the 
American people trying to understand why we need to help all of 
you. Many of us understand, we are going around it in many 
different ways. I certainly have heard from all my dealerships 
in my district.
    But the final economy, the final economy and how is it 
going to affect this whole country if we allow one or all of 
you to fail. And what about the dealerships and the 
reconstruction of what you are planning on doing? If you go 
into bankruptcy versus if you have a bridge loan, how is that 
going to help those dealerships across the country to try to 
keep their businesses open?
    Mr. Wagoner. As we have discussed somewhat in our report, 
the analysis that we have seen suggested if an auto 
manufacturer goes into bankruptcy, that company will lose a 
significant amount of its sales. Under that scenario, it would 
obviously have a huge ramification for those that sell our 
products, our dealers, so we would expect to see similar dire 
consequences.
    Mrs. McCarthy of New York. What I am trying to get at, and 
we had this, unfortunately, with Mr. Paulson when he was trying 
to explain why we needed to do the bailout going back, the 
American people don't understand the words you are using. Put 
it down to dollars and cents on basically what it is going to 
cost this economy if we let you go, and what is the domino 
effect going to be across the whole country.
    Mr. Nardelli. From a Chrysler perspective, I just want to 
reinforce a couple of comments I made in my opening comments of 
the importance of our financial support, our financing 
companies. They are inseparably linked. As of Saturday, 
Chrysler had over 240 dealers that have gone bankrupt because 
the finance company has not gotten any funds from TARP to be 
able to improve the liquidity to the consumer or to our dealer 
with relative to capacity. We have another 250 dealers that are 
on credit hold. That represents about 63,000 units on an 
annualized basis that are gone from our business plan. Of our 
3,300 dealers, there are about 140,000 employees that they 
currently have on their payroll. These are men and women that 
stretch across this entire country, metro, urban, you name it. 
So this would be a tremendous impact if Chrysler went down just 
on the dealer network alone, plus there are 30 million Chrysler 
owners in the market today whose car value would depreciate 
significantly on future trade-in, and they would not be able to 
get parts and service to maintain them. I know there have been 
several questions raised about the dealers. These are the men 
and women, these are the entrepreneurs, these are the small 
businesses that we have to keep alive.
    Mrs. McCarthy of New York. I guess what I am trying to get 
is a dollars and cents; that is what the American people 
understand. And we went through this again with Secretary 
Paulson. I can go home and talk to my constituents and tell 
them what it is in dollars and cents and why we have to do what 
we have to do. It is a shame that none of you can come up--and 
I think, going through some of the paperwork, you actually had 
a dollar and cents on what it is going to cost this economy.
    All right. If the U.S. financial system, Detroit Three plus 
suppliers, create a $1.1 trillion gross exposure to the U.S. 
financial system, and at least a $650 billion net exposure, 
those are the dollars and cents that the American people 
understand when we are trying to say, if we give you this 
bridge loan, how much is it actually going to save the economy 
across this whole country? That is the point I am trying to get 
across. You have to learn how to speak to the American people 
when you are in testimony in front of this.
    We understand what you are trying to do. The American 
people have to understand what we are trying to do to help them 
because this is a political situation here.
    Mr. Wagoner. Can I just comment that you are correct, the 
data of that is the impact on the financial system of our 
financial obligations. And I think obviously you can add to 
that multiples as far as the impact on the real economy, the 
loss of jobs, the closure of dealerships, the impact on the 
supply base. So that number would be a huge increment on the 
number that you cited.
    Mr. Nardelli. Just on the three of us up here, the 
financial institutions would be exposed over $300 billion alone 
in what they have in financing to the three manufacturers here 
at the table.
    Mrs. McCarthy of New York. Thank you.
    The Chairman. The gentleman from Delaware.
    Mr. Castle. Thank you, Mr. Chairman.
    Mr. Gettelfinger, I would just like to thank you. We often 
fought the Union and what they have done in this circumstance, 
and maybe there is some proper attribution there, but I think 
you have made some hard decisions, and you show willingness to 
do more and we appreciate that. My questions are not for you, 
but I did want to make that statement.
    I do want to ask the other gentlemen about something I 
mentioned in my opening statement, and that is the other 
aspects of the whole automobile business. As I look at the 
numbers of the Center for Automotive Research saying that some 
3 million people can lose their jobs, I think about 240,000 
directly relate to you, but a lot relate to the other aspects 
of the business, and the most immediate ones are our suppliers, 
parts and whatever it may be, and also the auto dealers. And my 
question is, should we be considering doing anything for them? 
Should they be at this table, or is it your judgment that if we 
are to restore you to profitability, if we have more Americans 
buying American cars, that would suffice in terms of continuing 
what they are doing? I point out that some 80 percent of these 
suppliers have overlaps, that is, they deal with more than one 
of you, which means if any one of them fails because you fail, 
it could affect everybody else. So there is a tremendous amount 
of economic involvement and engagement as far as that is 
concerned. It is fine that you come here and say what you need. 
I have read your plans and I understand those needs are there. 
And we clearly, I think, want to do something if we can work 
out what it is exactly we are going to do. But are we missing a 
step in terms of not helping any of them directly with respect 
to all of this? Or, as I said, just restoring you to 
profitability would resolve that problem? If you could give 
brief answers to that.
    Mr. Wagoner. Yesterday, at the hearing in the Senate, we 
had a supplier, the president of Johnson Controls, speaking, 
and he spoke I think eloquently in support of our proposals and 
made the observation that it is critical, first and foremost, 
that the OEMs survive and prosper. That is the key for the 
suppliers' success. But we certainly have been dealing with a 
record number of supplier restructuring over the last 5 years. 
It has affected us all significantly. So our specific plans 
cover the needs of General Motors, but I do think it is fair, 
your comment about that some of the supply base remains at 
risk. The best thing I think we can do is grow automotive 
demand, as you stated, and have us continue to produce cars and 
trucks. But some of them continue to be in very tight 
circumstances as well, as you indicate.
    Mr. Nardelli. The short answer for Chrysler is I have 
talked with our National Dealer Council and I have talked with 
our National Supplier Council, and we have gotten tremendous 
support that the best thing that could be done is to have a 
strong OE to be able to provide the continuity of new products 
and have the confidence from the consumer standpoint that we 
are viable, and therefore result in solid sales.
    Mr. Mulally. I would just add the economy and credit.
    Mr. Castle. Okay. Just on another subject, very quickly. If 
this does not work, I mean, we have seen your plans and we have 
heard your testimony here today in terms of what your needs 
are, and Ford having a little bit of a delayed need or whatever 
it may be. But if this does not work, have you thought about 
what the next steps would be? I don't know how long ``work'' 
means, but maybe within 6 months to 18 months, or whatever, 
your sales are not what you would have anticipated, you have 
consumed the money that we have loaned you to, and then you are 
in a circumstance where you come back here and ask for more 
money, and you are asking in some cases for sage money as it 
is, or do you consider bankruptcy at that point? Can the large 
banks at that point come through with loans? I am sure you have 
explored it with your lenders previously, consolidation, issues 
such as that. I didn't sense that in your written statements or 
in your oral testimony here today. But my concern is, what if 
this doesn't work? What might be the steps at that point? It is 
still very important that we try to salvage the American 
automobile business if we can.
    Mr. Wagoner. Congressman, I thought the instructions that 
we had for the submissions of the report were very helpful in 
that they specifically asked us to cover a downside scenario as 
to U.S. industry volumes. And so we asked our people to look at 
what they thought would be an extreme extended downturn. We 
used industry volumes, which in the last 2 months have been 
very difficult, and took that level of industry for all of 2009 
and then grew it only very gradually, recovering to 12.8 
million units by 2012. If you have 4 years in a row running 
from 10.5 to 12.8 million units, this is the kind of automotive 
performance we haven't seen for decades in the United States, 
frankly. And under that scenario, we believe that we can rely 
on the 12-plus $6 billion credit line and actually begin to pay 
some of the money back in 2010.
    The Chairman. Thank you. The next Democrat who did not get 
to question this panel, Mr. Wilson.
    Let me say that we did not keep the list, but we will check 
afterwards, so--
    Mr. Wilson. I knew you would. Thank you, Mr. Chairman.
    In Ohio, we appreciate well the interlocking relationship 
between the Big Three and certainly your suppliers. Do I 
understand you that the failure of one of the Big Three or one 
of the major suppliers could bring the auto industry down 
altogether?
    Mr. Wagoner?
    Mr. Wagoner. Yes, that is our view.
    Mr. Wilson. Is there securitization for the suppliers, 
then, tied in with what is going on with the bridge loans that 
are being discussed for the Big Three?
    Mr. Wagoner. The specific requests that we have for GM 
relate to GM's funding only. We are working closely with our 
suppliers. And as Mr. Nardelli said, the strong message we get 
from our supplier council on a regular basis is that what we 
can do most to help them is to ensure the viability of GM and 
continue to work closely with them. And I think you know, but 
when an individual supplier has a specific circumstance of 
tight liquidity, or whatever, we regularly work with them on a 
one-on-one basis to do our best to help them get through tough 
times, but we don't have a specific pot of funds here to 
support broadly the supply base.
    Mr. Wilson. I am just wondering, if I can, Mr. Chairman, if 
that should be part of the language. Because if we get the Big 
Three propped up, and we hope they will be and will be 
successful, we also need to be concerned about the major 
suppliers.
    Thank you.
    Mr. Wagoner. That could be helpful.
    The Chairman. The gentleman from New York, Mr. King.
    Mr. King. Thank you, Mr. Chairman.
    Again, I want to thank the witnesses for their testimony.
    And as I stated in my opening statement, the concern I have 
is that, if we do provide the loans, the bridge loans, that we 
don't know exactly how much is really needed. For instance, 
last week it was $25 billion, now it is $34 billion. There was 
testimony yesterday that over $100 billion could be what is 
actually required. And to follow up on what Mr. Castle said, I 
am looking for some reasonable assurances that as we go 
forward, this will work.
    Now, Mr. Gettelfinger is here today, and I am not trying to 
pinpoint the UAW at all. But in the testimony, Mr. Nardelli, 
for instance, you spoke of continuing to negotiate cost 
savings. Now, that is in the future. If the money is given, for 
instance, what assurances do we have that those negotiations 
will continue between the UAW--and I know there are others 
besides UAW as far as the parties that have to be negotiated 
with--what assurances do we have that once the money is there, 
the negotiations will continue, and we won't be back here 6 or 
8 months from now saying, we got the money up front, and 
therefore we sort of put this on hold, sort of the way the 
American people were doing with gas prices, when they were $4 a 
gallon, $4.50 a gallon, they were in a panic. Now that it is 
back under $2, and they are forgetting the potential crisis, I 
am wondering, can we be assured that you will not forget how 
important and how vital this crisis is and that the temporary 
money you get will not put off those negotiations?
    Mr. Gettelfinger?
    Mr. Gettelfinger. Thank you very much for the question. I 
would like to first of all say that, compare this to a ballpark 
right now. In 2005 we went on first base, 2007 we went on 
second base. Just recently, this week, we are on third base. 
Other participants have not even entered the ballpark yet. We 
are prepared, as I have stated in my testimony, to go back to 
the bargaining table. In fact, we took action this week, but we 
think everybody should be at that bargaining table. We think 
the board of directors, we think the management, suppliers, 
dealers, equity holders, and especially creditors should be at 
the table. And we believe that there should be equal sacrifice. 
But we also believe that the men and women of the UAW who have 
stepped up should be given recognition for the three 
negotiations in which we have already made major concessions. 
But yes, sir, we are willing to go back to the bargaining 
table, providing everybody else comes to the table as well.
    Mr. King. Now, if I could ask the auto executives. You 
heard Mr. Gettelfinger say it sounds like almost ongoing 
negotiations. Do you feel the other parties will be at the 
table? Do you feel that you can make the type of progress that 
has to be made, that Mr. Gettelfinger believes has been made 
with his people, that you will make with the others?
    Mr. Nardelli. Congressman, if I could very quickly, and 
then allow the others to comment. In our plan we are asking for 
$7 billion. We have also identified $4 billion of concessions 
across all constituents, just as Mr. Gettelfinger had 
identified. We are willing to put in a benchmark date that if 
not by March 31st we don't have those concessions in line, 
because that is when we start to realize the benefit of those, 
then we should be back here and pull the loan.
    Mr. King. Mr. Mulally.
    Mr. Mulally. Yes.
    Mr. Wagoner. Our plan comprehends the same approach, to use 
the short-term advance of funding and the oversight board as 
forcing mechanisms to ensure that we deliver all parts of the 
plan.
    Mr. King. Thank you, Mr. Chairman. I yield back.
    The Chairman. The gentleman from Florida, Mr. Klein.
    Mr. Klein. Thank you, gentlemen, for being here today.
    Mr. Chairman, I also want to just voice my support for use 
of the TARP funds for the auto financing issue. We have heard 
from a number of our dealers and many others about the lack of 
availability of financing for customers, and that certainly is 
one of the factors right now that is dealing with the lack of 
sales that is going on. So I think that is already out there, 
but Congress doesn't have to do anything further. It is more of 
the Treasury's move here to make that available, and certainly 
I would support that.
    Gentlemen, what is going on here in this discussion is a 
balancing act of what is palatable, what is feasible, what is 
politically supportable, and what makes economic sense. None of 
us are experts here, we are all trying to combine together with 
you and others to come up with a good solution.
    I want to throw an idea out that was sort of brought to me 
by some local people who are economists, people who are 
business entrepreneurs. And maybe it is just too common sense, 
but I want to put it out there and see what you think.
    We all know about the idea of collaboration and research. 
We know that you are on different tracks and different points 
on hybrid and electric vehicles. We know that your competitors 
overseas are at different stages as well. We all know that in 
order for you to be not only short term, but long term, and 
have a sustainable plan, you have to have the most advanced, 
the most cutting-edge technology on these automobiles that will 
be attractive for us, as consumers, to buy them here in the 
United States and everywhere in the world. We want you to be on 
top of that and at the forefront.
    What about the idea of taking whatever level of technology 
and research you have going on right now and creating some type 
of joint enterprise, whether it is public, not for profit, 
maybe some different way of doing it or maybe some private 
collaboration, taking some of the money that you are asking for 
here right off the top so the American taxpayer can understand 
there is something tangible that they are going to see come out 
of this in terms of long-term sustainability, if they are 
listening to the discussion today and your explanations, some 
of it may be supportable in the way they view it, and some may 
just think we are pouring money back into a problem, but taking 
part of this and say, let's take whatever technology you have 
and collaborating together and making that effort to say we are 
going to do something together, our Manhattan Project, if you 
will, for the moment, to say in some timeframe we are going to 
put together the most far-reaching, the most supportable, the 
best concepts that we can put together, take all that and put 
it together, and then make it available back to each of the 
companies for future development and commercialization.
    What do you think about that?
    Mr. Nardelli. Congressman, let me say, first of all, I 
couldn't agree with you more. Two is, we ought to use the $25 
billion that has been approved for fuel efficiency and 
environmental compliance. We should take a portion of that 
money and we should create exactly the format you have 
suggested. Therefore, rather than each of us trying to spend a 
portion of the money in developing the same technology, we do 
it collectively, it works back, and we gain our brand identity 
and differentiation through the vehicles we put it in. I fully 
would support that because I think without that we might be 
trading and trying to gain oil--removing our dependency on oil 
to dependency on foreign technology. So I would totally 
subscribe to the concept.
    Mr. Wagoner. For my side, in fact in our submission we 
specifically raised the concept. I would have to put a footnote 
on that though as far as if the funding is taken out of the 
request that we have put forward. We would have to tell you how 
much we actually have in for our own R&D spending just to make 
sure we balance it out right. But other countries do a lot of 
their research this way. It is not a coincidence that the 
leadership in battery technology in the world today is in Korea 
and Japan. They do things just like you are saying. So I think 
if we want to move this country to leadership in the next 
generation technology, this kind of collaboration, plus a heavy 
amount of government support and basic R&D, is going to be an 
essential aspect and we would welcome it.
    Mr. Mulally. Sir, I agree. And in a big way we are doing 
that through our suppliers because, as you well know, about 75 
percent of the dollar value of all our automobiles are with the 
suppliers and they supply to all of us. So we work very closely 
to make sure that we are targeting the most effective enabling 
technology so we would bring that on. But that is a great idea 
also, to take it a step further.
    Mr. Klein. And I would like not just to talk about through 
the supplier chain; I understand some of that technology is 
advanced through manufacturers and research that way. I am 
literally talking about physically taking this research and 
these very bright people, I am convinced the brightest people 
in the world, the scientists and the entrepreneurs, are right 
here in the United States. And if we took this idea and took 
each of you in your present form and bring this together under 
one roof, physically under one roof, and put this out and say 
this is going to be it, this is how we are going to focus all 
of our attention on this, obviously you have to stay alive, but 
I think that is something to consider, Mr. Chairman.
    The Chairman. The gentleman from Alabama.
    Mr. Bachus. As you all know, back in 1980, the government 
got warrants from Chrysler, and then 3 years after that 
Chrysler became profitable and Chrysler tried to get out of 
that obligation. President Reagan went ahead and enforced it 
and insisted that the warrants not be called back. If warrants 
were given to you or there were some other agreement as to 
interest rate at a later date, would you attempt to come back 
to Congress or to Pennsylvania Avenue and try to get out of 
those agreements?
    Mr. Wagoner. No, sir.
    Mr. Nardelli. No, sir.
    Mr. Mulally. No.
    Mr. Bachus. The one reason I mention that is of course AIG 
did just that, they borrowed $85 billion, had an agreement at a 
certain interest rate, and then 6 months later--or 6 weeks 
later, actually, they complained that was much too high and it 
was an onerous agreement. And actually over one weekend they 
came in, didn't have to come to Congress, didn't have to 
testify, and they got a lower interest rate and $65 billion 
more, which sort of brings me to my second question. And either 
Union representative, Mr. Gettelfinger, or you, Chrysler has 
filed for a TARP application. You haven't had any word on that, 
right?
    Mr. Nardelli. No, sir.
    Mr. Bachus.  You know, Citibank and AIG got relief over a 
weekend without ever coming to Congress; Congress found out 
about it after the fact. I am sure you all feel a little 
singled out, and I think Mr. Ackerman mentioned that. And it is 
a good point, it is just amazing that there seems to be a 
glaring double standard.
    Chrysler Financial has had an ILC application for 3\1/2\ 
years. And during the last year there has been no moratorium. 
You still haven't heard about that, have you?
    Mr. Nardelli. No, sir.
    Mr. Bachus. That would help, wouldn't it?
    Mr. Nardelli. It would help tremendously because it would 
give us access.
    Mr. Bachus. Toyota, and some of you are calling it 
Volkswagon, they have had that advantage over you. Ford has had 
a request since last February. Have you heard?
    Mr. Mulally. I have not. It is very important. It could 
really free up the credit for the consumer.
    Mr. Bachus. Yes, it is amazing to me. And let me conclude 
by saying GMAC has had an application for a bank holding 
company for some period of time. You have not heard anything, 
have you?
    Mr. Wagoner. Our application is under consideration.
    Mr. Bachus. Under consideration. You know, Morgan Stanley 
and Goldman Sachs, they got expedited status because there was 
a financial problem or because of the financial issues. I can't 
imagine why you are not being given expedited consideration. 
But it does appear that our Federal regulators certainly have 
two tracks, one for Citi, one for AIG, one for Morgan Stanley 
and one for Goldman, and a much slower track, almost a dirt 
road track, that you take. And we have urged them, and I know 
the chairman--
    The Chairman. If the gentleman would yield, you mentioned 
the moratorium. But even during the period of that moratorium, 
in our new charter for industrial loan corporations, we had 
made it clear that the auto companies should not be covered by 
that. So even during the period of the moratorium, we made that 
clear with regard to GMAC's application, and others. So I am in 
total agreement with the gentleman.
    Mr. Bachus. This committee and the chairman and I moved 
legislation with the support of people on both sides saying if 
Toyota and Volkswagen had that tremendous advantage, then Ford 
and Chrysler certainly ought to have it. And it is quite 
discouraging to see $7.7 trillion worth of different credit 
facilities, TARP funds and all of this, and yet when our motor 
companies appear before these regulators all they do--they 
certainly don't do anything.
    Thank you.
    The Chairman. The gentleman from New Hampshire.
    Mr. Hodes. Thank you, Mr. Chairman.
    I want to thank the witnesses for appearing today, and 
thank you for the work you did in putting together your 
business plans. I think they have gone some way to showing that 
you are connecting the dots because a couple of weeks ago, at 
least what I heard from my constituents, was that you folks 
simply were in another universe and you weren't connecting the 
dots and that you didn't have the answers that people expected 
before exposing taxpayer money, again, given what we have just 
done with the financial system bailout, to loss of taxpayer 
money.
    I am not opposed to helping your industries. I think that 
they are crucial to our economy, the jobs that are connected 
are upper most in my mind. I have met with representatives of 
the UAW in New Hampshire, I have met with the auto dealers who, 
despite the fact that a third of them are going to disappear 
under the best of circumstances, are supporting helping the 
auto industries. But I think that, even assuming your business 
plans worked and we spent $34 billion, what I am hearing here 
today from my colleagues, and what I have heard from others, 
including the auto dealers, is that is only one-third of the 
problem. You can hold yourselves open for business with the 
money we give you, the $34 billion, and I think that is a 
short-term fix, it will get you on the road, but not get you 
down all the way to a long-term transformation. But the issue 
with the credit availability is a serious, serious issue. That 
is the second component to the true cost to the taxpayers.
    And so you have heard from the ranking member and the 
chairman that there is support for the idea, perhaps, of the 
transformation of bank holding companies and ILC, and also from 
other members about accessing the TARP funds. What amount of 
money do you put on the need of the credit companies, whether 
it is spent in an asset purchase program or direct injection, 
or whatever Secretary Paulson comes up with as plan A, B, C or 
D, what amount of money for the credit companies do you see as 
necessary? And would they accept conditions that say the money 
they get has to go for auto loans as opposed to what we did 
with the bailouts where the banks are sitting on the money? 
That is question number one.
    And number two, don't you think we also are going to 
realistically need incentives for consumers who are worried 
about losing their jobs, losing their houses, and are frankly 
concerned about spending $30,000 or $40,000 on a car purchase? 
And if that is going to be required, what is the dollar amount, 
what is the plan for that, how do you think it ought to happen, 
and aren't we really talking about a really much bigger number 
than $34 billion when those are factored in?
    Mr. Nardelli. Well, let me, first of all, sir, answer the 
first part of your question. Chrysler Financial, that is what 
they do. It is the easiest and the cleanest allocation of funds 
that you will see. They basically provide about 70 percent of 
consumer loans and close to a similar amount of floor planning. 
Our dealers have been tremendously disadvantaged relative to 
the rates, as we went out and got a new conduit and what they 
have to pay there. So termination of the lease program took 20 
percent of our volume away, and the fact that dealers now 
cannot floor plan beyond 1 year has imposed additional hardship 
on them. So the support for our financial institution, the 
financial arm of our company is important. The short-term 
request for Chrysler was about $1.6 billion for wholesale, that 
request is in, and another couple of billion to support retail, 
so that when consumers come in, they can get competitive rates 
and they have access to loans.
    Today, at a 700 to 750 FICA score, at least our consumers, 
the hardworking men and women of America who buy our products, 
just aren't qualifying.
    Mr. Hodes. So is Chrysler's answer $4 to $5 billion on the 
credit side?
    Mr. Nardelli. That is the current request that is in today.
    Mr. Hodes. And do you think that is sufficient under the 
current circumstances?
    Mr. Nardelli. Along with getting ILC that will allow us 
then to sell paper, to increase the capacity, and we will be 
able to get that flow going back through Chrysler Financial, 
supporting our dealers, supporting the consumers.
    Mr. Hodes. GM, Ford.
    Mr. Wagoner. Our situation is a little different. Our 
finance company, which we only own 49 percent of, is applying 
for a bank holding company status. And if they achieve that, 
they would then be eligible over time to access funds that have 
already been appropriated under the TARP. I can't give you that 
exact amount now, I can check and try to get back to you. But 
it is critical.
    The Chairman. Mr. Mulally, if you can go very quickly.
    Mr. Mulally. As you know, we are in a very different 
situation because we have our own finance company. And the 
relationship that you are talking about is very important. We 
support 77 percent of all the wholesale financing. And so what 
we have in for the short-term, asset-backed commercial paper 
with the Federal Reserve is $16 billion, and we have accessed 
$4 billion of that to support the customers.
    The Chairman. The gentleman from California, Mr. Royce.
    Mr. Royce. Thank you, Mr. Chairman. I would like to ask a 
question of Mr. Wagoner and also Mr. Mulally. And it goes more 
to the long-term question of Ford and GM because over the last 
few years, Ford and GM internationally have performed very, 
very well. And one of the questions I have is what is it about 
the business environment or the tax structure or the operating 
costs, as you go down the reasons for the success for Ford and 
GM in past years and looking forward over the long haul, why 
they are projected to do well overseas and international 
competition and why it is a greater burden here. I would like a 
discussion from each of you in terms of what some of those 
determinants are.
    Mr. Wagoner. I will be glad to start. When we go into new 
or newer markets, frankly we don't take some of the burdens of 
the past that we might have for being in business in the United 
States for 100 years, so we get to use, you know, all of our 
accumulated knowledge of the industry. But then as we go into 
new markets, we go in on an unencumbered basis. Frankly, not so 
different than some of the transplants who have come to the 
United States later, they come using the latest knowledge, the 
latest thinking about dealership structures and things of that 
sort. So sometimes, ironically, coming a little bit later can 
be an advantage.
    So the reason that we have been successful in growth 
markets is we really use our global capabilities and we build 
up with the latest best practices, whether it is lean 
manufacturing or when it is the right product technologies, 
whether it is the right distribution strategy. So I think that 
is a plus. And by the way, those overseas businesses, over the 
last several years, almost uniformly have been quite 
profitable. And they have, in almost every case, been able to 
send dividends back to help us address funding issues in the 
United States.
    I think the other thing that we have struggled mightily 
with here in the United States is the fact that we have had 
huge pension and post-retiree health care obligations. Our 
report indicates that we have spent about $103 billion over the 
last 15 years to fund pensions and post-retiree health care 
obligations. Those were responsibilities that we had from our 
past, and so we felt it was appropriate to try to fund those. 
But in all candor, that is a use of cash that in a newer market 
we wouldn't have to allocate funding for. And obviously if we 
had the $103 billion and could use it for other things, it 
would enable us to be even farther ahead on technology or new 
equipment in our plants, or whatever.
    So I think that is maybe two of the points that I would 
cite there. But I do want to highlight that a lot of that is 
behind us now, thanks to the funding we have put in and the 
work we have done with Mr. Gettelfinger and his Union. So we do 
think we have a lot of those issues behind us now in the United 
States, and so we are looking forward to our next 100 years 
here with a cleaner slate, if you will.
    Mr. Royce. Let me ask Mr. Mulally the same question.
    Mr. Mulally. You bet. As you all know, Ford has grown up as 
a global company, very regionally operated though, but because 
of that we had just an absolute laser focus on the Ford brand. 
And in the United States over time, especially with our cost 
structure in the United States and fuel prices being relatively 
low and low interest rates, we were focusing on the larger 
vehicles, the SUVs and the trucks. Well, around the world, the 
majority of our vehicles are much smaller. And we all know how 
neat they are because the fuel prices are relatively higher.
    So going forward, especially because of the work we have 
done with the UAW where we can now make smaller vehicles in the 
United States profitably, we are leveraging all of those 
fabulous vehicles from around the world in the United States, 
so we will have a balanced portfolio now of small, medium and 
large cars, utilities, and trucks. I think we are going to be 
able to profitably grow now in the United States using those 
lessons learned from around the world.
    Mr. Royce. Let me also ask you, the spread here that we 
have seen on auto loans, and asset-backed securities in 
general, getting back to the ranking member's question, just 
how much of a benefit would it be since your competitors, for 
example--well, Toyota operates under an ILC. If it were 
possible to achieve the bank holding company position, or the 
ILC status, how much of a difference would that make in that 
very large spread right now? Would that diminish those costs in 
financing significantly if you were on par with your 
competition?
    Mr. Wagoner. It would have a huge impact for us because 
right now we either can't get credit, or the spreads have moved 
up dramatically. And if we had a bank holding company status 
and then you would have deposit taking capability, the cost of 
funds would go down. I can't give you an exact basis point on 
that, I could look it up and get back to you, but it would be a 
tremendous advantage.
    The Chairman. The gentlewoman from Wisconsin.
    Ms. Moore of Wisconsin. Mr. Wagoner, you mentioned in your 
last response, you talked about the legacy cost, which, as you 
said, in the last 15 years they have cost you $103 billion and 
it has constrained investment in more advanced manufacturing 
product technologies. And you have a very elaborate plan. 
Wouldn't this have been a great time for GM to say, we need a 
national health care program in order to stay viable? You 
correctly identify the problem that other markets--China, Latin 
America and Russia--where GM doesn't have the burden of those 
costs. Why did you stop short of saying that this kind of 
initiative would help our industry?
    Mr. Wagoner. Well, it undoubtedly would help to level the 
playing field for the industry. I remember back to when 
President Clinton first brought forth proposals on health care 
back in the early to mid-1990's, our chairman and my 
predecessor, Jack Smith, was a very proactive proponent of it, 
and we have tried to be very active in the health care debate 
since here in Washington, but our endorsement per se wouldn't 
necessarily have resulted in the enactment of a policy. But our 
competitors do, in most other countries, operate with a 
significantly greater government role in health care.
    Ms. Moore of Wisconsin. But it is very much not a part of 
your plan here.
    Let me move on to ask a question about the warrants and 
about the first position of taxpayers. How can taxpayers manage 
to retain a first position, GM and Chrysler, if, in fact, you 
plan to honor all of the trade debtors in other countries? Can 
you just walk through for the committee how you would be able 
to do that?
    Mr. Wagoner. We at GM have a fairly significant collateral 
pool that has not been pledged yet of assets, for example, our 
ownership position, overseas subsidiaries, and trademarks. And 
so, as one thing, we could offer that as collateral against any 
borrowing that we do, and that would be a first lien for the 
government.
    Mr. Nardelli. And in our position, our assets are all 
securitized against the first lien, and therefore it would take 
a congressional action to subordinate that to the government 
loan.
    Ms. Moore of Wisconsin. I think one of the things that 
makes a lot of people nervous, there are conservatives and so-
called liberals, and I think that there are nervous people on 
both sides, and, Mr. Gettelfinger, your Union has made a lot of 
sacrifices in this. I appreciated your testimony setting the 
record straight that the $73 an hour amount really was mostly 
these legacy costs. And you have made agreements, apparently, 
to cut your workforce severely.
    I guess I would like to hear the narrative or, you know, 
what do we say to folks if we approve this plan, and yet there 
are 20,000, 25,000 workers who are going to be laid off, a 
severe constraint in the supplier and dealer market, what do we 
say as we vote for this plan?
    Mr. Gettelfinger. Well, first of all, thank you for 
pointing out the sound bite, the $73 sound bite, because that 
is clearly what it was. But secondly, there has to be a 
restructuring in the industry. And what this is about, this is 
about survival at this point in time. And there are going to 
be, unfortunately, losses. There are going to be facilities 
closed down, we understand that. We are going to lose 
dealerships, we know that. And we are going to lose suppliers. 
But what is the end result if we do nothing? That is the 
question. And as hard as it is to have to say that, that is 
reality. We can't sugarcoat it, we can't stick our head in the 
sand. It is what it is.
    The thing is, if we can just get through this economic 
downturn, then we can hope that there will be growth in the 
industry and we can rebuild and move forward to a brighter 
future.
    Ms. Moore of Wisconsin. Thank you. I yield back.
    The Chairman. The gentleman from Illinois, Mr. Manzullo.
    Mr. Manzullo. Thank you, Mr. Chairman.
    I am quite distressed over the continuous talk coming from 
the Big Three that there is no money available for consumers to 
buy your automobiles. Credit unions, local branches of national 
banks, and community banks are loaded with money and are ready, 
willing, and eager to give to people to buy your automobiles.
    On the current business environment on the Ford, page 3, 
quoting the Federal Reserve's senior loan officers, it says, 
``Over 60 percent of banks have tightened standards for 
consumer credit.'' That is not the case. I talked to a bank 
yesterday. I said, ``Have you changed any standards in the past 
year?'' He said, ``No.'' He said what happened is the Big Three 
set up their own financing arm and they pushed the community 
banks out of lending. And then you come back here, and you have 
created much of the crisis among yourselves because you created 
your own subprime market in automobile loans that is sitting 
out there because it was too easy credit to people who couldn't 
afford to buy the automobiles that you sold to them. That 
originally is what TARP was set up for was to buy that back.
    And now, Mr. Wagoner, you want to go into the commercial 
banking business. You want to be able to take demand deposits 
or set up checking accounts. I mean, you would be a bank on the 
order of Wal-Mart, which we stopped, and Mr. Nardelli, of Home 
Depot, which we also stopped. Why would an automobile 
manufacturer go into the commercial banking business and wreak 
havoc on the community banks, credit unions, and local branches 
of national banks? You are there to make cars, not to run a 
banking operation. That is part of the bailout, so that you can 
become a commercial bank? I don't expect an answer because 
there is no good answer to that. Your job is to make cars.
    And the other thing is I noticed that both Ford and GM have 
overseas subsidiaries that are doing quite well. My question to 
each of you is, have you taken advantage of the IRS 60-day 
window to bring back profits from overseas operations to infuse 
them into your domestic operation without having to pay 35 
percent tax? Mr. Wagoner, have you done that?
    Mr. Wagoner. Yes. We have remitted all of the available 
funds. This isn't an issue for us because we have an excess tax 
credit position.
    Mr. Manzullo. You have already brought it back?
    Mr. Wagoner. Yes.
    Mr. Manzullo. Mr. Nardelli.
    Mr. Nardelli. The same for Ford.
    Mr. Manzullo. The other question that I have is for Ford. 
On page 17 of your plan, you state that you want to accomplish 
the goal to increase more car profitability by improving cars 
at competitive levels through reduced complexity of global 
purchasing skills. Does that mean you are going to be buying 
more fasteners and tool and die from China to infuse into 
American cars?
    Mr. Mulally. It means that we are going to try to 
standardize more and more on all of the parts as well as 
simplify the vehicles--
    Mr. Manzullo. Would you answer my question, please?
    Mr. Mulally. We operate all around the world--
    Mr. Manzullo. I understand that. Does that mean that we are 
going to lose more fastener and tool and die industry in the 
United States because you are going to be buying those from the 
Chinese--
    Mr. Mulally. Absolutely not. Our goal and the plan that we 
have presented grows our business in the United States.
    Mr. Manzullo. I am talking about the suppliers.
    Mr. Mulally. Our plan is to grow the business, including 
our suppliers, in the United States.
    Mr. Manzullo. So you are telling us that if you get the 
money--and by the way, I think everybody in this room is in 
favor of getting the needed $25 billion that is already there--
is that, based upon this statement on page 17, that you are not 
going to be increasing purchases from Chinese and other 
overseas suppliers of tools and dies and fasteners?
    Mr. Mulally. Yes. What we meant by that, part of our 
strategy is to make them the same standard, not necessarily 
where we buy them. Our plan is to grow our business in the 
United States.
    Mr. Manzullo. You didn't answer the question. Are you going 
to use U.S. taxpayer dollars to source more tool and die 
equipment and fasteners from overseas facilities for American 
manufacturing?
    Mr. Mulally. No.
    Mr. Manzullo. Thank you.
    The Chairman. The gentlewoman from Illinois, Ms. Bean.
    Ms. Bean. Thank you, Mr. Chairman.
    I thank you all for your testimony today. I am sure you all 
wish you were here under better circumstances. And I know most 
of us here appreciate how integral the auto industry is to the 
economic fabric of our Nation. I know that as I travel to visit 
manufacturers in the Eighth District of Illinois, most of them 
that I visited are part of your supply chain, and their own 
economic viability is very much tied to yours.
    We have also seen dealer closings in my district and heard 
from the mayors of those municipalities who will suffer the tax 
consequences of those closings.
    In your proposals, you highlight the strides that you have 
made in recent years relative to development of electric 
hybrids and more fuel-efficient vehicles, and yet when you hear 
from most Americans, they don't seem to know about those 
accomplishments and improvements that you have made. Most 
business plans that I have looked at from my business past, one 
of the most critical parts is marketing. And my question to you 
is, while you seem to, in your proposal, talk about narrowing 
the gaps operationally and economically to compete, you seem to 
fail to miss the part where you are truly failing is in 
marketing to your potential customers. And so my question is, 
what will you do to market the improvements you have already 
made and any subsequent improvements you make, because having 
the best mouse trap isn't going to necessarily get you there.
    Mr. Wagoner. I think it is a great observation, and I think 
one of the earlier questioners highlighted a frustration that 
we have that some people have a view on a quality gap which 
doesn't exist anymore. So it speaks well to your point.
    From our perspective, I think the world of marketing has 
changed a lot. The old days of network TV is not as effective 
as some of the new ways. So we have put a lot more effort 
ourselves into Internet-based marketing and I would say trying 
to put more of our efforts into finding ways to use broader 
communication approaches on new technologies. So things like 
the Chevy Volt would be an example of a breakthrough, brand-new 
idea, no one else is working on that. It is a great piece of 
engineering, technological work. But we have obviously been 
much more open than we have ever been in developing a product, 
and taking it to market, and showing it around the country, and 
showing here is where we are on the battery development. I 
actually drove one of the early models up to the Senate 
yesterday. And so I think using the knowledge--and the facts of 
what you are really doing to tell your story in some ways is 
more effective than the old fancy commercials.
    Ms. Bean. If I might, I think with the road trips and 
driving down here and making some stops along the way was a 
good thing to do, but I would boldly suggest that you do more 
of it. Were there further comments on that?
    And I would also like to speak specifically even to the 
cooperative marketing funds spent by your dealers. If you open 
a Sunday paper and you look at the auto ads, your foreign 
competitors are talking about miles per gallon on their 
vehicles. The American ads do not include that, which leads 
consumers to think that you must not have something that you 
are proud of to be talking about. And will you impose some 
restrictions on those cooperative marketing funds to your 
dealers to make sure they are including that?
    Mr. Mulally. An absolutely other great point. To your 
point, when you look more at the local advertising 
historically, it would be more about the deal and not capturing 
the real value of the products. And a couple of things that 
have really worked for us over the last year, because, as you 
know, our market share has stabilized. And we are starting to 
actually grow again, is to really stress the value of the 
products. And the biggest ones on the consumer's mind has been 
quality, sustainability, and fuel mileage, safety, and then 
great value. And another thing we have used are third-party 
assessments. So we provided a lot of data, a lot of information 
on a lot of the vehicles.
    And right now we are rated equal to or above the best in 
the world on quality, on sustainability. Every one of our new 
vehicles now is equal to or better than the competition. And on 
safety we have the most five-star ratings of any manufacturer, 
but we have to use every mechanism we can to get that message 
out in addition to the good value.
    Mr. Nardelli. Great suggestion. One of the things we did to 
try and dispel the whole issue of reliability and durability, 
and we really have tried to bugle it loudly, is our lifetime 
warranty on our power trains. And the dealers have been 
tremendously supportive of that advertising. I think as we gain 
momentum in our product portfolio on more energy--as I said, 79 
percent of our products will show fuel efficiency year over 
year. Your point is spot on.
    Ms. Bean. My last point is that also have your PR work the 
media a little better, because the coverage you have been 
getting certainly hasn't framed this very well, and you are not 
getting the credit that you are due in certain areas.
    Mr. Nardelli. Thank you.
    The Chairman. The gentleman from Texas, Mr. Hensarling.
    Mr. Hensarling. Thank you, Mr. Chairman.
    Gentlemen, there is no reason you should remember 
everyone's opening comments, but there are several aspects of 
your request that trouble me. One is if you get the money, then 
who doesn't get the money? Can you name me three industries in 
this economy that aren't hurting, that couldn't use $34 
billion? I can't think of them. I have had homebuilders in my 
office. I have talked to representatives of the airlines, the 
largest poultry producer--I believe it was the largest, perhaps 
second largest--Pilgrims Pride, not located in my congressional 
district but nearby, just filed for Chapter 11; 50,000 jobs in 
east Texas are being threatened.
    So I wonder what the standard is. Is it simply because you 
are bigger or perhaps in more pain than other industries in the 
economy? That troubles me. So if we say yes to who--to you, who 
do we say no to?
    I ask this somewhat rhetorically. I know two--I know the 
answer. I assume nobody at the table has ever heard of Williams 
Paint and Body Shop in Mesquite, Texas, hadn't heard of 
Jacksonville Industries in Jacksonville, Texas, hadn't heard of 
the Kinnis Framing Contractors in Chandler, Texas. My 
assumption is you haven't heard of these businesses. They are 
small businesses located in the Fifth Congressional District of 
Texas. One has unfortunately failed. The other two are 
struggling in this economy.
    So the second question I have about your request, given 
that small businesses create three out of four jobs in America, 
if the purpose of Congress is to try to help our economy, save 
jobs, create new jobs, why should you get the $34 billion and 
not small business, or is it only the small businesses that 
service the auto industry that should be recipients or 
beneficiaries of this money? If anybody cares to address that, 
I would like to hear it.
    Mr. Nardelli. Let me try, please.
    I don't think anybody has been immune from this financial 
crisis that we are going through today in this economic trough. 
I certainly understand your point of view, And as we look at it 
from our perspective, the auto industry, I think at least one 
of the companies you mentioned is, in fact, impacted by the 
auto company or in support of the auto company. If you look 
at--you know, again, I look at our business, our dealers, 3,300 
of them are small-business men and women. These are very 
comparable to the examples that you gave us. And the only point 
I can offer is that a strong OE--in our case, there is about a 
million people depending on Chrysler's success. So I am 
certainly not justifying because we are bigger, I am merely 
presenting the point that we may have a broader impact across 
the country, sir.
    Mr. Hensarling. Let me ask another question. There was a 
report on CBS News last night that you gentlemen have spent 
roughly somewhere north of $50 million on lobbying fees for the 
first 9 months of this year. I don't know if anybody cares to 
challenge the accuracy of that report. If not, I would simply 
point out that the three businesses, small businesses, in my 
district certainly don't have that advantage.
    I don't begrudge you your constitutional right to petition 
your government for redress. That is not my point. But my point 
is clearly we have heard of your name. Clearly you have people 
that you can afford to represent you in Washington, D.C., small 
business can't. So something strikes me as patently unfair.
    But I do have a specific question about the lobbying fees. 
Can any of you tell me what portion of those fees were used to 
lobby Congress to remove the restrictions on the money that is 
already in the pipeline versus trying to get the additional $34 
billion?
    Mr. Nardelli. I have been given a number. Zero, sir.
    Mr. Hensarling. Zero. Zero has been spent on either this 
trying to reprogram the earlier money or to get this additional 
money?
    Mr. Nardelli. I am sorry?
    Mr. Hensarling. I am sorry, Mr. Nardelli. Zero has been 
expended where?
    Mr. Nardelli. I think your question was how much has been 
spent on reprogramming money.
    Mr. Hensarling. I thought it was an either/or question as 
far as how does the $50 million break down.
    Mr. Nardelli. I don't know the answer to that.
    Mr. Hensarling. Thank you.
    Last question; I know my time is running out here.
    The Chairman. It is about out; 3 seconds.
    Mr. Hensarling. Thank you, Mr. Chairman. I will yield back.
    The Chairman. The gentleman from Indiana, or is it the 
gentleman from Illinois?
    Mr. Donnelly. I went last time.
    The Chairman. I thank the gentleman for his honesty.
    The gentleman from Illinois.
    Mr. Foster. Your viability plans assume a significant 
recovery in the unit volume over time, And I would like to poke 
a little bit at how realistic this might be. One of the things 
that has been mentioned anecdotally is that cars are lasting 
longer, And it is no secret that in flat economic times, that 
will result in a drop in the number of new vehicles required 
each year. Have you made efforts to quantify this?
    If you look at the fleet of vehicles that have been 
produced over the last 10 years and will be wearing out, what 
does that mean in terms of the anticipated number of vehicles 
that have to be replaced? And is there a number you can attach 
to that, any of you?
    Mr. Wagoner. I don't have it with me, but we can get it for 
you.
    Mr. Foster. Do you have a feeling whether this means that 
there would be a 20 percent drop? It is my feeling that cars 
last a lot more than 20 percent longer than they used to, and 
that would naively lead to a 20 percent drop in flat economic 
times. It seems to me that if you are really trying to make 
projections that aren't just seat-of-the-pants things, that 
would be an important factor to understand.
    Mr. Wagoner. We have that data. I don't have it with me, 
but we would be glad to review that, and we could get our 
experts to show you the whole model we use.
    Mr. Nardelli. I would only answer in that our forecast for 
2009 is the exit rate of 2008. In other words, we are looking 
at the 10.5 exit rate as an entrance rate and basically holding 
that depressed level, that significantly depressed level, 35, 
40 percent year over year, throughout 2009. And as we were 
asked to also do a sensitivity analysis, we took that down 
another million units in the industry to 10, 10.1. And 
basically with the request that we have asked, even at the 
lower level we still would be able to repay a billion dollars 
back to the taxpayers by 2012.
    Mr. Foster. My second question has to do with offshoring of 
components and subassemblies, as you mentioned in various 
testimony, 70 or 75 percent of the value added in a car, which 
presumably means 70 or 75 percent of the jobs come from 
subassemblies. And I was wondering if you anticipate being able 
to become cost-competitive with the transplants, particularly 
for small cars, without increasing the offshore component value 
in your cars.
    And secondly, just how does that compare now between the 
three of you and between you and the transplants in terms of 
the fraction of the value that is offshored in a car today?
    Mr. Nardelli. I don't know exactly on the transplants; 78 
percent of our purchase material is from U.S.-based suppliers.
    Mr. Foster. By U.S.-based, do you mean U.S. manufacturing 
plants?
    Mr. Nardelli. No, no. U.S. manufacturers.
    Mr. Foster. So that a battery manufacturer with a plant in 
Mexico qualifies as U.S.-based by that definition.
    Mr. Nardelli. It could, sir. I don't know that secondary 
split out of that. But 78 percent of the materials from a U.S.-
based supplier.
    Mr. Foster. Well, there is a certain amount of pain that 
has happened by suppliers moving their bases offshore.
    Mr. Nardelli. I don't know the--
    Mr. Foster. So developing that number for us would be very 
interesting both now and for your projections and for the 
transplants, getting a comparison, seeing if we are going to 
see a continuing hemorrhaging of jobs under the business plans 
you are talking about.
    And I guess the third quick question is how many of you are 
personally confident that there will be a solution to the 
battery problem, that this won't be this decade's fuel cell, 
hydrogen fuel cell, that is just something everyone talks about 
and then, in fact, never becomes economically reasonable? And 
maybe I will just attach a number to it. What year do you think 
there might be a battery that is cost-competitive and 
performance-competitive with the gasoline engine?
    Mr. Wagoner. I am personally confident. We are putting a 
lot of money, for example, in this Chevy Volt that I mentioned 
before which we are endeavoring to get into production in 2010. 
It will not, obviously, at that point be fully cost-
competitive. I would say we should expect two generations of 
vehicles to do that. So maybe a target would be 2016, 2017 we 
would be completely cost-competitive. But that is going to 
depend on volume. So if we can get volume up faster than that, 
then the opportunity to be cost-competitive could be something.
    Mr. Foster. As I understand it, you do not have a battery 
car that is technologically competitive right now, not to 
mention cost-competitive.
    Mr. Wagoner. Well, actually, I drove one yesterday that 
will leap ahead of what anybody has on the market in 2010, the 
Chevy Volt extended-range electric vehicle.
    Mr. Foster. But it is not performance-competitive with the 
gas car, correct?
    Mr. Wagoner. I tell you, I drove over today--you mentioned 
fuel cells, but the way the fuel cell drive is a proxy for an 
electric vehicle, because it is an electric vehicle, it drives 
in some ways better than a gasoline-powered vehicle.
    Mr. Foster. But in terms of range and battery lifetime and 
all these issues that people have failed to succeed after 100 
years.
    Mr. Wagoner. That is why the concept that we are putting in 
the Volt, which is an extended-range vehicle which always runs 
on the electricity, has a battery which gets you 40 miles, and 
then you can recharge the battery with a very small, 
efficiently running internal combustion engine, is, I think, a 
good solution.
    The Chairman. The gentleman from New Jersey, Mr. Garrett.
    Mr. Garrett. Thank you, Mr. Chairman.
    Again, thanks, members of the panel, for being here.
    Let me just follow up on a line of questioning. It seems 
that there is a spectrum of ideas out here of potential actions 
or inactions that Congress could take. On the one end, Congress 
could say they are not going to do anything; on the other end 
of the spectrum, Congress could come back and say, we are going 
to pass a piece of legislation with all the bells and whistles 
of oversight and so on and so forth for the full $34 billion. 
And somewhere in between there is, of course, maybe 
alternatives.
    One of the alternatives that the gentleman from Texas was 
referencing a moment ago--I think it is one of the 
alternatives--is the idea--his phrase of reprogramming the $25 
billion that is already approved and signed into law and what 
have you.
    So let me just throw that question specifically out to you. 
If Congress in its wisdom decides not to take either end of the 
spectrums of actions today or in the next few days on this, is 
an alternative to take the reprogramming idea? And if we did 
craft some sort of legislation with regard to reprogramming 
that $25 billion, could we do it in a way that we would, say, 
reprogram a portion of it? And the numbers that I am hearing 
here off the back of the page was around $9 billion, $4 billion 
and then $4 billion, and so on. So is there a cumulative aspect 
of, say, we just reprogram a portion of that $25 billion and 
free up those dollars in cash to your hands without the 
restrictions that those bills have right now?
    Mr. Nardelli. In the short term, at least from Chrysler's 
perspective, we are certainly open to whatever makes the most 
sense for Congress as far as making the bridge loan available 
to help us get through this trough, point one.
    Point two, in our plan, to be absolutely clear, we have a 
request in for $7 billion in the bridge loan, but we also--our 
original request in for the 136 money was about $8 billion. We 
were told to assume somewhere between 70 and 80 percent. We 
have $6 billion built in our plan, assuming we would get some 
of that starting in 2010, 2011, and 2012 based on the process 
as we understand it today.
    Mr. Mulally. We have sufficient liquidity.
    Mr. Wagoner. From our perspective, we said however the 
short-term funding comes is up to the Congress. I would need to 
point out, though, that we have already filed $8 billion worth 
of--actually not projects, but the expected funding from those 
that would come out over a several-year period under 136. So if 
that was all drawn down now for short-term needs then, you 
know, in the future we would hope that 136 could be replenished 
as well.
    Mr. Garrett. I only say this because I know the dilemma 
that Congress finds itself in as far as the two ends of the 
spectrum, and also the fact that we know from your testimony 
here and the Senate testimony as well and other questioning 
that we hear that the numbers may be larger down the road 
besides the $34 billion. And I think one of you gentlemen, I 
forget who, testified in the Senate that March 1st or March 
31st might be a point in time that you would be coming back 
after the negotiations and everything were all done. This might 
be that proverbial middle ground.
    Secondly, one of the questions I--or comments I made during 
my opening statement was with regard to one of my major 
concerns, and that is States' rights and the issues of the 
dealers that are out there. Can any of you address the issues 
of what really would be the savings, and why is there savings 
with regard to the dealers out there and the shrinking of the 
dealerships? Because I am told that as far as the dealer is 
concerned, that he operates his own shop, he pays his own 
bills. You may have some kickbacks as far as advertising and 
that sort of thing and like that, but he buys those cars 
sitting on his lot, right, or are financed, but those are his 
cars. Can you explain to me why there would be such a 
significant savings by violating a State's rights and the 
contract agreements that are already out there?
    Mr. Nardelli. So for us, Chrysler, I mentioned the 2 points 
about the 500 dealers; 250 or so are already gone because they 
have had to declare bankruptcy. The other 250 are on credit 
hold. Our program--we call it Genesis--is more about helping 
assure the profitability of the dealers that are out there, 
particularly in the metro area where we may be overdealered. So 
we work in a harmonious way with them to make sure that the 
dealer consolidation as we try to go to one dealership with all 
three brands so that we don't have and they don't have the 
expense associated with trying to cover multiple brands and--
    Mr. Garrett. That is really their problem, isn't it?
    Mr. Nardelli. We want to help them. They are an integral 
part of our success. Without the dealers and strong financial 
dealers, we can't be successful, sir.
    Mr. Wagoner. Are you talking about the issue of State 
franchise legislation? A lot has been discussed about that. Our 
plan can be accomplished without changing that. And obviously 
if you have more regulatory regimes, sometimes it can slow you 
down. But we are not assuming that there is a need to change 
State franchise legislation to accomplish our plan.
    Mr. Garrett. I see a yellow light. If I have the time--
there is the red light.
    The Chairman. Your time has expired.
    The gentlewoman from California.
    Ms. Speier. Thank you, Mr. Chairman. And thank you again, 
members of the panel, for joining us.
    At our last hearing, I asked you each whether or not you 
would meet the fuel economy standards that were scheduled for 
2020, to meet them in 2015. I think each of you said no, you 
couldn't do it. And I was stunned by that because in 1960, 
President Kennedy said we will have a man on the moon by the 
end of the decade. NASA didn't have a clue, and yet we got a 
man on the moon by the end of that decade.
    The European Union is scheduled to have a fleetwide fuel 
economy standard of 50 miles per gallon by 2015. Are you still 
of the opinion that you cannot meet those standards sooner?
    Mr. Wagoner. From our side, we have a big business in 
Europe, so we meet those standards. I would say one thing, 
frankly, that has been done in Europe differently than the 
United States is tighter coordination of energy policy issues. 
So as you probably know, for example, in Europe, one of the 
things we have had for many years is much higher prices of 
gasoline due to higher taxation. So consumers, then, react very 
rationally. So our product mix in Europe is very much smaller.
    The Chairman. Excuse me. Apparently, there was a 
miscommunication. The gentlewoman did get to ask questions of 
this panel the last time, I believe, and this was reserved for 
people who had not asked the last time. That is what we had 
announced earlier. So we will conclude the questioning there. I 
believe the gentlewoman did previously--
    Ms. Speier. That is absolutely true.
    The Chairman. The gentlewoman from Florida.
    Ms. Brown-Waite. Thank you, Mr. Chairman.
    I have a large number of retirees who live in the Fifth 
Congressional District in Florida, both former union members, 
retired union members, and I have some auto execs. So I take 
this whole issue very, very seriously. It really is about their 
future and also the future of their children and grandchildren 
who may want or currently have a job in the industry.
    But one of the things that I think we need to be very 
careful of is that we are not unduly causing concern, because 
if bankruptcy is necessary, reorganization, people need to be 
assured that the Pension Benefit Guaranty Corporation, albeit 
in the red--which we will have to address that issue--will be 
there for those pensioners. And I wanted to make that statement 
because I have heard from so many who are afraid that their 
pensions are at risk.
    Mr. Nardelli, I have a question specifically for you. If 
the private equity company that currently has the major holding 
in Chrysler has $24 billion currently in assets, and they will 
not put forth any more money to stave off bankruptcy, how can 
we in good conscience expect the taxpayers to take on this 
substantial cost? And I would appreciate hearing from you.
    Mr. Nardelli. Sure. It is a question that has been asked 
yesterday. And just to try to bring some clarity, the private 
equity firm is a composite of many investors. They are made up 
of pension funds, they are made up of teachers' funds, State 
funds. So they have the same regulatory responsibility, 
fiduciary responsibility, as a publicly traded company would be 
relative to those fiduciary responsibilities. So it is not an 
issue, one, of them being able to commit on the behalf of those 
investors to put more in, number one. Number two--
    Ms. Brown-Waite. Did you ask?
    Mr. Nardelli. Yes. Exactly. We have asked them. We have 
asked every major financial institution; all 100 of those that 
got TARP funding we have asked for funding. We have gone 
offshore asking for funding.
    Ms. Brown-Waite. And the private equity company said no, 
correct?
    Mr. Nardelli. First of all, let me be clear. They already 
put the equity in to create the company. We did another $2 
billion drawdown on equity on the car side. They have continued 
to put more equity into our finance company to make sure that 
the car company could continue to provide consumer loans and 
wholesale support. So I want to be clear, it is not as if they 
haven't continually tried to provide financial support for us 
over this period. And just finally, they have publicly said 
that on any carry-forward interest, they won't profit--and they 
have also on their second lien been willing to convert 100 
percent of that to equity.
    Ms. Brown-Waite. Thank you.
    And my question for the three auto manufacturers is, 
obviously overcapacity has been part of the problem. You have a 
combined market share of about 50 percent, 52 percent in 2007, 
but there are--nearly 70 percent is accounted for your various 
brands' dealerships, of dealerships throughout America. How 
many of those do you expect will be closing over the next 4 
years even with a bailout? That is question number one.
    And question number two is, what are you doing to help 
those dealers out there, whom every Member of Congress has 
heard from, to help the dealers with the excess inventories 
that we have now? I would appreciate hearing from the three of 
you.
    Mr. Wagoner. Our plan calls for a reduction in the number 
of dealers of about 800 over the next 4 years. Individual 
dealers make the call that they don't want to stay in the 
business because the economics don't work for them anymore, or 
we have cases where we might have five dealers in a city, and 
we only--really only four can be profitable, so we work to try 
to consolidate them. What we are trying to do--their 
profitability is critical for us, obviously because if they are 
not profitable, they are not there to support our new product 
launches.
    So what we are trying to do is be very diligent in--for 
example, not overproducing the number of vehicles that we ask 
them to carry in inventory right now is the biggest thing we 
can do, along with helping with financing support.
    The Chairman. The gentlewoman's time has expired.
    Ms. Brown-Waite. Mr. Chairman, could I ask them, though, to 
submit their answers in writing?
    The Chairman. Yes. I appreciate that. Any questions that 
you do not get a chance to answer or you want to elaborate on, 
please submit in writing. And indeed any Member who has 
questions in addition to those asked, submit them through the 
committee. We will get responses in writing. We ask obviously 
that they be done fairly quickly.
    I now recognize myself for 5 minutes to talk about health 
care.
    Mr. Wagoner, how much are you obligated to put into this 
new health facility that came out as a result of the collective 
bargaining?
    Mr. Wagoner. Beyond what we already have put in it over the 
past several years, it is about $20 billion more.
    The Chairman. Over what period of time?
    Mr. Wagoner. Over a period of time, as I recall, it was 
about 8 to 20 years.
    The Chairman. $20 billion in addition.
    How about Ford and Chrysler, what are your ongoing, looking 
forward obligations for health care? You don't have--do you 
have the--
    Mr. Mulally. Yes. And we have put in $3 billion, and we 
have $7 billion more to go.
    The Chairman. You have $7 billion more to go?
    Mr. Nardelli?
    Mr. Nardelli. We have $11.3 billion more to go.
    The Chairman. So that is $38 billion, if I add correctly, 
more than you are asking for in health care. That is very 
relevant. One of the questions we have is if we were to provide 
some bridge financing now, this Congress has already been 
burned by financing a bridge to nowhere, and I think we don't 
want to repeat that. So we would like some assurance that it is 
a bridge that has another terminus. The relevance of that is I 
hope that in the next Congress, working with the new President, 
we will be doing something about health care. Is it then the 
case that to the extent we could have a national health care 
plan--because I don't think anyone thinks it makes any sense to 
do anything that is specific to one group of employees. But if 
we were able to establish some form of health care at the 
national level which shifted the burden away from this 
employment nexus to the extent that we could reduce this, we 
would be enhancing the likelihood of success; is that accurate?
    Mr. Wagoner. Yes, sir. And beyond the numbers we just gave 
you, we have ongoing every year health care costs for active 
employees. It would help us additionally.
    The Chairman. Mr. Nardelli?
    Mr. Nardelli. Yes, sir.
    Mr. Mulally. Yes, sir.
    The Chairman. Mr. Gettelfinger, I think the Union has 
gotten far too little credit, first for the creativity of the 
agreement to allow this shift for the retirees, but also, as I 
understand it, the agreement--well, just tell me what the 
recent announcement was about what you would be willing to do 
with regard to health care.
    Mr. Gettelfinger. Well, sir, in 2005, we made the initial--
what we refer to as the 2005 VEBA, which is Voluntary Employee 
Beneficiary Association. As in the case of General Motors, that 
took $18 billion of their old pay obligation off of their--
    The Chairman. But you just made a decision to even ease 
that. Tell me what that was.
    Mr. Gettelfinger. But then in 2007, we put it all in there 
based on these commitments. Like on January 1, 2010, General 
Motors owes $7 billion, Ford owes $4.4 billion, and Chrysler 
owes $3.5 billion.
    The Chairman. What did you just decide to do?
    Mr. Gettelfinger. What we have decided to do, sir, is to 
draw out that obligation, to remove that immediate liability 
off of their books to put them in a position--
    The Chairman. I appreciate that. So you have made a 
significant offer here that puts off the need for that. The 
relevance of it is--and I do want to think about how we can be 
constructive--that gives us more time to fashion a consensus on 
a national health care plan, so that if, in fact, we were able 
to do that, to the extent that we have a broader plan, that 
deferral could then become forgiveness altogether. And I think 
that is very important. It shows the linkage.
    First of all, one of the burdens you have been under is the 
requirement to do health care. I always find the best 
comparison to be between the costs in Michigan and the costs in 
Ontario, because people can't blame unions. Your sister union 
in Canada is a pretty strong one. You can't blame environmental 
rules. The cost difference between Canada and the United States 
has to be entirely on health care.
    Mr. Gettelfinger, you wanted to say something else?
    Mr. Gettelfinger. Yes, sir. As far as our commitment to 
each other, the company to the Union, the Union to the company, 
we put together what we referred to as a National Health Care 
Reform Institute to study the entire issue.
    The Chairman. I appreciate that. And I think--you know, I 
have to say I wish--among the mistakes the auto companies made 
was in 1993 when there was an effort by President Clinton to do 
something about health care, you didn't help him, And now you 
are reaping some of that. But it does show the importance of a 
rational national health care plan going forward. Reducing the 
nexus between employment and health care is good social policy, 
it is good economic policy, and it would have particular 
relevance here.
    I just want to add one last point. I know one of my 
colleagues will do this. One of the problems you face in 
getting votes, certainly on the Democratic side, is the fact 
that you are now suing a lot of States that are represented 
here over greenhouse emissions. And I have to tell you that 
that is a serious obstacle. We are being asked by some 
attorneys general--I will put that letter into the record--not 
to go forward while you are suing the States again, some of 
which are represented here, over the question of greenhouse gas 
emissions. And that is something that you are going to have to 
confront, and I know it is going to be raised later on.
    The gentleman from South Carolina, Mr. Barrett.
    Mr. Barrett. Thank you, Mr. Chairman.
    Gentlemen, thank you for coming today. And I certainly 
don't want to get into a health care debate today because there 
are plenty of other issues, but I think we are being extremely 
short-sighted to realize that taking health care costs off your 
role, somebody has to pay for that, somebody has to pay 
additional taxes. And if you don't think you are going to pay 
additional taxes--and me--I think it is a fallacy.
    The one question I want to ask first, driving around my 
district, talking to my folks, the one question they say is why 
now; why are we deciding today that we are going to 
restructure, that we are going to cut our labor costs, that we 
are going to shrink down the size of our lines? I mean, you 
guys are the ``bestest'' and the brightest, so to speak. You 
have men and women who are experts in every field. Why today 
are you realizing that your competitors are getting an 
advantage on you, and all of a sudden we have to restructure? 
You should have seen this coming for years. And I know you 
have. And all of a sudden you are coming to the United States 
Congress, which is not our job, to tell you how to restructure. 
But you are doing it. I mean, why now? Why not 10 years ago? 
Why not 20 years ago? Please, somebody.
    Mr. Wagoner. Yes. We aren't just starting this now. We have 
reduced--for example, over the last 3 years, we reduced our 
cost base against a base of $40 billion of fixed costs, we 
reduced it to $30 billion working a lot actually with the UAW. 
So we have been working on this.
    I think now what is different today are two things: 
Automotive demand, the trend had been running kind of 17 
million units a year for an average of about the last decade, 
And now they have fallen to, in recent months, under 10 million 
or 11 million units. So there is a radical fall-off in demand 
at a time, frankly, when, at least for General Motors, our 
balance sheet is weak in part because of the massive 
expenditures we made in the past on health care and pensions.
    And so then you say why are we doing the additional 
restructuring now? Because we have to face the reality that 
because of the state of the credit markets and the U.S. 
economy, we have to structure the business not to be highly 
profitable at 17- or 18 million units, but now to be highly 
profitable at 13 million units. And to do that, frankly, we are 
having to take additional and painful steps.
    Mr. Barrett. I understand. But please, you are not the 
Federal Government. You don't think in 2-year terms. You can 
move faster. And if you are going to be competitive, if this 
thing is going to work, if it happens, you have to be more 
competitive.
    Another question, Mr. Wagoner. I hate to pick on you. You 
were talking about legacy costs, and when you move into a new 
market, you get rid of a lot of the legacy costs. What makes 
you think that you can't cut some of the legacy costs faster 
under a bankruptcy type of format rather than government 
restructuring, which you are basically asking for right now?
    Mr. Wagoner. First of all, the pension legacy costs we have 
paid for, that is done. Our pension plans are essentially fully 
funded. So there is no advantage or disadvantage from a 
bankruptcy there.
    Second of all, as Mr. Gettelfinger pointed out in his 
comments to the chairman's question, the post-retiree health 
care benefits, we have reached an agreement where those will be 
the responsibility of this trust in 2010. So we will also no 
longer have those in front of us. We do have some payments due 
to that trust which Mr. Gettlefinger has agreed we can stretch 
out over a period of time. We need to sit down and discuss 
those. But we don't really think from that perspective a 
bankruptcy helps a lot on those issues. And meanwhile, it is 
going to cream our revenues. And if our revenues go down like 
this, we will never be able to cut costs enough to get ahead of 
that.
    Mr. Barrett. Mr. Nardelli, I know that you guys have 
brought a plan forward, and you are asking Congress for certain 
things. Are you asking for things in this plan that you 
wouldn't ask for, having brought it to Congress, if that make 
sense? Are you bringing this plan and asking for things to 
appease Congress that you wouldn't normally ask for in a 
regular plan if you were going to a financier?
    Mr. Nardelli. No. I think if you look at the plan that we 
have submitted, and it is a 120-page document, what we are 
asking for is a $7 billion bridge loan. If I could just build 
off Mr. Wagoner. We started in August when we became 
independent from Daimler, we started on this massive 
restructuring. And I think the reality is two things really hit 
us. One is 17 million to 10.5--
    Mr. Barrett. Let me cut you off because my time--does it 
give you enough flexibility? Does this plan with the government 
mandates on CAFE standards and things like this, does it give 
you the flexibility that you need to turn your companies 
around, to make them profitable, to compete with your 
competitors?
    Mr. Nardelli. I believe it does.
    The Chairman. Time has expired. Any further answers will 
have to come in writing.
    The gentleman from Pennsylvania is now recognized for 5 
minutes.
    Mr. Kanjorski. Thank you, Mr. Chairman.
    Gentlemen, let me ask you a few questions. One, you were 
examined by Ms. Brown-Waite of Florida just recently. And a 
masterful obfuscation. I think she was asking a very simple 
question, and I have the same question. Why don't your equity 
owners provide the equity necessary for your company to go on? 
I do not want to hear whether there are pension funds or they 
have obligations. Isn't the truth of the matter that they do 
not feel that the presently structured auto industry of the 
United States is survivable in its present form?
    Mr. Nardelli. Sir, they never conveyed that to me.
    Mr. Kanjorski. Then why won't they give you any money?
    Mr. Nardelli. I assume they have no access to additional 
funds.
    Mr. Kanjorski. I think she indicated they had $20 billion 
on hand, $24 billion. That is a considerable amount of money.
    Mr. Nardelli. I don't know if that is in the form of cash 
or in the form of assets, sir.
    Mr. Kanjorski. But the taxpayers of the United States have 
that money on hand, and we should provide it as their 
representatives much sooner than your equity owners?
    Mr. Nardelli. I am only suggesting that I have tried 
mightily to get funds to keep Chrysler alive.
    Mr. Kanjorski. I listened intently to the Senate 
examination yesterday, and I thought Senator Corker was 
excellent. And he basically told all of these gentlemen that 
from his business perspective as a businessman--he personally 
is a very successful businessman. He looked at your balance 
sheets, and he said they just don't work; you can't retire your 
present debt on your plans over the next several years unless 
there is a restructuring, unless there is haircuts taken by 
your creditors, etc., etc.
    Now, I am not familiar with all of the facts of those 
things, but I am reasonably willing to assume that he has 
looked at it. And I think most of you agree that something has 
to be done. This balance sheet doesn't make sense to a 
continuing, successful, viable business. If that is the case, 
it seems to me this is the time.
    Look, labor stepped forward. They have indicated they are 
ready to step forward again. Why can't the creditors step 
forward? Why can't the suppliers step forward? Why can't the 
dealers step forward? Why can't management step forward? 
Instead of a dollar a year, I think you ought to take no 
greater salary than any of the successful Japanese companies 
for as long as you are indebted to the United States. When you 
are out, I don't care what you do, but until that time, you 
shouldn't be getting 20 times the salary of a successful 
Japanese automotive executive. It is ridiculous.
    Now, those things are minor and can be solved. It just 
seems to me--and my frustration is, hey, we are running out of 
time. I don't know if you sense it as I do, but you all are 
telling us you are within 25 days of bankruptcy potentially. 
This is not a time for us to horse around. What do we have to 
do? A very complicated agreement. Not that complicated that it 
can't be done in a reasonable period of a month or 2 months, 
but too complicated to put together and get done before the end 
of this month. So we are looking at the precipice. You are 
going to go over if we don't do something.
    It seems to me yesterday there was agreement in the Senate 
if General Motors were able to get an advance, a bridge-bridge 
loan of $4 billion, if Chrysler were able to get a bridge-
bridge loan of $4 billion, and Ford can manage itself until 
March 31st, we can get a hiatus here until March 31st for the 
new Congress and the new President to act; is that correct?
    Mr. Nardelli. It is correct for Chrysler.
    Mr. Wagoner. For General Motors, the number we have 
indicated that we need up to $4 billion at the end of this 
month. Also at the end of January. And so the total amount that 
we would need as we see it today through the end of March would 
be up to $10 billion.
    Mr. Kanjorski. Up to $10 billion?
    Mr. Wagoner. Yes, sir. But we do have collateral that we 
could offer against that.
    Mr. Kanjorski. And Ford?
    Mr. Mulally. We believe we have sufficient liquidity. We do 
not need any money.
    Mr. Kanjorski. So you need an adjustment somewhere between 
$14 billion and downward, perhaps as low as $10 billion, to 
give us the 90 days we need as a Congress, both House and 
Senate and the new Administration, to put something together; 
is that agreed?
    Mr. Nardelli. Yes.
    Mr. Wagoner. Can I make one more comment, sir? It is 
important. We were hoping to use the 90-day period to do 
exactly what you suggested, which is to work with debt holders, 
to work with UAW, to use that time period--
    Mr. Kanjorski. Why aren't we doing that? Why are we all 
sitting around talking about a business plan here and a 
business plan there and time is running out? And it almost 
looks to me like you hope that with that target coming down on 
us, you are going to get us to do something and just throw the 
money out there and say, go ahead, do with it as you will.
    I tell you this: I do not sense the Congress' appetite 
right now to do that. I think you are skating on extremely thin 
ice. And I happen to be a friend of your industry and your 
intent to get this thing straightened out. I think what you 
have to do is come up with a plan for success. That means the 
haircuts have to be taken, the negotiations have to be--we have 
to know where we are going. I would urge you to do that.
    The Chairman. The gentleman from Georgia, Mr. Price.
    Mr. Price. Thank you, Mr. Chairman.
    I want to just make a comment about your bringing up the 
issue of health care and the fact that it would reduce costs 
significantly. I am reminded of the comment by P.J. O'Rourke, 
who said that if you think health care is expensive now, just 
wait until it is free, as the gentleman from South Carolina 
mentioned. Somebody will be paying for it. And whether or not 
it is in the program that you all have identified or elsewhere, 
it will certainly be paid for.
    Mr. Gettelfinger, you have been saluted for concessions 
that the unions have made, and I want to join the individuals 
who are commending you for those concessions. I want to address 
the issue of the jobs bank. It seems to me that the suspension 
of the jobs bank, which, as I understand, is a program that 
pays individuals who have been laid off for an extended period 
of time a significant amount of their income--the suspension of 
that program is an admission that affects the financial 
viability of the company. To me it seems that way. If that is 
the case, wouldn't it be appropriate to suspend that program 
definitely, end it definitely, as opposed to just suspend it 
for a finite period of time?
    Mr. Gettelfinger. Yes, sir. What we are doing is, we are 
looking at that. But I would just like to point out to you that 
some of the competitors, the foreign brand competitors, pay 100 
percent when their workers are off. But we have set that aside. 
We recognize that it really--
    Mr. Price. So you are open to ending the program?
    Mr. Gettelfinger. What we are doing right now, sir, we have 
taken action on Wednesday of this week to suspend the jobs bank 
program, to immediately enter into discussions with the 
companies and work out the mechanics of the program. But also 
know that we have a very few number of people in there. We have 
a number of people who would be coming in there. So we want to 
enter into discussions with the company in a way as humanly 
possible in that program without a lot--
    Mr. Price. I am looking forward to positive results from 
that. It is somewhat humiliating, I would suggest, to have you 
all sitting here and taking advice about how to run your 
business from Members of Congress, many of whom have great 
expertise in certain areas, but I would suggest isn't 
necessarily running a large global company.
    My good friend from Illinois talked about appropriate 
recommendations regarding marketing, and you ought to take some 
of those into advice, I am sure. If you get this money, 
however, there are all sorts of folks who are working in other 
companies, building automobiles in the United States. Those 
individuals pay taxes. If you get this money, some of their tax 
money will go to compete against the company for which they 
work. Why is that fair?
    Mr. Wagoner. If I could just comment. In many cases, those 
companies are seeking support from their own governments right 
now in their home countries for funding. First of all, as you 
know, this is being done almost globally due to the crisis in 
the industry. Second of all, many of those companies benefited 
from very extensive incentives to locate plants in States, and 
so their costs were reduced from the beginning. And it is 
certainly true, I suspect, if we were building all new plants, 
we could seek similar support. But we have such a huge existing 
manufacturing base, that frequently the kind of support you get 
to retool an existing plant would understandably be less than 
paying for a whole new plant.
    Mr. Price. You understand the questions that we get at 
home, though? Why should my tax money go for this activity? 
Have any of the three of you looked at how many billions of 
dollars your companies might be able to save with specific 
decreases in the three biggest cost drivers, taxation and 
regulation, liability costs that you have, and made proposals 
that might result in significant decrease in the cost of doing 
business?
    Mr. Nardelli. Sir, from our standpoint, unfortunately, we 
have not been profitable, so there is no Federal tax suggestion 
that--
    Mr. Price. Your liability and regulatory costs aren't 
anything?
    Mr. Nardelli. No, they are.
    Mr. Price. Have you looked at what those costs are and how 
we might be able to assist in that area?
    Mr. Nardelli. We have not explored significant 
opportunities on how to get those down.
    Mr. Mulally. Nothing there, except that I think that what 
we did last year during the 2007 Energy Independence and 
Security Act to come together, what we really were going to do 
about fuel economy was a very important step. We have one 
standard.
    Mr. Price. GM, taxation, liability, regulatory costs?
    Mr. Wagoner. Same position on taxation. We don't currently 
pay taxes because we have a tax loss carry-forward position 
that is huge. Regulatory costs--and obviously we have, you 
know, less than we used to, but significant costs related to--
    Mr. Price. My time is about to run out. I would encourage 
you to--
    Mr. Wagoner. We can get you a number.
    The Chairman. Go ahead and finish.
    Mr. Price. I would just encourage you to put a sharp pencil 
to those issues.
    The Chairman. The gentlewoman from California.
    Ms. Waters. Thank you very much. Again, I would like to 
thank you, Mr. Chairman, for this opportunity to try and figure 
out what the situation is with our automobile manufacturers and 
see what our responsibility may or may not be.
    As you know, I have focused on dealerships, and small ones, 
because I believe that many of these small, independently owned 
dealerships are anchored in many communities that provide 
support, but not profit. They create jobs and stability and 
development. I have not seen the kind of discussion about 
assistance for these dealerships that would make me want to be 
very anxious about supporting a rescue plan.
    Of course, let me say to UAW, we are very concerned about 
the workers, and we believe that if we are able to move to the 
point of a rescue plan, that we would be able to save many 
families who depend on these companies that they have worked 
with for many years, and that those families are key to the 
stability of our community. So we are concerned about that.
    But I don't see any discussion about how you plan to--I 
understand when you say you are going to do consolidation. You 
don't explain it thoroughly, but to me it looks as if 
consolidation means that the big dealerships with access to 
capital and multiple locations will be able to buy up the small 
independent dealers and just put them out of business, and that 
bothers me. I don't see the small dealers having access to 
capital from our banks and financial institutions or your 
financial arms.
    Chrysler, for example, when you were purchased by Cerberus, 
it looks as if they purchased, according to an article, for a 
very low price of $7.4 billion. Only $2.2 billion of that 
purchase price was for Chrysler's carmaking operations. The 
other $5.2 billion or so bought Chrysler Financial Services, 
which is doing very well. But there is no commitment that I see 
from that financial services operation to give support to those 
small dealers who have been profitable, operated their 
businesses good in the past, and only got into trouble with 
this economic turndown. Chrysler, you have money to help these 
dealers. What do you plan on doing for these small, independent 
dealers who are the anchors in these communities?
    Mr. Nardelli. The current financial structure of Chrysler 
Financial is the arm that is providing the capital support for 
the dealers. That is the current funds flow. It does not come 
out of the car company. It does come out of the financial arm. 
I don't know the exact amount.
    Ms. Waters. But they are not making any money available to 
these small dealers now. As a matter of fact, they are calling 
in some of the commitments that were made in asking people to 
pay off these loans. What do you plan on doing--you are here to 
get help. What are you going to do to help them?
    Mr. Nardelli. You are exactly right. Due to the capacity 
limitations on Chrysler Financial because they have not been 
able to access the window, in fact they cannot make additional 
funds available, they have certain tripwires that if they cross 
over, that they will be in violation of some of their governing 
documents. So that is to our earlier conservation today, it is 
critically important that Chrysler Financial gets access to the 
TARP funds both to improve liquidity and capacity for our 
dealers and our customers.
    Ms. Waters. But it seems to me that Cerberus is doing 
pretty well. They basically own Chrysler. They have done things 
like--well, literally private equity fund that purchased 
Mervyn's and stripped it of all of its real estate and made a 
lot of money on it. The financial arm is doing very, very well. 
Why can't that be used for support for these small dealers 
rather than saying just sell out or get out?
    Mr. Nardelli. I don't--to be honest with you, I don't know 
the extent of the financial funds available at the Cerberus or 
parent level. I know that, again, they have investment funds 
that have certain criteria relative to how those funds might be 
used and where they are invested. So I really can't give you a 
more complete answer, but I would be happy to try to get that 
for you.
    Ms. Waters. Is there a commitment by any of you to give 
support to these small, independent dealerships that include a 
lot of minority dealerships that are going to close down?
    Mr. Mulally. Absolutely. In Ford's case, as you well know, 
we have the Ford Motor Credit Corporation. We have provided the 
financing support for all of the dealerships, 77 percent of 
them. And we are absolutely committed to our small dealerships 
as well as the larger ones. The most important thing we can do 
right now is get them the credit. That is why we are 
encouraging the Fed to approve this--and this medium-term 
asset-backed commercial paper.
    The Chairman. The others will have to answer in writing.
    The gentlewoman from Illinois.
    Mrs. Biggert. Thank you, Mr. Chairman.
    In my opening statement, I asked the question about what 
are the reasons that people are not buying the cars. And I just 
wondered since most of us sitting up here have been doing 
surveys--or a poll, as we would call them, during the past 
year, I wondered if any of your companies do surveys annually 
or whatever to determine what the customer thinks.
    Mr. Wagoner. Continually we do surveys.
    Mrs. Biggert. So you know the answers why people are not 
buying your cars?
    Mr. Wagoner. Well, I don't know. But, yes, basically what 
is going on now is I think the macro issues are customer 
sentiment is very--consumers are concerned about housing and 
their jobs and stuff, so they are not disposed to buy things 
they don't have to. Second of all, we talked so much about 
credit availability I think is a huge issue. And then I think 
just concerns about the economy are the big issues that I would 
say.
    Mrs. Biggert. If I might return then to the other issue of 
the ILCs, which I had mentioned also and was brought up several 
times. And then Mr. Manzullo touched on the fact that the 
community banks, the credit unions, and the local branches of 
national banks are really standing in the wings waiting to help 
to--and provide finances. How exactly are you working with the 
existing financial institutions to ramp up financing for 
consumers?
    Mr. Nardelli. I would like the opportunity to answer 
because I didn't get a chance. We got approval from Chrysler 
Financial to go out and test that market. We gave half of our 
country the opportunity to with some private--with some 
publicly traded companies. And in November, we consider half of 
the volume, 80,000 plus units that we sold in November, 573 
were supported by financing outside of Chrysler Finance.
    Mrs. Biggert. According to the Wall Street Journal in an 
article published Wednesday--I believe Wednesday afternoon--
they said that, ``The auto firms don't appear to have 
collateral that would meet the Fed's lending criteria.'' Is 
this true?
    Mr. Wagoner. We have, as I have mentioned earlier, 
significant collateral that is undesignated right now. I am not 
familiar with the specifics of the criteria of the Fed. I can 
get back to you on that.
    Mrs. Biggert. All right. Thank you.
    Would anybody else like to add anything to that? Okay. Then 
if Ford and Chrysler were approved to be ILCs tomorrow, which 
would technically make them eligible to apply for TARP funding, 
do you think you would get the TARP funding. And, GMAC, if 
you--if you are a bank holding--would the Fed give you a loan?
    Mr. Nardelli. We certainly would hope so; that if we 
received approval and got access to the window, as I mentioned 
earlier, we are looking for $1.6 billion immediately and 
another $2 billion for wholesale and retail, which we would be 
able then to provide to our dealerships to try to get some more 
volume into our business.
    Mrs. Biggert. In your plan submitted to Congress, you 
mentioned the introduction of 20-plus new models by 2012. And 
each of you also highlights the significant investments the 
overall industry has made in R&D. With this in mind, have you 
identified specific ways you will shorten the car concept-to-
dealer timeline in order to meet long-term CAFE increases and 
customer credit? And I am worried about this because it seems 
like the transplants have really been able to bring to market 
some of their ideas a lot faster than you all have.
    Mr. Wagoner. I would observe--I think that is a comment 
that for some of them--not all of them, by the way, but some of 
them--might have been true 5 or 10 years ago. Generally today, 
I think all of us use the same kind of computer-based 
engineering design systems so we can move through much more 
quickly than we used to. And I think the competitive band is 
very tight right now.
    Mrs. Biggert. Would that be like 2\1/2\ to 4 years?
    Mr. Wagoner. Right. And it depends on--you know, if it is 
an all new vehicle from the ground up, it is going to take 
longer. If it is a modification of an existing platform, it 
could be at the shorter end of the timeframe.
    Mrs. Biggert. Thank you.
    I yield back.
    The Chairman. The gentlewoman from New York.
    Mrs. Maloney. Thank you, Mr. Chairman. Mr. Chairman, you 
raised a very relevant point earlier when you mentioned the 
efforts by our guests to block laws that we have adopted in our 
States. In fact, 16 States have adopted or planned to adopt 
laws to lower greenhouse gas emission standards. And my basic 
question to you is, why in the world should my constituents or 
taxpayers in New York State or any State provide $38 billion in 
loans for your companies if you will continue to attempt to 
undo laws that we have adopted in our States? Wouldn't that be 
equivalent to giving you money to sue us?
    So I would like to ask each CEO, will you pledge today to 
cease all legal and lobbying efforts to block the California 
greenhouse gas standards for cars that have been adopted in New 
York and many other States, and tell us, are you going to use 
this money to sue us, or do you pledge today that you will 
block your efforts to lobby and sue States that have adopted a 
stricter antipollution standards?
    Mr. Nardelli. Let me try to go first. It is not our intent 
to use the $7 billion, if we are fortunate enough to get a 
favorable decision, to sue those States. I would also say that 
it adds a level of complexity and cost at a time when we are 
trying to get simplification. To be able to produce cars unique 
to a State or unique to a city in some cases would add 
tremendous complexity in manufacturing and in our technology.
    Mrs. Maloney. Thank you.
    Mr. Wagoner?
    Mr. Wagoner. Yes. I would just add that we have been of a 
view and continue to have a view that a single national 
standard as aggressive as it would be is a far more efficient 
way to reduce greenhouse gas emissions and reduce imported oil, 
so that remains our strong preference.
    Mrs. Maloney. And the California standard being adopted by 
16 States is moving toward a national standard.
    Mr. Mulally. We agree with one national standard.
    Mrs. Maloney. Secondly, my constituents are asking about 
your efficiency, your fuel efficiency. Many countries have far 
more fuel-efficient cars, and they want to know why you can't 
meet the standards of other countries. We can't export if we 
are not more fuel-efficient. I noticed in your plans you have 
talked about your standard and your goals of becoming more 
fuel-efficient, and I would like to hear the year and 
specifically how many miles per gallon you propose to do by 
2015.
    And secondly, I would like to hear your comments on 
electric cars. I know that GM has talked about having one on 
the road in 2010. And Ford, in your plan you talked about 
moving towards electric cars.
    But before you answer, I would like to request if the 
chairman would allow me to place in the record--
    The Chairman. Without objection.
    Mrs. Maloney. --a report that was issued earlier at a Joint 
Economic Committee meeting which I chaired on the unemployment 
numbers for this month. They were the worst in 124 years. We 
lost over 533,000 jobs, and the Commissioners of the Bureau of 
Labor of Statistics made a very compelling point for a bridge 
loan to the auto industry, indicating that 2\1/2\ to 3 million 
American jobs are directly or indirectly tied to this industry. 
Through November, almost 20 percent of all job losses in 2008 
were directly associated with the auto industry; 13,000 auto 
jobs lost this month, 135,000 this year; 115,000 more jobs lost 
this year with auto dealers, and 240,000 workers, companies are 
directly employed now to the auto industry.
    I would like to place in the record the full report, but I 
would like to hear your goals and your benchmarks. What do you 
propose to achieve in fuel efficiency and also your comments on 
electric cars and your plans to move there and what would that 
mean to our economy, our fuel efficiency, our jobs in America.
    Mr. Wagoner. Just in the interest of time, our report lays 
out our fuel economy plans, but they involve significant 
increases over the next 4 years and I would be glad to share 
with you the 2014 numbers. I don't have them right with me. It 
shows a dramatic improvement, and I think I can just say we 
share your passion for developing electric vehicles. We think 
that is going to be the breakthrough for the future.
    The Chairman. The other responses have to be in writing 
because the time has expired. I said we would end at 12:30. I 
am going to ask for your indulgence. We have one member on this 
committee from Michigan, and if we go another three members, we 
can reach him. If members are very good about keeping to the 
time, if that is okay, I am going to go ahead so that we can 
reach our colleague from Michigan. Now, it is the gentlewoman 
from West Virginia.
    Mrs. Capito. Thank you, Mr. Chairman. I want to thank the 
panelists, too, for coming before us. I have a question for Mr. 
Wagoner. In your proposal brought forward, you have asked for 
$4 billion to take you to the end of the month, $4 billion to 
take you to the end of January. Just briefly, can you give me a 
snapshot of what is $4 billion between now and December 31st 
going to be used for? You recommend an oversight board as well 
when you and I both know that the creation and sustainability 
of an oversight board in 26 days is pretty much impossible. I 
just want to know what is $4 billion getting you, and then what 
is it going to get you in January? Is it like paying your 
mortgage every month or something?
    Mr. Wagoner. No. Basically the funding request up to the 
end of the month of up to $4 billion is what we think we need 
to be able to make all of the significant annual monthly 
payments that we normally make at the beginning of the 
following month.
    Mrs. Capito. So payroll and production costs?
    Mr. Wagoner. Right. And suppliers, etc. The reason the 
number is so high is that production has been slashed over the 
last weeks because of dealers' inability to finance wholesale 
units or to get wholesale financing.
    Mrs. Capito. Is it the same?
    Mr. Nardelli. Yes. For us, we have $11.6 billion in 
expenses. $8 billion is for suppliers, $1.2 billion for 
vendors, $900 million on wages, healthcare is $500 million, and 
capital expenditures are $500 million, so we have $11.6 billion 
of distribution during the quarter. And so the $4 billion of 
inflow, plus a revenue inflow, would allow us to have a minimum 
level at the end of the first quarter.
    Mrs. Capito. So you are anticipating that by March 1st, the 
sales will back up and the ship will get righted at least to a 
certain extent. Is that why it goes down in March?
    Mr. Nardelli. By March 31st, but we are assuming a very, 
very depressed January in our analysis. The first quarter is 
typically seasonably low. And we believe January will be even 
more extreme relative to our overall manufacturing output as we 
try to get dealer inventory back down to an acceptable level. 
When I took over here, there were 600,000 units in the field. 
We got it down to 400,000. We would like to get it lower to 
reduce the floor planning cost for our dealers.
    Mrs. Capito. And another question I had was obviously the 
dealers have made a push to all of us, and I congratulate them 
for putting really the human face of a small business and the 
amount of workers and the community involvement that they all 
have in our States and in our districts, and I think that 
really helps. I was actually, just to add a little levity to 
this, I was thinking about, you know, we think about our cars 
and our automobiles, and I started thinking about all the cars 
that I had, and I remembered all the names that we had. You 
know, we had Leroy and Big Blue and Crasher and Goldie, and 
then the one my dad drove which was an old Chrysler wagon and 
called that the ``chick magnet.'' So I mean, everybody has a 
name or an attachment, sorry, Mr. Chairman, for their 
automobile.
    The Chairman. It is just not something I would ever want to 
drive.
    Mrs. Capito. Anyway, getting back to the dealers, they are 
very fearful of the bankruptcy option. They feel that the 
confidence that is lacking in the consumer right now is going 
to become exasperated by any kind of bankruptcy, whether it is 
preplanned or whatever. And I think what is really killing us 
right now is just this uncertainty. We don't know what 
direction it is going to go. It is almost like tell me what the 
pain is going to be and let me move forward. And so I 
understand that in a context of putting it within a time limit 
is where you all must be feeling this.
    Is that sort of the general feeling that you have, we just 
have to find an end here so we can rebuild? I would also like 
just, and I know I have taken probably all of my time, but the 
bankruptcy option, if you could just go back through that one 
other time. I know Mr. Gettelfinger did a nice job on that.
    Mr. Nardelli. The quick answer to one is this morning's 
survey that was reported; 57 percent of the consumers surveyed 
would not buy a vehicle from a company that they anticipate is 
going into bankruptcy.
    Mrs. Capito. Well, I mean, I have already had two people 
tell me in the last week they had options that went the other 
direction because of the fear of bankruptcy. Thank you, Mr. 
Chairman.
    The Chairman. The gentleman from North Carolina.
    Mr. Watt. Thank you, Mr. Chairman. I thought I was about to 
get cut off, so I appreciate you extending the time. I, in my 
opening statement, encouraged the members to go out and look at 
your new generation cars, which I did earlier today. But one of 
the concerns I have is that none of those cars are yet on the 
market. Is there anything that can be done to speed up the 
process of getting those cars on the market? And is there 
anything that can be done, I asked this question out there to 
the people who were out with the cars this morning, to create a 
bridge for people who are buying these first new generation 
cars, so that when the second and third and fourth generation 
more efficient, more cost effective comes on the market, those 
people don't get stuck? Because I think that is really stopping 
a lot of people from buying cars now, because they think next 
year there is going to be a more efficient car on the market. 
Is there anything that can be done to speed up and create that 
bridge for people who are willing to take the front end risk?
    Mr. Wagoner. I would like to comment that we do have a lot 
of hybrids and flex fuel vehicles on the road today. But we do 
hope that the next generations will get better and at lower 
costs. I know the President-Elect has expressed a lot of 
interest in energy policy. What would really help to move to 
the next generations faster are closer alignment between 
government policy on energy and the expectations and the 
technologies that we work on in the auto sector, because the 
issue is getting scale to battery manufacture, fuel cell 
infrastructure. Pick your technology. The issue is kind of 
breaking through the traditional oil-based infrastructure that 
we have into one of these new infrastructures. By the way, that 
is one of the reasons electricity makes sense, because most 
everybody--
    Mr. Watt. Well, we have a Volt that is sitting out there 
now, that won't be on the market until 2012. Is there anything 
to do--or 2010, I guess. Is there anything that can be done to 
advance that Volt to the point where it can be sold next year?
    Mr. Wagoner. We have, I checked the other day, 1,200 
engineers and designers and research people working on trying 
to get that car to market as soon as possible. As this whole 
concept of developing this battery technology and making it 
robust for automotive use, we are hustling like crazy to get it 
to market in 2010. But I do think your point is relevant. What 
can we do to ramp up the production faster and get to the next 
generation faster. And this is where I think, for example--
    Mr. Watt. And what can you do to protect those who are 
willing to take the first generation as you evolve to the next 
generation?
    Mr. Wagoner. We are going to have to give them things like 
extended warranties that are transferrable so they don't have a 
burden of trying out the new technology. And I think beyond 
that we have a very long waiting list for the Volt right now, 
so we have a lot of people who want to buy it.
    Mr. Watt. That is good news.
    Mr. Nardelli. I think one specific answer is we went to 
Denso, which is one of the cooperative companies owned by 
Toyota who does have advance battery technology, but as you 
might guess, no capacity. And so back to the discussion we had 
earlier this morning, the faster we can get a cooperative 
effort between national development, government and the 
manufacturers, from our point of view, the battery is probably 
the single biggest limiting factor in us being able to get 
those vehicles on the road.
    Mr. Watt. Let me try to get another question in to Mr. 
Gettelfinger in particular. I do talk radio shows sporadically 
and Al and Stacey are always after me at WBT. They are 
concerned that you are cutting down employees as part of this 
transition rather than employ more people. And I say, well, 
what about the people you are saving the jobs for; go through 
that equation again for Al and Stacey at WBT in Charlotte.
    Mr. Gettelfinger. Well, unfortunately, there has been a lot 
of restructuring taking place in the industry. If you go back 
in the past, while people didn't think restructuring was going 
on, it really was. In 1979, I believe it was General Motors had 
460,000 UAW members. Today they have had 63,000 on the rolls. 
Since September of 2005 through September of 2008, General 
Motors has reduced 47,000 members, UAW workers. At Ford, that 
number is through 2005 up to this point it is 37,000, I 
believe.
    Mr. Watt. Give me that in writing. My time has run out and 
I have to yield back.
    Mr. Gettelfinger. The point is there has been major 
restructuring going on in the industry. And it has been 
extremely painful for our membership, for the company's 
employees, for their families, and for the communities and 
States where they live.
    The Chairman. Mr. Gettelfinger, I think if I heard the 
question correctly, what would also be requested would be why 
this is in the interest of the workers.
    Mr. Watt. That is the part of it that people don't 
understand.
    The Chairman. Why those arguments don't figure up. So that 
is what I think the gentleman would like in writing.
    Mr. Watt. Give me something in writing so I can send it to 
Al and Stacey.
    Mr. Gettelfinger. Okay. Thank you.
    The Chairman. The last question comes from the gentleman 
from Michigan.
    Mr. McCotter. Thank you, Mr. Chairman. I appreciate your 
indulgence. I have a question. But I would like to go back to 
what I laid out as a potential proposition for a compromised 
bill that could be passed by both Chambers and signed into law 
by the President. Because it appears we are really having two 
conversations within Congress. The first conversation is 
whether or not there should be a bridge loan to the auto 
industry. And that is predominantly what you are encountering 
in front of both the Senate and in front of the House, are 
Members grappling with the question of whether a bridge loan to 
the American auto industry is a good idea.
    The second step, which is one that we are going to have to 
take, I hope relatively quickly, to facilitate that process is 
what should such a bridge loan look like, starting with where 
does the money come from. I have to point out at this juncture 
that one of the misconceptions in the public's mind is that we 
are talking about a new appropriation of new money. That is not 
what the discussion that I have heard has been about. We are 
talking about redirecting already appropriated money.
    So for those, especially on my side of the aisle who say we 
are going to save taxpayers $25 billion or $34 billion by 
voting against or denying this bridge loan they are mistaken, 
because the money is already targeted and appropriated to be 
spent elsewhere. The money that we are talking about for a 
bridge loan is going to come from one or both of the following 
places: It is going to come from TARP funds, which were going 
to go to Wall Street firms if they are not used for the bridge 
loan; or they are going to come from DOE energy innovation 
loans which are going to be expended as well if not applied to 
the bridge loan. Which is why I continue to go back to a 
request for people to seriously consider the Solomonic approach 
of taking half of the bridge loan from the TARP funds and half 
of the bridge loan from the DOE funds.
    The logic behind this is quite simple. The TARP funds are 
there to help unfreeze the credit market. Mr. Paulson in front 
of this committee the day before you first testified said that 
the underlying problem in the credit market is the foreclosure 
crisis and that we must do everything we can to end the 
foreclosure crisis. That will unfreeze the credit markets. So 
my first question, and I will do them one at a time, preferably 
in a series and let you answer. The first question is if the 
bridge loan is not approved, you will face a bankruptcy 
proceeding and will not thousands of your employees potentially 
face foreclosures on the homes they are currently in and that 
would undermine the very logic behind Mr. Paulson's TARP plan.
    The second question is, the DOE funds are there to spur 
energy innovations and green technologies. As we all know, the 
auto industries and the American industries have been leaders 
in these innovations, especially for your research and 
development funding. That strikes me as a reasonable use of the 
DOE energy funds, is to preserve what you are already doing by 
incorporating it into a bridge loan. Money is fungible. What 
would happen if the bridge loan is not approved and you have to 
face bankruptcy, what happens to the research and development 
you are currently engaged in and how far will that be set back.
    The final question is regarding taxpayer protections, and 
it is for Mr. Gettelfinger. I believe that what you said about 
the incoming Administration and being the stakeholders to the 
table to have discussions and have a process in place to bring 
back to Congress not a bankruptcy proceeding, but something 
that could be called an accelerated restructuring map where all 
the stakeholders come up with an idea, show the viability and 
come to Congress not merely for money, if at all, but what we 
can legislatively do to help facilitate the industry's 
restructuring. I think that is something that this committee, 
Mr. Chairman, if legislation is pursued, should try to 
facilitate within that legislation to show our commitment to 
it. Because that, in the long run, is what is going to help the 
restructuring process after the bridge loan is necessitated and 
hopefully approved. And I would like you to just talk briefly 
more about your ideas in that regard because I think it is a 
very timely idea, and it goes to the heart of taxpayer 
protections in the bridge loan. Those are my thoughts.
    The Chairman. We will extend the time a little bit for that 
question and that will wrap it up. So if each of you could take 
about 30 to 45 seconds on this we can go.
    Mr. Wagoner. I will just start. There were two questions 
for us, one asked if bankruptcy would impact employees' 
abilities to pay mortgages. I feel like that is an absolute 
certainty. And it would go far beyond our employees; it would 
also be dealer employees and supplier employees. So I think 
your thesis is right. You ask what the impact of bankruptcy 
would be on our green technology, and it would be a horrible 
waste because we have committed a huge amount of money to 
develop electric cars, fuel cells, flex fuel. And it would be 
the United States throwing away a massive investment, and in 
some cases a leadership position globally which would seem to 
be a terrible loss.
    Mr. Nardelli. Sir, for us, if we were denied the funds, it 
certainly would push us in that direction and possibly even 
worse, to liquidation. There are 1 million people in our 
calculation counting on Chrysler, point one, who certainly 
would be unemployed and therefore run the risk of not being 
able to pay their mortgages. Second, in this plan, there is 
about $12.8 billion, including some of the energy funds that 
you reference. But again, it would be funds not expended. And 
therefore payments not made either to engineers, to scientists 
or to people who make tools and dies and capital for the future 
of our energy independence.
    Mr. Mulally. Even though we are not requesting a bridge 
loan, it is so important, this industry so important, that is 
why we have joined our colleagues. Because if one of us goes 
in, it has the potential, as we have talked about, to take all 
of us in. And what that would mean to the economy would be 
tremendous. Then, instead of being part of the solution to get 
through the worst economic crisis all of us have been in across 
this great country, we would be part of the problem.
    Mr. Gettelfinger. Then on the question of the stakeholders 
coming to the table outside of bankruptcy with some kind of 
oversight, whether it be a trustee or other named governance, 
that all the stakeholders come to make sure that we share in 
the sacrifice that has to be made to make these companies 
viable.
    The Chairman. The panel is dismissed with our thanks, and 
we will ask them to leave quickly. People who want to talk to 
them can talk to them outside. We will get the new panel in. 
Please leave right now. Go.
    We will now proceed with the second panel. We will begin 
with the Acting Comptroller General, Mr. Dodaro. I appreciate 
the fact that you are not in the best of physical health right 
now, and I thank you for accommodating us. The Comptroller 
General from the Government Accountability Office.

  STATEMENT OF THE HONORABLE GENE DODARO, ACTING COMPTROLLER 
         GENERAL, U.S. GOVERNMENT ACCOUNTABILITY OFFICE

    Mr. Dodaro. Thank you very much, Mr. Chairman. I am pleased 
to be here today to assist your deliberations and all the 
members of the committee's deliberations on the automakers' 
request for Federal assistance. GAO has been involved in 
Federal rescue efforts and bailouts dating back to the 1970's. 
And over this period of time, we have developed three basic 
principles that we think can help guide congressional 
deliberations in this particular matter. First, is clearly 
identifying the problem at hand. Clearly, here we have a 
confluence of short-term liquidity issues as well as 
fundamental restructuring of the industry against the backdrop 
of a very uncertain economic climate.
    The second fundamental principle is determining the 
national interest and whether or not it is in the national 
interest to intervene with Federal assistance. Once that policy 
decision is made, there needs to be a clear articulation of the 
government's goals and objectives and an exit strategy so that 
the businesses can be returned to their normal status as soon 
as possible. The third fundamental principle is protecting the 
government's and the taxpayers' interest. Here concessions are 
important. Concessions in this instance from management, labor, 
creditors, suppliers, dealers. There needs to be collateral. 
The Federal Government should be the first lien stakeholder in 
terms of recouping the money in the event of a particular 
problem. There also needs to be compensation for the risk 
through warrants or other things so that if there is an upside 
to the company's recovery, the Federal Government can then 
recoup not only its initial investment, but benefit from the 
risk that it has been taking.
    There needs to be controls over management. In this case, 
making sure that the Federal interests are protected. Now, 
there are two main points I would like to make here, and then I 
would be happy at the appropriate time to answer questions. 
First, it is critically important from my standpoint that the 
Congress consider having a strong independent board overseeing 
and protecting the Federal Government's interest in this 
matter. The board needs to have the right leadership, the 
experience, and the resources to be able to look at the 
operating plans of the companies, determine when reimbursements 
should be made, overseeing the use of the money and 
anticipating future events that might be occurring both in the 
general economic situation, as well as with these companies 
themselves, so that the Federal Government is not put, and the 
Congress in this case, in a position of making future immediate 
decisions that are made over time.
    The control board function and independent board has worked 
well in the past both with the Chrysler loan guarantee effort, 
and in our opinion also worked well most recently with the 
airline stabilization board which was set up to make loans to 
the airlines following September 11th.
    Lastly, there is a real opportunity here, we believe, to 
look at this both from an immediate issue, as well as a long-
term issue given the fact that the companies are presenting the 
more immediate needs to the Congress so that in our opinion, 
there could be an approach made here that is a two-pronged 
approach dealing with the immediate situation that they have 
and then dealing and protecting the government's interest not 
only there, but setting up a longer term approach to this, 
particularly as the restructuring efforts would proceed if the 
Federal Government determines to intervene in this matter.
    So that concludes my opening summary. I also want to 
underscore the fact that GAO stands ready to help the Congress 
in making this important and very difficult decision. Thank 
you.
    [The prepared statement of Mr. Dodaro can be found on page 
136 of the appendix.]
    Ms. Waters. [presiding] Thank you very much.
    Mr. Altman.

STATEMENT OF EDWARD ALTMAN, MAX L. HEINE PROFESSOR OF FINANCE, 
    LEONARD N. STERN SCHOOL OF BUSINESS, NEW YORK UNIVERSITY

    Mr. Altman. Thank you very much, Madam Chairwoman. My name 
is Edward Altman, and I am a professor of finance at New York 
University's Stern School of Business and director of its 
research program in financial markets and credit risk. I have 
been a professor at Stern School for 41 years, and my areas of 
teaching and research expertise are in the area of corporate 
finance, bankruptcy, and reorganization and credit risk. My 
comments today will center on an alternative plan to that 
presented by the automakers and also on the financial health 
and solvency prospects of one of our largest, or the largest 
automaker, General Motors Corporation.
    I have been analyzing the health of GM and Ford for many 
years. And we predicted that both GM and Ford would be 
downgraded to noninvestment grade status several years before 
it took place in the spring of 2005. I was one of the first 
analysts to advocate that General Motors should file for 
bankruptcy protection under Chapter 11 of the Bankruptcy Code, 
but that the U.S. Government should not turn their back on 
these very important automakers. And it is very important to 
underlie that I am advocating that they get a $40 billion to 
$50 billion loan, call it debtor and possession loan, in 
bankruptcy, and I will elaborate that in a moment. On the other 
hand, General Motors Corporation is asking for a $12 billion 
loan and a $6 billion line of credit. Unfortunately, this 
traditional loan, even for $18 billion, is inadequate and is 
destined to fail in the current environment and will likely be 
followed by additional requests for more rescue funds or a 
bankruptcy petition. GM's cash burn of more than $2 billion a 
month will reduce its assets even further and the loan would be 
exhausted in 6 to 9 months. The global automobile industry, not 
just GM, is facing the likely prospect of an extended and 
severe economic recession likely to last for another 2 years.
    In my opinion, GM should file for protection, yes, 
protection, under the U.S. Bankruptcy Code as soon as feasible. 
The benefits afforded to firms whose assets are protected and 
whose fixed payments on most liabilities are suspended while 
reorganizing under Chapter 11 is quite clear. And another 
sometimes overlooked enormous benefit of a firm in bankruptcy 
is that they are entitled to what is called debtor in 
possession loans which gives the lender, in this case the U.S. 
Government, as I am advocating, a super priority status over 
all other creditors, unsecured creditors at first. Also, as you 
heard in the testimony, at least General Motors has a number of 
unencumbered assets that could be put up as collateral in this 
debtor in possession lending. Therefore, first priority, even 
if it doesn't work, the U.S. taxpayer is more than likely to be 
paid back in full.
    There have been thousands of cases of debtor in possession 
financing in the past, and only 1, 2, 3 have actually resulted 
in anybody who has made the loans losing money. Critics of this 
idea will quickly point out that the current market for their 
financing is closed. Because of that, and the enormous amount 
that we are advocating, it is necessary that the U.S. 
Government be the lender of last resort with respect to the DIP 
financing. I advocate that the government work with one or more 
banking organizations who are experienced in structuring and 
monitoring DIP loans. Don't try to do it yourself. There are 
experienced people out there. And I also suggest that the 
Treasury Department encourage several of the banks who have 
received the TARP loans to participate in the DIP financing.
    This is actually an excellent investment for these banks to 
be made at this point in time or any time in the past. 
Bankruptcy status enhances the ability for management, the 
existing ones or new management that could be brought into play 
if the firm goes bankrupt. To renegotiate existing and legacy 
pension and health care claims which is much more difficult 
outside the protective confines of the court system. Some feel 
that a GM bankruptcy announcement will cause immeasurable harm 
to the U.S. economy. But pointing out the high likelihood of 
bankruptcy will reduce the surprise impact.
    In addition, a clearly articulated communication of 
guaranteed government support will blunt consumers' fears of 
liquidation, lost warranties, spare parts, availability, or 
other bankruptcy costs. A bankrupt company under Chapter 11 is 
not a liquidation. They stay in business.
    [The prepared statement of Professor Altman can be found on 
page 111 of the appendix.]
    Ms. Waters. Thank you very much, Mr. Altman.
    Now, Mr. Rohatyn.

 STATEMENT OF THE HONORABLE FELIX G. ROHATYN, FGR ASSOCIATES, 
                              LLC

    Mr. Rohatyn. Thank you, Madam Chairwoman. I appreciate 
being invited here. I had a certain level of experience in 
areas sort of parallel to these over the last years, mostly in 
connection with New York City's flirtation with bankruptcy, 
which we avoided with great effort. I thought I could sort of 
give you some of my thoughts and some of our experience since 
we managed actually to survive. We found very quickly in May 
1975 when the banks cut off the credit of the City of New York 
that we had no other place to go except the Federal Government, 
and the Federal Government quickly turned down our request for 
an emergency loan.
    So at that point we found ourselves pretty much alone and 
felt that we--but we decided, certainly Governor Carey and his 
people decided, that we should not file for bankruptcy, that 
bankruptcy was the last thing we wanted to do in terms of the 
economic life of the City, in terms of its social life, and in 
terms of its future.
    So having said, that we turned towards the only potential 
sources of capital that we could identify; namely, the New York 
City banks; and secondly, the New York City pension funds. We 
negotiated with them the creation of the Municipal Assistance 
Corporation which would finance the City, and the creation of 
the financial control board which was the equivalent of what I 
think you are talking about now in terms of oversight. And we 
managed for 8, 9, 10 months a year to survive on this with this 
combination. We did finally run out of steam. And a week before 
we were about to file for bankruptcy, which was Thanksgiving of 
1975, we were finished, we were about to file, we got some 
unexpected assistance from abroad. Because the first western 
economic summit was taking place near Paris and President Ford, 
who was then President of the United States, attended that 
meeting together with Arthur Burns, who was Chairman of the 
Fed. And he brought us a message from the president of France 
and from the chancellor of Germany which said, don't even think 
about going bankrupt, everybody will think the United States is 
bankrupt, and the dollar will have a crisis and you will have a 
crisis.
    This was 4 days before we were going to go into bankruptcy, 
and luckily President Ford turned out to be more reasonable 
than I thought he might be. He stepped back from the brink, 
came back to the United States, and signed legislation that 
gave us a seasonable loan of, I forget how many billion 
dollars, but which was going to see us through until a time 
when hopefully we could have a budget that is back in balance. 
And that was about a 5-year pull. For the City of New York, 
this was an absolute must that we just couldn't imagine the 
City going bankrupt or filing for bankruptcy. And sure enough, 
we also had the good fortune to elect a very good mayor, Ed 
Koch. We had a spectacular governor. And within 4 years after 
that, we had a balanced budget. For the next 30 years, we 
balanced the budget except for 9/11. I doubt that we could do 
that again now as a matter of fact. Now, I look at what is 
happening today and the efforts that we are trying to make here 
to save an industry which is powerful and important. And the 
first comment that I would make is to hurry up because I think 
the economy is falling out from under our feet, and there is 
very little time left in which you will be able to act without 
having whatever actions you take preempted by other players, 
whether they are courts, whether they are the legislature, or 
whether they are the State.
    And so the first suggestion I would make to you is take 
your ground and go to sign because you are going to run out of 
time. Chapter 11 is not a very quick process, but if that is 
what you want to do, do it. Or in my judgment, what is much 
better is an agreement among the stakeholders with respect to 
salaries, with respect to investment, with respect to balance 
of power, if you will, which is what we did in New York City. 
We created essentially in a city, which was heavily a union 
city, we created a partnership between the business leadership 
and the labor leadership and the State both in terms of how the 
City was going to be managed, and how the pension funds and the 
banks would work together to provide us financing until we 
could hopefully do it on our own. I think at this point, I will 
stand down.
    [The prepared statement of Mr. Rohatyn can be found on page 
220 of the appendix.]
    Ms. Waters. Well, thank you very much, and we will be back 
to you at the point that we begin to ask the questions.
    I would like to now call on Mr. David Friedman.

STATEMENT OF DAVID FRIEDMAN, RESEARCH DIRECTOR, CLEAN VEHICLES 
             PROGRAM, UNION OF CONCERNED SCIENTISTS

    Mr. Friedman. Thank you, Madam Chairwoman, and thank you, 
members of the committee. I truly appreciate the opportunity to 
testify before you today. I am a research director and senior 
engineer with the Union of Concerned Scientists. And as an 
engineer, I hope to bring a different perspective to this 
hearing. But first, I would like to point to the perspective of 
the American taxpayers whose money would be on the line. As I 
am sure you are all well aware, Americans have, by and large, 
lost confidence in the Detroit automakers. Recent polling 
indicates over 60 percent of Americans oppose government 
financial assistance to them. This is despite the fact that 
about half the cars and trucks sold last year are from the 
Detroit 3. Now, there are a lot of reasons for this lack of 
confidence. But if this committee, the House, the Senate, and 
the American people are going to support giving money to the 
automakers we need to find a way to ensure that this is not a 
bailout.
    Instead, the package should be structured as an investment 
where taxpayers are given a very clear return through money 
saved at the pump. To help rebuild confidence in the auto 
industry, and to build confidence in a package, I suggest four 
steps:
    First, we need to acknowledge what we already know. The 
survival of the Detroit auto industry depends on their ability 
to deliver the products consumers need in a world of volatile 
oil prices and a changing climate. No matter how they 
restructure themselves, if automakers fail to produce millions, 
millions of highly fuel efficient cars and trucks every year 
they will not be able to compete and they will not become 
profitable.
    Second, we need to require a return on taxpayer investment. 
This will help ensure that this package is in our Nation's 
interest. Automakers should be required to comply with fuel 
economy standards 3 years early as GM has effectively said it 
is going to do in the plans they just submitted. If Detroit 
automakers were required to follow this path, consumers would 
see net savings of more than $30 billion through 2025. And that 
is with gas at just $2 a gallon.
    Third, require that automakers not bite the hand that feeds 
them. In return for taxpayer monies, automakers should be 
obligated to drop lawsuits seeking to block States that are 
requiring cleaner cars. These States represent over 35 percent 
of taxpayers and they are demanding cleaner cars through a 
single global warming pollution standard. Frankly, it would be 
a slap in the face to ask their residents to put up money to 
help an auto industry that is undermining their efforts. 
Further, based on submissions from GM and Ford it looks like 
they could be in a position to comply with the State standards. 
If the auto industry wants one single standard, a great way to 
deal with this is to simply adopt the State standards 
nationwide.
    Fourth, we should preserve the 2007 energy bill's 136 
advanced technology loan package and do not even temporarily 
bypass its modest requirement of a 25 percent increase in fuel 
economy for qualifying investments. In their plans, the 
automakers said they are already depending on this and they 
said that they can deliver on that 25 percent. There is no 
reason to sidestep that.
    If there are other barriers to getting that money to car 
companies as soon as possible those are the things that should 
be addressed. Now, Madam Chairwoman, the reason why I am so 
focused on building confidence in car companies by ensuring a 
return on investment is because I had very mixed emotions in 
studying their plans. There are a lot of reasons for hope in 
some of the plans the automakers submitted. From a promise to 
essentially meet 2015 fuel economy requirements 3 years early, 
to the planned introduction of a hybrid family car that beats 
the competition by at least 6 miles per gallon, the automakers 
appear to be laying out a more positive direction than they 
have followed in the past.
    But these promises also sound a little too familiar. They 
sound too much like the unfulfilled promise to deliver an 80 
mile per gallon family car or a commercially available hydrogen 
car in return for billions in R&D money under the partnership 
for new generation of vehicles or the freedom car program. I 
honestly think that automakers that made these promises can 
carry them out. That has never been the question. Detroit's 
automakers already have the technology to do this and they are 
working hard at the more advanced technologies. And they have 
an extremely talented work force.
    So I am genuinely excited about the products they can 
produce. The question is not whether they can deliver; it is 
whether they will. And it is up to this committee and the 
Congress to make sure they deliver on these in return for 
financial help. Now, I have been a critic of the auto industry 
so it probably doesn't surprise you to see me pointing out the 
risk and accepting them at their word. But I also strongly 
believe that we need a viable domestic auto industry to tackle 
America's oil addiction while avoiding the worst impacts of 
climate change. If we avoid something that looks like an auto 
industry bailout and instead invest in them and require cleaner 
cars and trucks we can save money, save gas, reduce global 
warming pollution, and create new jobs along the way. Thank 
you.
    [The prepared statement of Mr. Friedman can be found on 
page 150 of the appendix.]
    Ms. Waters. Thank you very much.
    Mr. Damon Lester.

 STATEMENT OF DAMON LESTER, PRESIDENT, NATIONAL ASSOCIATION OF 
              MINORITY AUTOMOBILE DEALERS (NAMAD)

    Mr. Lester. Thank you, Madam Chairwoman, and members of the 
committee. I want to thank you for inviting me here to speak to 
you on behalf of all the small new automobile dealers in the 
United States. My name is Damon Lester, and I am the president 
of the National Association of Minority Automobile Dealers 
(NAMAD). NAMAD represents over 2,000 ethnic minority automobile 
dealers, who represent less than 5 percent of the overall 
automobile dealer network in the United States.
    However, I am here today not simply to talk about ethnic 
minority automobile dealers, but the owners of all small 
dealerships in the country as this automobile industry and this 
economy is facing a complete global economic meltdown. Today, 
small dealerships throughout the United States are suffering at 
an alarming rate and are running out of cash and will close 
their doors if access to capital is not provided to them 
immediately. While NAMAD supports the bridge loan requests made 
by the Big Three, we also believe that fair consideration 
should also be given to those small dealerships who sell the 
products that the manufacturer produces.
    There is a direct correlation between the success of a 
healthy manufacturer and a healthy and profitable dealership. 
We support the requests made by Congress for the Detroit 3 to 
come up with a plan depicting how they are going to spend the 
requested funds. We support the need for more fuel efficient 
vehicles and we also support the concessions made by the UAW as 
well. As all of these efforts provide a blueprint on how the 
manufacturer will and has revamped its operations.
    However, we are concerned about the small dealer. Without 
the dealership operating effectively, without the manufacturer 
having a strong consumer confidence in the brands and in the 
corporation, consumers will not purchase a vehicle and we need 
to change that. As I have reviewed the plans submitted by the 
Big Three, which focus on both short- and long-term viability 
of their respective companies, I am extremely concerned with 
some of the language that was alluded to in their proposals of 
having an excess number of dealerships. We believe that this 
deserves some review.
    As all small dealerships in rural and suburban America on 
average employ 53 employees and generate over $33 million in 
gross annual sales, a small dealership is Main Street. These 
dealerships provide so much to the communities they serve that 
if a dealership closes today, the local churches will suffer, 
the local school and summer athletic teams will suffer, the 
local 4-H Clubs and Lion's Clubs will suffer, the local Boy 
Scouts and Girl Scouts Club will suffer, and the local print 
and television stations will suffer as well.
    This is what Main Street is all about; grass roots, roll up 
your sleeves and becoming active in the communities in which 
they serve. As this Congress is considering the requests for 
immediate capital and liquidity by the Detroit 3, fair 
consideration and attention must also be given to the small 
dealerships. One very simple way to provide access to capital 
for these small dealerships is by the Small Business 
Administration Loan Guarantee Program. It has come to our 
attention that in the past 10 years, the SBA Loan Guarantee 
Program has been shortchanged and attempts to fund it have been 
shortchanged as well.
    In fact, just modifying the definition of who is eligible 
for the Loan Guarantee Program would help small dealerships. 
Currently the size standard, which is the definition used by 
the SBA to determine whether or not a business is deemed small, 
is stated as either employee based or in gross annual receipts 
based. As it relates to automobile dealers, the size standard 
currently is $29 million in average gross receipts, which is 
well below what the average gross annual sales are today. We 
believe if the size standard was modified to reflect an 100-
employee based model, it will provide greater assistance for 
these small dealerships to survive.
    It is our hope that the loan guarantee will provide more 
assurance for financial institutions to begin lending to 
automobile dealers as it has come to almost a complete halt 
right now. We understand with any financial assistance program 
not all will be saved, but we truly believe that those dealers 
who have been historically profitable but are now going out of 
business for the lack of access to capital, can survive. I 
believe if there were an increase in the SBA Loan Guarantee 
Program of $1 billion from the TARP, which should be dedicated 
to provide assistance to small dealerships will potentially 
cover over 80 percent of those dealerships running out of cash 
now and being forced to close their doors.
    This loan guarantee will provide assistance to those rural 
and suburban dealers as well. In addition, I will recommend 
that $1 billion of TARP dollars from the manufacturer requested 
funds be directed to support small dealerships with the 
stipulation that these funds be used to purchase real estate, 
equipment and provide job training. And on behalf of the 
National Association of Minority Automobile Dealers, I want to 
thank the Detroit 3 for opening the doors for the diversity we 
now see among the small auto dealer network through its dealer 
development programs. Thank you.
    [The prepared statement of Mr. Lester can be found on page 
165 of the appendix.]
    Ms. Waters. Thank you very much.
    Mrs. Biggert. Madam Chairwoman, I have a Parliamentary 
inquiry. I notice that this witness is not on the memo to us, 
nor do we have his testimony. And I don't know whether the 
chairman and the ranking member discussed this, but I would 
hope that this would not set a precedent, and I am not sure 
that the testimony should be entered into the record.
    Ms. Waters. Certainly the chairman is not here, but it is 
my understanding that a decision was made. I don't know what 
conversation took place between the chairman and the ranking 
member, but I would certainly hope that there would be no 
opposition to this testimony being a part of the official 
record. And I would suggest that there may be follow-up 
conversation with the chairman about it.
    Mrs. Biggert. I certainly don't want to dismiss the 
testimony, and it is very relevant to this. But with the caveat 
that I would not want to see this set a precedent that this 
happens when none of our staff is aware of this.
    Ms. Waters. I can appreciate that. And I do not think that 
there are many situations where the chairman would add someone 
at the last moment without that kind of conversation. I 
certainly think we should note that. I shall talk with him 
based on this conversation that we are having and hope that 
would not happen again.
    Mrs. Biggert. Thank you.
    Ms. Waters. You are certainly welcome.
    The Chairman. I made the decision to add Mr. Lester, as I 
made the decision to extend the time to accommodate Mr. 
McCotter. Sometimes we don't always have things as we 
anticipated. It struck me that the dealers should be 
represented. We did have a dealer representative on the last 
panel. And frankly, also the aspect of the impact on the 
minority community seemed important. So it did not seem to me 
that anybody would object to any witnesses. As I said, from 
time to time, I think it is important to make decisions that 
will I think accommodate important interests reasonably in ways 
that don't cause any problem. Does the gentlewoman have any 
further questions about it?
    Mrs. Biggert. If the gentleman would yield. No, I just 
wanted, since you were not here, and the question was that 
there is no testimony that we have or anything. I just wanted 
to know, just to make sure this isn't a precedent that will be 
when this is not discussed--
    The Chairman. No.
    Mrs. Biggert. And I can understand.
    The Chairman. It is a response at the last minute to 
someone calling to my attention a mistake, and I realized that 
there wasn't testimony. So it will not be the regular order, 
but I couldn't rule out doing it again. And I will say, from 
time to time, I have accommodated requests that have come from 
Members on either side to change things. We were up to 
Professor Sachs, I believe.

 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. Mr. Chairman, thank you very much. Let me start 
by commending this committee for keeping at this, because this 
is of extraordinary importance for the American economy. Nobody 
likes this crisis, nobody likes these bailouts. History will 
record that this committee made a great service to the country 
in passing the TARP legislation. We have a crisis that is 
unprecedented in its speed and ferocity. It is hard to get 
everything right. You are doing the right thing. I would plead 
with you to stay in session to get this one done as well, 
otherwise we will have a meltdown in this economy that is of 
absolutely extraordinary proportions. This industry has 
enormous value worth preserving. These are some of the largest 
companies in the entire world. This is absolutely the worst 
financial crisis since the Great Depression. We all agree, 
aside from specific tactics on the need for a large government 
loan and a government involvement, so we are down to the 
details.
    In my view, Chapter 11 is not the best option right now. It 
is extraordinarily unpredictable. The last time we did a 
Chapter 11 was Lehman Brothers. That turned out to be the 
single biggest financial shock in modern history. And I think 
that we want to avoid going to that route as a first resort. In 
my view, it is the last resort. There are tremendous 
unpredictabilities on the consumer side, the finance side and 
the supplier side, possibilities of cascading disasters that I 
think we would do best to avoid right now. Now, we all agree 
that we need a significant restructuring. What GM put forward 
in detail, for example, is a very significant balance sheet 
restructuring. I believe that it can be done outside of Chapter 
11, and I think that is what should be attempted right now. And 
I think it is enormously impressive what they put forward and 
enormously important for us to support that process. They call 
for an oversight board that can help that process. I agree with 
that. And I think that this is the basic structure in which 
this should proceed. Who should pay for this? This is the hot 
potato that everybody is worrying about, understandably. There 
are three sources of funds it seems to me, not just two. One is 
a direct loan by the Fed.
    I think Chairman Bernanke is the missing personality at 
these negotiations, quite frankly. I do not understand the 
reticence of the Fed right now. The Fed lent against Bear 
Stearns assets. The Fed lent against Citibank assets. The Fed 
can lend against GM collateral. This is a big mistake that is 
being made right now. This is a systemic financial risk in this 
country and a substantial one. And we need the Fed here as 
well. So in my opinion, this is the first place where we should 
be looking for financing. Second is TARP. It fits perfectly 
with the intentions of the TARP that this be used for this 
purpose. And I am so happy with the testimony of Mr. Dodaro 
yesterday and again today. This is absolutely appropriate that 
the TARP should be used for this purpose. The third is section 
136. I also support that.
    Let's be pragmatic. Get this job done so that we don't have 
a meltdown. Have a new Administration come in. It is going to 
have to take a longer term look at this in early 2009 to help 
this process go forward. This is not the end of the story; this 
is the beginning. That does not mean endless amounts of new 
money. That is not what I am implying. What I am implying is 
government support for a basic restructuring of this industry 
to achieve financial restructuring, balance sheet change, and 
model change along the lines of the environmental goals that we 
all share. So we need to get there because otherwise we will 
have a meltdown. I think at this point the double standard with 
Wall Street is so painful and so palpable it is hard actually 
to understand, how one throws a $306 billion guarantee over 
Citigroup without a single hearing or a single plan or a single 
datum, but we can't get even a loan effectively senior and 
collateralized for millions of workers is a shock to me.
    I don't even understand what they are thinking right now. 
Because this is absolutely as systemic as Citigroup or 
absolutely as systemic as the other financial matters. This is 
our largest industry. Are we going to watch it melt down by 
Christmas? That is what we are talking about, with all of the 
disintegration of value that would go along with this. So I 
think we have to frankly, in my opinion, have Chairman Bernanke 
and Treasury Secretary Paulson here at the table. We have three 
sources of funds. It needs to be worked out. This is not an 
endless open-ended process. There are plans on the table which 
your committee has successfully elicited, a great contribution 
of these hearings I might add. And it is going to be a process 
now to get to the next Administration for a longer term 
considered strategy.
    Let me finally add that all around the world, governments 
are supporting their automobile industries. Just yesterday, 
President Sarkozy made announcements about France. This is 
going to be a worldwide phenomenon given that we are in the 
sharpest downturn in modern history. And so please do not leave 
this weekend. I don't want to open up to see what the markets 
look like on Monday morning because Congress has gone home and 
hasn't been able to figure out how to do $25 billion when we 
have trillions of dollars at stake. Thank you very much.
    The Chairman. You are pretty free with our weekends, Mr. 
Sachs.
    Mr. Sachs. With all due respect.
    The Chairman. You may have to give notes to our responsive 
spouses, significant others, and children.
    First of all, I appreciate--let me ask this. Do you have an 
opinion on the response that was made by the Treasury and the 
Fed in various combination to Citigroup and AIG?
    Take them one at a time. What did you think about the 
response to AIG?
    Mr. Altman. I think the AIG bailout was necessary. I think 
the deal that the U.S. Government got was very poor. AIG is a 
global organization with an incredible amount of--
    The Chairman. They didn't declare bankruptcy, did they?
    Mr. Altman. No.
    The Chairman. Do you think they should have? I mean, why 
the requirement for bankruptcy here and not for AIG? I am 
picking up--or similarly with Citigroup. Both of those got 
large amounts of money without bankruptcy. Why is bankruptcy a 
necessity for the autoworkers or--
    Mr. Altman. In this case, what I am advocating is that the 
government does not turn its back on General Motors when they 
go bankrupt. In fact--
    The Chairman. I understand that.
    Mr. Altman. --I am advocating a much greater amount of 
assistance than what General Motors and the rest are asking 
for.
    The Chairman. I understand that, but I still--it does seem 
to me there is a difference in the treatment legally in terms 
of bankruptcy that was provided with regard to AIG and 
Citigroup on the one hand and what you are advocating here.
    Mr. Altman. There is a difference.
    The Chairman. What is the justification for being harsher 
on the auto companies than on the financial companies?
    Mr. Altman. Well, first of all, I don't think we are being 
harsher on the auto companies. The auto companies--
    The Chairman. You don't think if AIG was told if they had 
to do some form of bankruptcy, they wouldn't have thought that 
was being harsher?
    Mr. Altman. I am sorry. I didn't hear the question.
    The Chairman. Well, if AIG had been told that they had to 
declare some form of bankruptcy, etc., you don't think they 
would have considered that to be harsher than what in fact 
happened?
    Mr. Altman. Sure. Absolutely.
    The Chairman. Then why isn't it harsher for the auto 
companies than it was for AIG?
    Mr. Altman. No, no. What I am saying is that I think the 
only hope for General Motors and the rest is to go bankrupt, to 
restructure, to perhaps even change the management of their 
companies.
    The Chairman. We changed the management of AIG without 
bankruptcy, and we restructured. I just don't understand why 
you have to take the extra step of bankruptcy here and didn't 
do it there. And there is this concern of a disparity that--and 
the ranking member made the point with regard to even the 
treatment of requests for approval of various forms of banking.
    I appreciate it. I think that is both a perception problem 
and a real problem; and I have to say I think there is to some 
extent in the culture and at the decision-making level what I 
have said before, a blue collar/white collar bias. I have heard 
a lot of requests from Mr. Gettelfinger to have the blue collar 
workers that he aptly represents reduce their compensation 
because it is greater than some other autoworkers. But my guess 
is the average autoworker gets significantly less in annual 
compensation than the average worker at Citigroup or AIG. And 
no one asked that they reduce their wages. We did talk about 
cutting out their bonuses, but I am sure the autoworkers would 
be perfectly willing to give up their bonuses, which they don't 
have. So that is what is troubling to me.
    Let me ask the panelists, Mr. Sachs, and Mr. Rohatyn, who 
have some experience here, what is the likelihood in your 
judgment of our taking some action and it leading ultimately to 
success, to the survival of the companies? Mr. Rohatyn.
    Mr. Rohatyn. I would think, Mr. Chairman--and depending on 
how quickly it is done, because every day that goes by creates 
another problem--I would think you have a 50/50 chance of being 
successful. The case is difficult to make from a popular point 
of view, but I think it is vital from a substantive point of 
view.
    The Chairman. You do substantive and we will do popular or 
unpopular.
    Mr. Sachs?
    Mr. Sachs. I think the chances of GM and Ford remaining 
self-standing, successful companies is over 90 percent. Very, 
very high probability. Chrysler, obviously, the chance that it 
gets merged with some other company is more likely. But these 
are major global enterprises. Unless in the middle of this 
crisis they are driven to disaster, they will survive and they 
will recover.
    The Chairman. Thank you.
    Mr. Friedman, one last question because--and I began and 
Mrs. Maloney ably carried out on the issue you raised about the 
lawsuit. One of the arguments we got was, though, that the 
three American companies are only some of the plaintiffs. If 
they withdrew as plaintiffs, would that end the lawsuit? Would 
it be more than a symbolic victory to get them out if other 
plaintiffs were able to go forward on the same legal issues?
    Mr. Friedman. There are definitely other plaintiffs. But 
let us be honest, the leaders of these lawsuits have been the 
Big Three.
    The Chairman. I understand that. But, as a practical 
matter, what would the effect be if they got out? Would their 
lawsuit still go forward?
    Mr. Friedman. You would have to ask the members of the 
other foreign companies and some of the dealers what they would 
do. But I would think it would be incredibly difficult for them 
to maintain those lawsuits if the Big Three stepped away.
    The Chairman. The gentlewoman from Illinois.
    Mrs. Biggert. Thank you, Mr. Chairman.
    Mr. Friedman, I serve on the Science Committee as well as 
this committee, so I am really extremely interested in the 
alternative vehicles and all that goes into that. And I worry 
about the fact that we have to continue this, particularly with 
the price of gasoline going down as in the 1970's when 
everybody suddenly thought, well, let us bring back the big 
cars. But I do see a difference here with people really looking 
forward to having the fuel-efficient cars. Do you think that 
that is one of the factors that--why people are not buying a 
car right now, that they know this is coming soon and there are 
already the hybrids and they don't want to buy a car that is 
going to lose value, that doesn't last as long as some cars 
have in the past?
    Mr. Friedman. I am not sure people are avoiding cars 
because they are just holding back and waiting for the next 
silver bullet.
    I think the challenge, actually, has been for the last 7 
years before the credit crisis people weren't buying as many 
cars; and the reason for that was because gas prices went up 
and they were less affordable. But, even more importantly, what 
happened during those 7 years was overall sales went down by 1 
million, but domestic sales went down by 2 million. And what 
that means is the Big Three were losing market share and the 
imports were gaining market share in part because they had a 
better reputation and in part because they had better fuel-
efficient vehicles.
    Gas prices are low now, but basically we have low prices by 
recession. That is not a sound basis for a financial and energy 
or an environmental policy. We need to be prepared for when gas 
prices spike again.
    Mrs. Biggert. What we also had, though, was the rebates 
that people got with the 60,000 cars in each of the different 
companies if they bought a hybrid car. That was added in 2005, 
and most of those have expired now. Do you think that is one 
way to spur people to buy cars?
    Mr. Friedman. I think there are two steps that we need. One 
in general for buying cars, I do think we need to find a way to 
get consumers more resources to buy new cars and that those 
resources should be directly tied to the performance of those 
vehicles, not just hybrid vehicles but even just a simple 
conventional vehicle like some of the technology Ford is 
talking about that can boost fuel economy by 25, 30, or 40 
percent.
    The tricky thing is going to be, how do you pay for that? 
Now, one option is in the broader stimulus to invest money, to 
encourage consumers to buy more cars. Another option is to 
create a system of fees and rebates to help move the market 
while you are also increasing standards.
    Mrs. Biggert. There is, you know, the EISA, section 136. 
You talked a little bit about that, and I wasn't quite clear 
what you meant. But this really is to encourage the companies 
to invest in the type of cars that we want to see.
    But one of the plans that was brought up was to take some 
of that money and to infuse the three car companies to provide 
the money from that. But isn't that going to reduce the amount 
of research and development into finding the ways to improve 
CAFE standards and all of the things we need to do?
    Mr. Friedman. I do worry there are risks of robbing Peter 
to pay Paul. If that money is shifted over without the same 
conditions that are currently under it, which is that those 
investments must provide at least a 25 percent increase in fuel 
economy, if the car companies and Congress do not accept the 
fact that the auto industry's future has to be founded on 
increasing fuel economy and innovation, these plans will all be 
doomed to fail.
    We need to invest in them in a smart way and make sure 
consumers get something back. I think it is powerful if we can 
tell consumers we will save you $30 billion by 2025 by 
requiring automakers to do more than they already have to in 
terms of fuel economy. I think that will build significant 
confidence in a world that right now, because of the previous 
bailout, are not very comfortable with where this money may or 
may not go.
    Mrs. Biggert. Just a short question for anyone who wants to 
answer. We used to be able to deduct interest on auto loans. A 
lot of that has gone into home equity loans. Does anybody think 
that that should come back? Will that spur coming back? Mr. 
Lester?
    Mr. Lester. I think overall that is one mechanism that 
would be able to stimulate consumers to begin to buy vehicles 
as it was done in the past that consumers were able to write 
off interest on the loans. I know it is being researched now 
through Senator Mikulski. But I do think that it is one viable 
option.
    Mrs. Biggert. Thank you. I yield back.
    The Chairman. The gentlewoman from California. I am sorry, 
the gentleman from Pennsylvania.
    Mr. Kanjorski. Thank you, Mr. Chairman.
    Mr. Sachs, I listened to your testimony there at the end as 
I returned from a break, and I have to say I am in full 
sympathy with what you are saying. I cannot understand all of 
this problem and we are arguing over what pot this comes out 
of. It is like--I gave an example just recently when someone 
asked me: It is like having a starving man come up to you, and 
you go through a mental argument with yourself as to what 
pocket you should take the money out of in order to buy him 
food. In the meantime, he starves to death.
    In this, it seems the inaction of the Congress and the 
Administration in arguing over the energy pot, the TARP pot, or 
whether we develop a new pot, who really cares? What I do care 
about is how we structure this, because I think there are 
several precedents in the future that we have to make. One I am 
disturbed about is that we are rushing this in the 11th hour to 
do something very quickly with very poor forethought; and just 
having come off the Wall Street rescue program, I think we can 
all see now that what we anticipated to be responsible 
implementation by the Executive Branch of government has not 
necessarily followed. Now, maybe they were great at Goldman 
Sachs, but I do not think they would have written some of the 
deals they wrote for Goldman U.S.A. and, as a result, we have 
to tighten up what authorities we allow these people to do in 
dealing with the taxpayers' money.
    Now one of the things that I think we have to come up with 
is several conclusions. I watched all of the testimony 
yesterday before the Senate, and I was particularly moved by 
the questioning of Senator Corker and then the testimony of Mr. 
Zandi. I think they really in a clutch put our problem.
    Mr. Corker is a Republican, and I am a Democrat, so 
understand this is very bipartisan, this discussion. I thought 
he was absolutely on the ball when he talked about the problem 
with these companies is that they are not real companies. When 
you look at their balance sheet, you reject the viability of 
success of these companies. They are not going to make it. They 
have to be restructured. They have to have haircuts, if you 
will, through all of the elements of contribution, whether it 
is management, labor, suppliers, creditors, dealers. They all 
have to be brought in.
    Now, that is a hard thing to put together. We know from our 
experience with Chrysler bailout number one, it took 3 months 
to do that, 90 days. So what can we do in a week? We cannot do 
much. I do not think we can get to a final settlement to 
prevent bankruptcy if bankruptcy is 25 days off.
    So my remedy would be very simple. Right now, let us take 
the big risk, with what we have pending, do an emergency plug-
in of $4 billion for General Motors, $4 billion for Chrysler--
that is what they say they basically need to make March 31st--
and then dedicate ourselves, together with the present and the 
future Administrations, to put a settlement sheet together as 
to what the Congress and the taxpayers need as assurances which 
would mean restructuring these companies. And not being too 
optimistic as to whether or not they are going to do this.
    Impose a master, a super master on the board--or oversight 
that can impose a settlement. Tell them what they have to do. 
If the creditors aren't willing to take a haircut, enforce a 
haircut. If we can did that, I think we can get to a very 
optimistic program.
    Now, with all that being said, there is one other area I 
would like to hear from you, very quickly. I am disturbed with 
the fact that they have woven into their network the inability 
for any one of them to fail without causing systemic risk to 
the whole system. We have allowed something to occur in this 
system that one little, small company like Chrysler can force 
the United States Government to come in with untold amounts of 
money. Because if they fail, the suppliers fail, or the other 
companies fail. It will be systemic risk. Something we did in 
the law to allow them to get that complicated.
    And part of that is having them become financial 
institutions, too. Why can we not spin off their financial 
elements from these ``manufacturers?'' Let them be 
manufacturers and let banks do financing. What is the problem 
with that?
    As I hear through all of the testimony, particularly from 
Chrysler, the biggest part of their business and the most 
important asset they have is the financial part of the asset. I 
think they would forego the car business. They want to be in 
the financial business. Let us separate them.
    What are your thoughts on this? Very quickly.
    Mr. Sachs. Thank you very much, Congressman.
    I think, in general, the logic that you are making a loan 
against a credible scenario, but it is going to be taken up 
again in the spring by the new Administration in a more 
clarified structure is the right logic of what is happening 
right now. You don't have the time to fine tune this thing, but 
you can't let it go at the same time. I would urge you to go a 
couple of months later, let this new government come in, have a 
moment to find their seats, to actually think through this 
thing so that maybe it is May 1st, maybe it is June 1st.
    But you are right, that this is a two-step process. We 
can't let the meltdown happen right now. The bigger 
restructuring depends on the quality of Executive Branch 
leadership and your oversight.
    I feel your pain on TARP. I want to commend you for passing 
TARP, though. It made a huge, positive contribution.
    And on the subject--
    The Chairman. The time has expired.
    The gentleman from Delaware.
    Mr. Castle. Thank you, Mr. Chairman.
    I am actually going to follow up along the same lines, 
Professor, that Mr. Kanjorski was just asking about.
    You indicated in your opening statement here that virtually 
any of these sources that have been discussed potentially could 
help with the auto bailout, and you are critical that the 
Federal Reserve has not been involved. You talked about the 
TARP. You talked about, I think, the section 136 funds which 
are out there. My question is, is there any reason why we 
couldn't use multiple sources, maybe even some of the larger 
banks that hopefully are being restored to credibility and more 
liquidity could be involved as well?
    Mr. Sachs. Essentially, the Fed option is a loan to one of 
our big banks or a group of banks which would then extend a 
non-recourse loan against Big Three collateral. GM testified 
this morning that they have some collateral for that this 
morning, also. That is why they could be a part of this 
solution.
    No doubt using all three would make sense. But it means 
getting people in the room to negotiate something. That is why 
I say the weekend, as painful as it is, is really important to 
get this thing done. And I don't think that there is a magic to 
not using section 136 or only TARP and so forth, but probably 
all three can play a role.
    Mr. Castle. And, just briefly, in answering Mr. Kanjorski, 
you were agreeing that we could do something on a temporary 
level--it could be a 6-month or a 4-month basis over the more 
permanent funding solution at a later time?
    Mr. Sachs. I would urge you not to make it so short term 
that everybody says, my God, there is no solution here. But, on 
the other hand, you don't have to solve a 5-year problem today; 
and you shouldn't solve a 5-year problem today. Because you 
need the Executive Branch, and that means a new government and 
giving them a bit of time. So I would go 6 months out and get 
that done with the positive intention that we are on a new path 
in this country and that this is to make a new industry out of 
this. And I think you will make a great contribution that way.
    Mr. Castle. Good. Thank you.
    Mr. Dodaro, have you looked--has your office looked at 
these numbers and are you in agreement with the numbers? I 
mean, we have seen the reports from Ford, Chrysler, and General 
Motors; we have looked at them, and our staff has looked at 
them. I am not saying we have the expertise to understand them. 
They are making representations today which you probably heard 
about the exact amount of money they need even on a month-by-
month basis at this point. We need, I think, verification of 
that or the rebuttal side of it if that is what the case is.
    Have you all looked at that carefully? Are you satisfied 
that their representations are accurate? I am not suggesting 
they are misrepresenting intentionally, but they are accurate 
in terms of their numbers?
    Mr. Dodaro. First of all, we were brought in at the time 
when they were prepared to plan. So we have only had the 
opportunity like everybody else to look at the plans since they 
were submitted late on Tuesday.
    Mr. Castle. That is right. We assume you are a lot brighter 
in this area than we are.
    Mr. Dodaro. There are a couple of issues, Congressman.
    Number one, we have read the plans. We don't have normal 
access to the records of private sector entities. We have tried 
to look at some of the publicly available information.
    Chrysler, being held by a private equity firm, doesn't 
produce public financial statements, so the publicly available 
information on them is really very limited.
    And looking at the plans, there are assumptions in the 
plans that I think need to be monitored very carefully. There 
are assumptions that they can exchange equity for some of the 
debt that they owe. There are assumptions that they can 
negotiate with a number of their stakeholders in bringing down 
some of their costs. There are assumptions about car sales 
going forward. So that is why we have suggested, you know, the 
immediate approach and even the cash draws that are in place.
    There ought to be certifications by the companies that 
credit is not available anywhere else. Someone on behalf of the 
Federal Government should look at the cash flow information, 
the details that support their plans and disburse the money, 
even in the immediate period. The money is to be needed between 
January and March, and circumstances can change. So somebody on 
behalf of the Federal Government.
    That is why we had suggested a board or some entity that 
provides the immediate assistance could get those operating 
plans and cash flow justifications and make sure that it is 
warranted in that case, while the more longer term 
restructuring issues could be settled along the lines that 
Professor Sachs is talking about.
    Mr. Castle. Well, I agree. I think clearly we need the 
board; I think clearly we need your engagement and involvement 
in it. But it is interesting, because you are sort of endorsing 
the shorter-solution-first concept as well.
    Mr. Dodaro. There are many issues. This is a very 
complicated situation. And I think that if the government goes 
into it, we ought to go in with eyes wide open, that this is--
as I mentioned in my opening statement, you have short-term 
liquidity issues, but you have restructuring issues, and this 
is all occurring against the backdrop of a very uncertain, 
unchartered economic climate.
    The Chairman. The gentlewoman from California.
    Ms. Waters. Thank you very much, Mr. Chairman.
    I have tried to concentrate my efforts on the small 
dealerships. One of the reasons I do this is because 
politicians and others are constantly saying we are bailing out 
Wall Street, but what about Main Street? And it has become the 
kind of rhetoric with no meaning to it. I really am concerned 
about Main Street. And while the manufacturers came in here 
today talking about they have some consolidation plans, they 
failed to really tell us what those consolidation plans are.
    I maintain that simply getting rid of all these small 
dealerships and consolidating by allowing the big boys to buy 
out all of the small dealerships--I want to ask Mr. Lester. 
Many of those small dealerships are minorities. Many of them 
are in trouble. I keep hearing that they can get no help from 
the financial arms of these auto manufacturers, whether it is 
GMAC or the others. They all have these financing arms that 
have shut down on them.
    One can make an argument, well, they are in financial 
trouble. However, as I understand it, they are literally 
blocking the ability for small, independent companies to be 
able to stay afloat, just as they are asking us to help them do 
or to be able to buy up some of the other smaller dealers that 
would like to sell.
    Can you help me understand? What do you know about this 
consolidation plan? Why can't you get money from these 
financing arms? And if you can't get money from them, surely 
you can get money from these banks that we are bailing out. 
What is going on?
    Mr. Lester. Right now, there is an overall freeze for 
access to capital via a captive institution or a larger 
financial institution to provide credit or capital to any 
dealership. As a result of this credit freeze that we are in 
right now, most of the banks and the captives deem it too high 
risk to lend to dealers now when, historically, they were 
courting dealers, particularly minority dealerships, for their 
business.
    As relates to the captives, it is even to the point as well 
as the financial institutions that when we are in an 
environment of decreasing our interest rates, they are 
increasing them and putting a stronger requirement onto the 
dealerships. And when we are in an environment where there is 
very few traffic in those stores, you cannot hold your 
operating--working capital requirements on a monthly basis if 
you have a squeeze from your local bank curtailing your loan, 
you have a squeeze from your lender, increasing your floor plan 
rates, and you have the inability and also the actual shutting 
down of your access of credit from via your line of credit with 
your financial institutions.
    Ms. Waters. I understand that, if I may, that many of these 
small independent banks have operated very well for many years. 
They are good managers, and they just happen to be caught up in 
this economic crisis. But if they can stay afloat as the 
automobile manufacturers are asking us to keep them afloat that 
they would be able to resume and make a profit and do well. Is 
that true?
    Mr. Lester. Yes. Many of the dealerships believe that if 
they can get some help they can survive these turbulent times. 
Dealers are one of the most resilient entrepreneurs out there. 
But if there is no help or no availability to capital, they 
will just go away, run out of cash and close their doors.
    Ms. Waters. Are the big automobile manufacturers that were 
here today, are they calling in their loans today at their 
financing arms? Are they squeezing small independent dealers 
now?
    Mr. Lester. Yes. They are to the point of asking for--
curtailing their floor plan loans. They are shutting down lines 
of credit. They are not providing any access to capital to the 
standpoint where, when you had available credit made available, 
they have actually closed those lending down.
    Ms. Waters. Do you believe that if we are to rescue these 
big automobile manufacturers we should insist or include in our 
language support for the small independent dealers?
    Mr. Lester. Yes. If support is going to be given to the 
manufacturers, the dealers also have to get some fair support 
as well as they have--they work hand in hand. If they can't 
make it, there is not going to be anyone left to sell it.
    Ms. Waters. Thank you very much, Mr. Chairman.
    The Chairman. The gentleman from Alabama.
    Mr. Bachus. Thank you.
    Professor Sachs, I want to welcome you and express to you 
that I have enjoyed our friendship and working together on 
issues. It is good to see you.
    I am going to address my question to Professor Altman, 
because my question deals with restructuring. And I think we 
all agree that there has to be a fundamental restructuring of 
the industry. My first question is, the Comptroller General 
mentioned that general restructuring--I may be paraphrasing 
you. There are a lot of complex issues. I think you expressed 
your concern that these couldn't be dealt with in a matter of 
months or weeks for sure; is that correct?
    Mr. Dodaro. I think they need to be carefully thought 
through, and I think there has to be somebody at the table 
representing the Federal Government and the taxpayers' interest 
and safeguarding those, to be done successfully, to achieve the 
right outcome.
    Mr. Bachus. All right. And I think you are dealing--
restructuring, it usually takes years. I mean, does it not? I 
am not against that. I am just saying it is not something you 
go in on a Friday and you come out a month later. Is that--am I 
accurate? Or would you say--
    Mr. Altman. Yes, I would endorse that. In a Chapter 11 
reorganization, the average time is 18 months to 2 years.
    Mr. Bachus. So it is not a short and sweet process.
    Mr. Altman. This is a very complex company with many 
international as well as domestic aspects. It would not be a 
short period, and that is why they need sustainable funding for 
a long period of time.
    Mr. Bachus. That is actually where I was going. It is a 
process of several months, at least, if not 18 months to 2 
years, particularly with the challenges that the domestic 
automobile industry has and the extent of restructuring. So 
even this idea of prepackaged--I mean, there is issues that 
prepackaged is--certain things should be dealt with, but they 
have to be dealt with during that process of restructuring.
    Which brings me to this: They are going to need financing. 
You don't have restructuring without significant financing.
    Mr. Altman. Absolutely.
    Mr. Bachus. And I think you have to have successful 
restructuring to get the money back. So it ought to be--whether 
you are a Democrat or Republican or conservative or liberal, we 
ought to all want a fundamental and successful restructuring. 
And that can't happen without financing.
    Mr. Altman. Absolutely. And the idea that we put forward is 
that they would get more than the $18 billion that General 
Motors is asking for. We actually ran through our models to 
look at what the $18 billion would bring to them, and they 
still come out as a likely bankrupt company with the $18 
billion. With $4 billion or $8 billion, you know, there is 
almost no chance.
    Now, in terms of the restructuring, that probably would 
take a minimum of 12 months, probably closer to 2 years, which 
is consistent with how long the recession is likely to last. So 
the best time for them to be coming out would be when the 
recession is over; and in this period of time, they need this 
$40- to $50 billion or more.
    The testimony yesterday in the Senate from Mr. Zandi was 
the fact that they needed $75- to $125 billion, all three of 
them. And the numbers are much larger than what they are asking 
for. They are going to be come back asking for a lot more in a 
very short period of time.
    Mr. Bachus. But if you give them $20 million without 
structural changes, then you lose that. If there is a 
successful restructuring and they are profitable, you know, 
there is not a loss to the taxpayer, at least the taxpayer is 
protected. So that maybe sounds a little different.
    Let me wrap it up by saying that--because my time will 
expire--I am very disappointed--I expressed this to the first 
panel--with the financial institutions that have received 
hundreds of billions of dollars with the express intent of 
loaning that to America's manufacturers. And is that not a 
source of funds?
    Mr. Altman. Yes. Well, let me mention, with respect to the 
DIP financing, it is--these are experienced institutions 
dealing with DIP financing. They could help out enormously, but 
they also should help out in terms of providing part of the DIP 
financing funds. It is a good investment for them. It is a good 
investment for the United States taxpayer. And I believe this 
is the way to go rather than simply having no participation on 
the part of expertise in this area.
    The Chairman. The gentleman from North Carolina.
    Mr. Watt. Thank you, Mr. Chairman. I have three questions.
    First, Mr. Lester, I take it if we do something either 
short term or intermediate term, your position is we ought to 
include the suggestions that you have outlined in some detail 
on the bottom of page 3 and the top of page 4 of your 
testimony?
    Mr. Lester. Yes.
    Mr. Watt. Mr. Sachs, what is your take on what kind of 
pressure we should be putting on this private equity firm to 
ante up this money for Chrysler's part of this? There seem to 
be two or three different kinds of spins that are being put on 
that. Can you give me your brief take on that?
    Mr. Sachs. I don't put the Chrysler situation really 
different--so different from the other two in that regard. I 
think none of them--
    Mr. Watt. Do you think the private equity firm would sit 
there and allow Chrysler to go into bankruptcy as opposed to 
anteing up the rest?
    Mr. Sachs. Yes.
    Mr. Watt. Why?
    Mr. Sachs. Because if there is no chance of financing that 
gives them the way out, that may be their best shot right now, 
is to take zero.
    Mr. Watt. Even if they have the money?
    Mr. Sachs. Yes, because it may just go under. If there is 
no financing for restructuring, it doesn't make sense.
    Mr. Watt. Okay. And, Mr. Sachs, again, you talk about a 6-
month timeframe, but you heard Mr. McCotter's suggestion that 
we do this on an even narrower timeframe. What was your 
reaction to Mr. McCotter's suggestion about how we do this on a 
smaller amount with a shorter timeframe?
    Mr. Sachs. I think this is relevant also for this 
restructuring issue. We can't send a signal that we are just 
dripping an IV line into a moribund patient. That will not 
work. The idea of doing this for 3 weeks is a zero in my mind. 
It doesn't make any sense.
    Six months only works, by the way, if it is done in a very 
positive way with President-Elect Obama saying, we are going to 
make this work for the longer term; we are going to be in 
there.
    And--sorry, if I might, Congressman, just to emphasize--we 
don't need Chapter 11 to do a balance sheet restructuring. We 
can do it in the shadow of this and preserve value.
    Mr. Watt. You are arguing about something that I am on your 
side on.
    Mr. Sachs. Yes.
    Mr. Watt. What is the 6-month cost? Is that the $19 billion 
or what did that come to, the 6-month cost that you are talking 
about?
    Mr. Sachs. I would have to add up for each of them, which 
we could do on that basis. But it is somewhere around the 
number you are giving.
    Mr. Watt. $16- to $18 billion?
    Mr. Sachs. Something like that. Yes.
    Mr. Watt. So you are suggesting that a viable approach to 
this, instead of making a $34 billion commitment, would be to 
do it in a 6-month increment?
    Mr. Sachs. What I am suggesting in the reality of this is 
that what we are doing right now is getting to a position where 
a more fundamental decision can be taken in the spring. And it 
is going to require more money in the spring. But against the 
kind of longer-term scenarios that have been presented to this 
committee. So I don't want to cut it so close that the 
consumers say it is an abandonment. On the other hand, you 
don't have to settle everything for the long term right now. 
You really do have to carry it in a positive way to the next 
government.
    Mr. Watt. What is your reaction to that, Mr. Dodaro?
    Mr. Dodaro. Basically, we had suggested if the Congress 
makes the determination they want to provide assistance here, 
structuring a short-term and a longer-term approach is an 
appropriate way to go forward.
    Mr. Watt. So what you are saying is consistent with what 
Professor Sachs is saying?
    Mr. Dodaro. Yes. The only additional point that I would 
make, Congressman, is that even in the short term, I think 
there has to be a guardian, a Federal guardian and an 
independent person making sure that the disbursements are 
warranted even during that short intermediate period of time.
    Mr. Watt. To the extent part of that money would come out 
of the TARP, there is already an existing framework for doing 
that. Is there one in the section--whatever--106 money or 
whatever it is?
    Mr. Dodaro. Yes. What I am talking about, though, would be 
more rigorous than what is in the TARP program right now.
    Mr. Watt. Do you mean what we expected the TARP oversight 
people to do, rather than what they are actually doing?
    Mr. Dodaro. I think we need more information up front to 
have confidence that the government's expenditures are there, 
and in the short term I would have a higher risk premium.
    The Chairman. The gentleman from Massachusetts.
    Mr. Lynch. Thank you, Mr. Chairman.
    I appreciate the ranking member's work as well. I want to 
thank the witnesses for their thoughtful testimony, all of the 
witnesses here today.
    I remain unconvinced, just after listening to the CEOs of 
the various companies, that any of these plans might ultimately 
work the way they have laid them out. Just as a threshold 
matter, the projections that they have for growth in auto sales 
from year to year during this supposed bailout, totally 
inconsistent with the employment numbers that we saw come out 
today; and the projections of some related industries like the 
steel industry, they are projecting a different trend 
certainly.
    And if I take Mr. Dodaro's suggestion, I would make an 
assertion, sort of put a marker down, that we need to have a 
domestic auto industry in the United States. It may not be the 
Big Three. It might be the Big Two. That might be what has to 
happen here.
    But I am concerned--I hear the different views of 
bankruptcy, especially with respect to Mr. Dodaro and Professor 
Altman and Professor Sachs. I am concerned, Professor Altman, 
with your scenario there where they have this, you know, 
bankruptcy proceeding, we try to take care of this problem in 
bankruptcy. I have had dealings as an attorney trying to 
represent employees, trying to get their pension funds and 
their health and welfare benefits from companies that have gone 
into bankruptcy. Bankruptcy courts are not known for their 
speed, God knows. And I think easily with companies of this 
size, it could be a very long bankruptcy. It could be 3 to 4 
years, and they would be in bankruptcy when the market comes 
back. I think they would be at a severe disadvantage with 
respect to some of these foreign automakers. I think they would 
lose a lot of market share, and they wouldn't be able to 
respond. As well, not only the effect on the firms themselves, 
but also the cascading bankruptcies that might happen, that 
probably will happen with these suppliers right down the line.
    So what I would like to hear from you--here is the essence 
of my question: Is there some way--and we are looking at this 
as a pre-bankruptcy sort of assistance now. Is there a way--you 
describe, Professor Altman, about a super seniority granted to 
the taxpayer. That is job one for us in Congress. We have to 
protect the taxpayer. Is there a way to grant super seniority 
outside of bankruptcy before we go into bankruptcy to any 
monies that might go?
    And, again, I am not convinced that it needs to or that it 
should. But we have to protect those interests.
    Is there a way to create a receivership in some way to make 
sure that whatever dollar goes to GM or Chrysler or Ford that 
if eventually they do collapse into bankruptcy that the first 
dollar that comes out of there, before a dollar goes to any of 
those CEOs, that the taxpayers are repaid? Or is there some 
other configuration--
    I tried to look through history about different examples 
that might be comparable to this one, and I looked at the steel 
seizure cases during the Truman Administration where he went in 
and just took control of the steel industry. He obviously was 
overturned by the Supreme Court because he didn't have 
congressional authorization to do that. But, in this case, 
maybe it would be incumbent upon Congress to grant President 
Obama when he is in office some emergency type of power.
    Could you just elaborate on how you see that all working 
out?
    Mr. Altman. Under the law, you are not permitted to issue 
new debt and take precedent over existing debts that have been 
collateralized with assets behind it. So that is protected. 
General Motors has put forward a plan that they say they have 
unencumbered assets--
    Mr. Lynch. Let me stop you there, though. If Congress 
passed another law, would it be unconstitutional, would we be 
derogating the rights of contract if we put the taxpayers' lien 
ahead of everybody else in the special circumstances?
    Mr. Altman. It would undermine, I think, the entire credit 
system that we have in the United States, to be perfectly 
honest with you. The flow of credit would come to a halt, even 
in good times.
    Mr. Lynch. It looks pretty undermined right now. I am just 
saying we are trying to protect the taxpayers. I understand the 
principles involved, but these are extraordinary--
    Mr. Altman. The only way they could get some precedent for 
the taxpayer would have new unencumbered assets be put up as 
collateral, And then the question is what is the value of 
those. A lot of those are intangibles and would have some 
trouble convincing me that you are going to get your money back 
in a short period of time.
    Mr. Lynch. Mr. Chairman, can I have one of the other 
witnesses--Mr. Sachs, you have a--
    Mr. Kanjorski. [presiding] Very quickly.
    Mr. Lynch. Professor Sachs, do you want to take a crack at 
that?
    Mr. Sachs. On the seniority question, well, I actually 
wanted to respond to the other question, which is that we 
should not plan for failure of sticking at 10 million units per 
year, which is where the economy is right now. I don't find the 
recovery scenario unrealistic in the same way. We have to plan 
for a macroeconomic recovery, and this is part of it. And there 
will be a macroeconomic recovery, and by doing this it will 
help it considerably. This won't happen in 2009, but it will 
happen in 2010, 2011, or 2012. We have gone from 17 million 
units down to 10.1 million units. We are not going to stay at 
10.1 million unless we do everything wrong right now.
    Mr. Lynch. Okay. Thank you, Mr. Chairman. Thank you for 
your forbearance.
    Mr. Kanjorski. Mr. Green.
    Mr. Green. Thank you, Mr. Chairman.
    Mr. Dodaro? Am I pronouncing that correctly? Sir, I am 
going to exclude you from my questions. And believe me, it is 
not because I love you any less than I love the others. But I 
do have questions for your colleagues who are with you today.
    My first question is, given that we expended $85 billion 
plus an additional $37.8 billion plus an additional $40 
billion--depending on who is counting, between $112 and $152 
billion thereabout--to bail out AIG, was it in our national 
interest to do so? Let us have Mr. Altman address this first, 
please. Was it in our interest to do so, our national interest?
    Mr. Altman. I think it was in our interest to bail out--
    Mr. Green. That will be sufficient. I only say this because 
time is of the essence. I still love you. I want to hear more. 
But it was in our national interest to do so.
    If you concur with Mr. Altman, and you believe that it was 
in our national interest to bail out AIG and to have $306 
billion thereabout in guarantees for Citi, if you think that it 
was in our national interest to do so, would you kindly extend 
a hand into the air? If you think it was in our national 
interest to do so, in the national interest of the United 
States of America.
    All right. I think we have all hands, except one.
    Am I to conclude, Mr.--is it--I can't quite see the name as 
well as I should. Do you differ, sir?
    Mr. Rohatyn. I beg your pardon?
    Mr. Green. Do you think that it was in our national 
interest to bail out AIG?
    Mr. Rohatyn. Yes, I do.
    Mr. Green. So everybody agrees. All right. Thank you.
    Now to the next question: Is it in our national interest to 
bail out the auto industry? Is it in our national interest? In 
you think so, kindly extend a hand into the air.
    Everybody agrees that it is in our national interest to do 
so. Thank you. You may lower your hands.
    If it is in our national interest to do so, do you think 
that indecision is going to be a decision that will impact our 
national interest? If you do, raise your hand. Indecision will 
be a decision that is going to impact us.
    Thank you very much. All hands, for the record, were 
raised.
    And do you agree that indecision will ultimately become a 
decision that is going to be to the detriment of the national 
interest of the American economy, the national interest of the 
country? I don't mean to be so elementary, but this is a good 
way for us to get a message to the American people.
    Okay. It appears that we seem to think that we must do 
something to take care of the auto industry. After all, France 
is going to do it, Japan will do it, China will do it. 
Countries protect their auto industries.
    The question is, will we allow ourselves to become victims 
of what Dr. King called the paralysis of analysis? We can 
literally analyze this to death. We did not analyze AIG to 
death. Someone took bold, decisive action. That bold, decisive 
action, whether we admit it or not, has provided some stability 
in the financial markets. It really has. Sending a clear and 
concise message makes a difference. At some point, someone in a 
very high office has to send a clear and concise message we are 
not going to sacrifice the American auto industry.
    Now, they have come in and they have done everything except 
roll over and play dead, and I suspect that if we had said, 
would you be willing to roll over and play dead, somebody would 
have literally rolled over and played dead. I think they are 
willing to make whatever concessions we can concoct. And we 
ought to have strings attached, we ought to do everything that 
we can to make sure that the American taxpayer is protected, 
but the truth of the matter is, we must act. This is in the 
interest of the American people. More importantly, said another 
way, it is in our national interest.
    I think that at some point this talk about Chapter 11 and 
Chapter 7 is going to put us in a position where we are going 
to bankrupt the American dollar. Now, this is where I--my time 
is up, so I will simply close with this: The full faith and 
credit of the American economy is based upon the full faith and 
credit of the American dollar. We are playing with fire. We are 
playing with economic fire.
    Thank you. I yield back.
    Mr. Kanjorski. Thank you, Mr. Green.
    The gentlelady from California, do you have something to 
submit for the record?
    Ms. Waters. Thank you very much. I would like to submit for 
the record a letter from John Lewis relative to the small 
dealerships, and also an article from the New York Times 
entitled, ``Auto Dealerships Teeter as Big Three Decline.''
    Mr. Kanjorski. Without objection, it is so ordered.
    Mr. Cleaver.
    Mr. Cleaver. Thank you, Mr. Chairman.
    I would like to say amen to the sermon by Bishop Al Green. 
I do think that he said it all and did it quite eloquently. I 
just appreciate your participation here. Very good reflexes.
    The issue that I am concerned about is waiting, and I do 
think there is a difference in how we handle Wall Street and 
how we are handling our automobile industry. I get that all 
things come to those who wait. Sometimes, though, it is just 
leftovers from the fellows who got there first, and this is 
where I think we find the automobile industry.
    One of the issues that I would hope that you could help me 
understand and deal with--I have two automobile plants in my 
district, in Missouri, Kansas City, Missouri. If we don't act 
equally fast for GMAC and for Chrysler financing, it won't 
matter if we can make cars if we still don't have the capacity 
to buy them. So I would like for you to--if I am off base, if 
you would help me. And if I am, support me.
    Professor Sachs. And thank you for being here again.
    Mr. Sachs. Thank you. It is always an honor to be in front 
of this committee.
    We absolutely need first to make sure that these companies 
don't go into default in the next week, or in 2 or 3 weeks, and 
second, that we spur demand again. There will be many parts of 
that next year. Part of it will be automobile financing turned 
back on, because it is off right now, as you know very well. 
Part of it will be the overall stimulus program. Part of it 
will be TARP and its successors working more effectively. So 
the demand side and preventing this disaster which--where delay 
is risky are the two goals that we need to put together.
    Mr. Altman. I would endorse the need to move quickly. My 
fear is that if we move and we do it with a Band-Aid or two, I 
know $4 billion doesn't sound like a Band-Aid, but we are going 
to come back very soon to ask for a lot more, and then more, 
because this recession is not going away in 6 months. So we 
have to be prepared for that. And I agree with Jeff that we 
need to have a fiscal stimulus after the new Administration 
comes in to get demand going again, and so that is part of the 
package.
    Mr. Cleaver. My final question: Someone unfortunately 
brought up subprime loans in the automobile industry this 
morning, which was just unfortunate that someone would do that. 
The economy is not in trouble because we have had foreclosures 
on Cadillacs or Chevys. But do any of you see anything wrong 
with--in any agreement also making sure that to get an 
automobile loan, your credit score doesn't have to be 700 or 
750? I mean, we may need--yes, yes, Mr. Lester, I am sure you 
can respond to this.
    Mr. Lester. I think that is what the problem is now. The 
requirements that the financial institutions as well as the 
captives have put on the consumer, no one has the ability--very 
few people have the ability to have a 700 FICO score to go out 
and buy a Ford Focus, for example. We are in an economic 
disaster, and we can't afford for these manufacturers and 
dealerships to go away. This country can't take it. You already 
mentioned that if we go away, the dollar will disseminate.
    Mr. Cleaver. So do you think that something like this 
should be included in any agreement?
    Mr. Lester. I think TARP loosening up, making the 
announcement a week before last about loosening and providing 
access for capital to lenders for auto loans and student loans, 
that is hopefully--once it gets up and running, it will--
    Mr. Cleaver. What I am asking is, should we have a de-icer 
amendment?
    Mr. Lester. Yes.
    Mr. Sachs. I would not suggest it. It would overburden this 
specific action right now. This has to be a priority for the 
next Treasury Secretary. That is for sure.
    The Chairman. Thank you.
    Let me just say--I am going to ask for unanimous consent 
for about 90 seconds. I noticed Mr. Rohatyn had a comment he 
wanted to make, and just given his experience, I want to ask 
him if he had something he wanted to add.
    Mr. Rohatyn. Yes, Mr. Chairman, I do. I think it is 
terribly important that there not be any--
    The Chairman. You are cutting in and out.
    Mr. Rohatyn. I think it is terribly important, because 
people are going to be listening to what comes out of this 
meeting, and what comes out of the other meeting, whether there 
is any hope for these companies or whether they are being 
condemned to death, which would be a terrible thing for us, and 
I think somehow, somewhere, somebody has to put out some kind 
of a release or information with respect to the commitment to 
the industry among the political leadership in this country.
    The Chairman. I have been asked--and I think it is a fair 
point. I have been trying not to say much, because when you are 
trying to work things out--let us just say the better--in 
advance, but I have been struck by a pretty broad consensus 
here that something should be done. There are only a couple of 
Members who took a fairly strong position saying free 
enterprise being what it is, don't do this. Now, that doesn't 
necessarily get us there, but I think if you are listening, we 
have gotten to the question of how to do this. I think the 
majority of this committee appears to me to have resolved the 
question about whether the answer is ``yes.'' It is not a 
guarantee of success, but it clearly is a step forward.
    The gentleman from Colorado.
    Mr. Perlmutter. Thank you, Mr. Chairman.
    And, Mr. Rohatyn, that is exactly where I was going to go. 
Three weeks ago when the automakers came to this committee, 
they didn't present us with much that we could get our arms 
around. It wasn't very helpful. Today the information, their 
business plans, are much more substantial, and much more 
professional. Obviously painted a bleak picture for today, but 
a much brighter picture given restructuring for a year, 2 
years, 3 years down the road. The technological leaps that they 
are making with respect to batteries and the like really do 
benefit us as consumers and us as a Nation going forward on an 
energy basis.
    And, you know, just back in Colorado, I have to deal with 
people on the street. So I have to ask three questions. One, is 
the domestic auto industry essential to this country, meaning, 
if it were to fail, would the damage be too great for us to 
sustain over a reasonable period of time? Two, is there a way 
in the short run to maintain these companies so that they are 
competitive and successful in the long run? And three, can we 
substantially protect the American taxpayer in maintaining the 
domestic auto industry?
    And I think the answer is yes. And I think it is a 
combination of things that Professor Sachs is saying, Professor 
Altman and you, Mr. Rohatyn. It may not be that we do a Chapter 
11, because I have a lot of experience in that field, and it 
just takes too long, and there are different hurdles and judges 
and things you have to deal with. But we need to have something 
that provides powers to an oversight committee or to somebody 
to do the restructuring necessary with all of the interest 
holders in here, the bondholders, the shareholders, the 
management, unions, retirees, the lenders, the suppliers. I 
mean, everybody has to take a hit in this deal. So you can't do 
it without some sort of law in place to do that.
    And then--and I disagree with you, Mr.--Professor Altman, 
the taxpayer can be assured of a senior interest in this 
situation. And that is what I believe. If, in fact, we are 
going to be the lender of last resort, as you suggested, then 
we must act like a lender of last resort and make sure that our 
investors, the taxpayers, are protected to the nth degree if we 
can do that.
    Mr. Altman. I disagree. You cannot be senior to existing 
loans that have collateral. You can be senior to the unsecured, 
yes.
    Mr. Perlmutter. If we were to take a Chapter 11, we could 
have a priming loan. I am not suggesting a Chapter 11. In a 
Chapter 11, you can have a priming loan that is senior to any 
other interest.
    Mr. Altman. Absolutely.
    Mr. Perlmutter. And I don't know why we couldn't do that 
otherwise.
    Mr. Altman. You would have to pass new legislation.
    Mr. Perlmutter. Right.
    Does anybody else want to respond?
    Mr. Altman. Which would be a massive request, Congressman.
    Mr. Perlmutter. And why?
    Mr. Altman. Because you would be changing the whole 
capitalistic system.
    Yes, you would, Jeffrey. You would be putting existing 
creditor capital at risk at any time that the government could 
come in and take a senior position above existing capital. That 
is what happens. In other countries, when that happens, you 
lose the capital.
    Mr. Perlmutter. But you can do that in Chapter 11 now?
    Mr. Altman. That's correct, and that is the only place you 
can do that.
    Mr. Perlmutter. But we are asked to come in with $34 
billion in an emergency to keep these companies afloat so they 
can get to the brighter future. I have to protect the taxpayer 
from something that might happen here.
    Mr. Altman. Well, I do believe you can do a lot to get a 
senior status in this loan. One way to do it is to get the 
existing creditors to go away and take equity. And I think 
General Motors is making that plan. I think that is a good 
idea. And then you don't have to worry about them; they take 
equity in place of the debt. Then you can go in and be senior, 
and there is nothing wrong with that.
    But just to force it down them, I think that would be a 
mistake.
    Mr. Perlmutter. Thank you, Mr. Chairman.
    The Chairman. Well, take that--I remember when the press 
office said you can only do that as a Chapter 11. That is true 
if you are a lawyer arguing in court.
    You are now before the body that wrote Chapter 11 and it 
can rewrite Chapter 11. And there is a problem that lawyers 
have, which is to assume in the normal course of a legal 
argument you are restricted to choose between column A and 
column B. We can write column C third. So the answer is, it 
would not necessarily be that we mandated people to do things, 
you can come up with constitutional issues with that.
    But the old doctrine of unconstitutional conditions on 
gifts seems to me have long since disappeared into the mists. 
And if we are going to vote all that money, we can put on it 
any conditions that we think appropriate, so we are not 
restricted to either Chapter 11 or not. We can write what we 
think is appropriate with these powers.
    The gentleman from California.
    Mr. Sherman. Thank you, Mr. Chairman.
    I think these hearings show that we ought to pass a bill. 
Our best chance to pass a bill is to write one that has tough 
standards to protect consumer warranties, to make sure that the 
U.S. Government is involved in deciding which plants get closed 
and which stay open, and to deal with executive compensation 
and perks and deal with a number of the other issues that have 
come up.
    Clearly, everybody has to give something. Now, the 
shareholders are going to give. We are going to dilute them if 
we get sufficient warrants. And if time permits, I want to ask 
the witnesses about how many warrants that ought to be.
    The executives--I think I join several of my colleagues in 
torturing them, and that is just a taste of what we would like 
to put in the bill. The unions have made substantial 
concessions, and have indicated they are going to make more. 
But we have been talking here about the creditors, and not just 
making the loans senior, our debt senior to theirs, but to 
actually write down the liability.
    Right now, people are buying GM debt for 15 cents on the 
dollar; and if everything goes swimmingly--should they get a 
dollar on the dollar if things go swimmingly, only because the 
taxpayers ride to the rescue--Professor Altman, do you see a 
way not only to make the taxpayers' debt senior but to actually 
provide for a reduction in the amount that GM, for example, has 
to pay on its unsecured debt.
    Mr. Altman. Yes. What you are referring to is something 
known as a ``distressed exchange,'' and the creditors are 
offered, let's say, 20 cents on the dollar in new securities, 
equity, preferred stock. And they have to evaluate whether or 
not it is to their interest to do so.
    Mr. Sherman. So this would only be voluntarily. Is there 
any way for us to write a statute that makes it mandatory?
    Mr. Altman. Well, as Chairman Frank said, you can do 
whatever you want.
    Mr. Sherman. I am a little concerned about the takings 
clause.
    Mr. Altman. I wouldn't recommend that. It is much better. 
And I think GM has a good plan in that respect to write down 
the debt. $30 billion, I think, was in their plan to reduce it; 
and I think that makes sense. But I ran it through my model, 
and they still come up a bankrupt entity even after doing that.
    Mr. Sherman. Mr. Sachs, a new line of questioning: Let's 
say the doubters are right, and all we can do is give a 
transfusion to a patient who is ultimately going to expire with 
regard to GM and Chrysler. One of the things about a business 
cycle is that companies fail at the very time that other 
companies are failing. It would be nice if we could arrange it 
so that companies only fail during good economic times.
    How much higher will our GDP be if we do nothing but delay 
the dissolution of GM and Chrysler by 12 months.
    Mr. Sachs. Very, very slight. And that certainly can't be 
the goal of this exercise.
    Mr. Sherman. So if we were to spend--
    Mr. Sachs. This would not be the right way to do capital 
spending.
    Mr. Sherman. If we put in the money, one of the reasons to 
put in the money is maybe the companies will survive.
    Mr. Sachs. I would say more than a good chance.
    Mr. Sherman. Another way to put in the money is, maybe we 
can delay by 12 months their failure to survive.
    You are saying that second objective is of slight value to 
the United States?
    Mr. Sachs. I think that's right. It would be marginally 
present, but that can't be the point of this exercise. But I 
would not be so pessimistic to think that there isn't a 
trajectory out of this. That is the whole point.
    Mr. Sherman. I just started with a worst-case assumption. I 
am not asking you to embrace it.
    Mr. Sachs. Absolutely.
    Mr. Sherman. Mr. Rohatyn--if I am pronouncing that 
correctly--the chairman's draft calls for us to get warrants 
with a value of 20 percent of the money we are putting in. And 
the question is--I mean, these are companies you could buy the 
whole company according to today's values for $2 billion, $3 
billion, $4 billion, and we are talking about putting in $34 
billion. When you use the standard approaches used to value 
warrants, would we end up, if we exercised the warrants, owning 
well over 90 percent of the outstanding shares if you looked at 
what the value of the warrants would be?
    Mr. Rohatyn. Well, I think that you certainly would try not 
to wind up with 90 percent of the equity of the company.
    Mr. Sherman. I would disagree with you. If we are taking 99 
percent of the risk, I hope we do end up with 90 percent of the 
company. And if the shareholders don't want to take that deal, 
they can seek money elsewhere.
    I yield back.
    Mr. Green. [presiding] Thank you.
    Mr. Manzullo is recognized for 5 minutes.
    Mr. Manzullo. Thank you, Mr. Chairman.
    I am sorry I missed your testimony. I was working with two 
small manufacturers trying to keep them afloat during these 
times of crisis.
    My question goes to the $25 billion that has been set aside 
already. It is actually $7 billion because, I think it was the 
CBO said that they estimated at 20 percent of default. So, 
therefore, $7 billion has been parked in order to guarantee $25 
billion in loans to the Big Three for the process of retooling.
    And my question would be, at least at this point, based 
upon the testimony of an immediate need, why not use a portion 
of that to keep these companies going, and then revisit the 
bigger issue sometime in March or whatever period of time they 
said the instant money would not be available? And all that 
would take--and I think there are votes in both Houses--would 
be to have a simple amendment saying that this money--I think 
what is called ``136 money''--whatever it is, could be 
reprogrammed for meeting general operating expenses.
    I would like to know your thoughts on that, Mr. Friedman.
    Mr. Friedman. Well, I think one of the flaws with that plan 
is, if you looked in the companies' plans, they are already 
depending--they are already expecting that money as part of 
their recovery plans. So maybe there is an argument--in fact, I 
think there is an argument--to find ways to accelerate getting 
them that money under some of the same conditions they were 
already going get the money, such as a 25 percent improvement 
in fuel economy.
    But they need additional money is what they are asking for. 
They are already expecting that money.
    Mr. Manzullo. They probably won't get it.
    Mr. Friedman. Additional money or the base money?
    Mr. Manzullo. Well, the additional money. This Congress is 
very reluctant. If this is emergency money, let's put it this 
way, if you hear at least Chrysler and GMC, they won't be 
around in 30 days even to worry about that 136 money. So why 
not use a portion of that to keep them afloat? You can always 
come back and add to the pot if it is necessary, and some 
people would vote for that, to replenish the original $25 
billion for environmentally new cars.
    Mr. Friedman. Well, I think no matter what you need to find 
a way, even if you move the money forward, you need to find a 
way to preserve the fact that the money is supposed to go 
towards advanced technology.
    Mr. Manzullo. How can you preserve it if the company is out 
of business?
    Mr. Friedman. I think the first step is making sure they 
are going to be sustainable businesses. But you would be 
mortgaging their future if you did not require them to invest 
in--
    Mr. Manzullo. They don't have a future based upon what they 
said unless they get billions of dollars up front. So why not 
use that money that is already there to fix the roof that 
covers the area where the R&D is going on with the new cars?
    Mr. Friedman. I would argue to accelerate that money under 
the same conditions, and I would argue--I think the panel has 
discussed that there are two other sources for that money. We 
have to make sure that these companies, as Professor Sachs 
said, are planning for an macroeconomic recovery. And in a 
macroeconomic recovery, gas prices are going to shoot up as 
China and India and the other countries start guzzling gas 
more. And these companies are going to be in trouble again if 
a--
    Mr. Manzullo. I can't agree with what you are saying 
because what you are saying is that it will not come to pass if 
they have no money to keep on going.
    Professor Sachs.
    Mr. Sachs. Congressman, I think using the section 136 as 
part of this is appropriate, in my opinion. But quantitatively, 
I think it is likely that this will need to be part of a 
package that includes some of the TARP.
    I think the Fed can do some things on its own, by the way. 
And this is one of the missing actors here. I would like 
Chairman Bernanke to step up and help this process more than 
has been the case so far, because they are making loans that 
are a lot riskier than this one.
    Mr. Manzullo. The problem is that the the plans are 
woefully insufficient.
    Mr. Sachs. No. They could be doing this on terms that are 
better than what they are doing right now and are appropriate 
for preserving our financial system. So TARP, section 136, and 
the Fed offer three ways, and it is going to have to be a 
package. If it is only a very narrow, constricted, begrudging 
amount, then, Congressman, you will not succeed in your 
objective, I am afraid.
    Mr. Manzullo. Anybody else?
    Mr. Rohatyn. I think Professor Sachs is absolutely right. I 
completely share Professor Sachs's views. Either we do this on 
a large scale or just there is no point to it.
    Mr. Manzullo. I mean, the plan isn't there. You have GMC 
that wants to go into the--GM wants to go into the commercial 
banking business, which I think is absurd. So to pull out of 
the doldrums and to correct our mistakes based on making 
automobiles, we are going to go in the commercial banking 
business.
    No one has ever done an analysis of the impact that that 
will have on community banks, credit unions, and on national 
banks that have local branches across the country. But that is 
part of their plan.
    The union people sit here--Mr. Gettelfinger sat there, and 
I thought he had a pretty reasonable approach. He says, ``Yes, 
we are here. We are willing to sit down.'' There has been no 
viable plan that has been presented to this Congress in the 
details that are necessary to warrant that type of money.
    The Chairman. The gentleman's time has expired.
    Mr. Manzullo. Thank you, Mr. Chairman.
    The Chairman. Do we have any other members?
    Mr. Foster, are you next?
    Mr. Foster. One number that I think is absolutely crucial, 
and I would like to see developed by an entrusted third party, 
is the total value of GM's unencumbered assets, and that could 
be used as collateral either by DIP financing or some sort of 
prebankruptcy financing, and to compare that to the capital 
injection you are going to need for return to viability.
    And that is the fundamental number that I think this whole 
discussion depends on. And I would be interested in knowing who 
it is that we can trust to develop this number.
    Mr. Altman. I think you would have to get an outside party. 
I don't think you could trust the companies in this case. And 
any of us--looking at their financial statements would be very 
difficult to understand. You would have to value every one of 
those assets, both tangible and intangible. And I do believe 
they have unincumbent assets. But can you get, for example Opel 
in Germany, can you get the German government which has a stake 
in this, too, in providing money to Opel under certain 
conditions, can you be able to transfer that equity to a lender 
here?
    It is a very good question, an excellent question, and one 
that I was wrestling with myself in trying to prepare the 
testimony.
    Mr. Sachs. Congressman, I don't think with all due respect 
that it is really the question for this weekend or before you 
recess or before the new government comes in. This has to be 
viewed practically as a two-part process. You have a basic 
framework that has been put in front of this committee, which I 
find very valid and very credible and absolutely worth the 
American people investing in.
    Then we are going to have a new government that is 
responsible for helping to answer a lot of these questions. We 
don't have, with the outgoing Administration, the capacity to 
do these things right now, but we are going to have a new 
government. In 6 months' time you will get a lot of answers. 
And it is important--even in a month-and-a-half's time, you 
will get a lot of answers that you will not get right now.
    I think, therefore, pragmatically, because these decisions 
really are needed in hours--day two, you are leaving town--that 
putting in the kinds of protections that are in your draft 
legislation, I think, is appropriate. Assigning oversight 
responsibility to the Cabinet, ministers of departments of the 
incoming government are completely--and of the outgoing 
government, for that matter--are completely appropriate.
    But fine-tuning, in my opinion, is not commensurate with 
our macroeconomic reality. Last week, $306 billion was thrown 
over something without 1/100th of what you are asking for right 
now in scrutiny because events are moving at trillions of 
dollars very, very fast.
    And I think it is important that we understand the 
macroeconomic crisis that we are in, and that the American 
people understand the macroeconomic crisis we are in. This is 
not normal, what is happening. This isn't even normal about a 
difficult situation for the auto industry. This is a global 
macroeconomic crisis unprecedented since the Great Depression. 
And so we have to act with the speed that is imperfect in 
answering a lot of things, but it is realistic to the 
circumstances that our country and the world face.
    Mr. Foster. It seems to me that the long-term issue that we 
are dancing around is that the problem here is declining market 
share. And the reason for that is, it is fundamentally less 
expensive to produce cars and components in developing nations. 
You can get a good engineer for $10,000 a year in India and $2-
a-day factory labor in China, and they can be trained to do a 
decent job of assembling quality cars. The only way to preserve 
the car industry long term is to acknowledge that we have a 
national security in preserving a self-sufficient automobile 
industry, and that nothing short of some combination of 
tariffs, nontariff barriers, subsidies or repeated capital 
injections--which is sort of what we are doing here--nothing 
short of that sort of thing is actually going to do the trick 
to make a long-term, stable automobile industry here. And I 
think that sometimes gets called a national auto policy. But it 
is pretty much what it comes down to.
    Mr. Sachs. If that is a question, Congressman, I would 
disagree with that.
    Mr. Foster. What is wrong with it?
    Mr. Sachs. The auto industry in the long term is a growing 
industry. There will be actually hundreds of millions of new 
vehicles when the world's middle-income countries continue to 
achieve economic growth. Our industry has a chance to be a 
technological leader. We can make breakthroughs. They have been 
long delayed because our pricing policies, our national 
policies on this, have not been what they need to be.
    It is not only the industry. It is the choices we made as a 
country politically, personally, and the company that has led 
us to a situation where we are. But we are on the verge of 
developing leap-frog technologies. This is the absolute truth, 
whether it is fuel cell technologies or plug-in hybrids, these 
are major, world-class companies we are dealing with.
    The Chairman. The gentlewoman from California.
    Ms. Speier. Thank you, Mr. Chairman.
    Thank you all for participating. I have two trains of 
thought that I would like to pursue. One is around demand. All 
of this to me makes no sense at all if we don't create a demand 
for these vehicles. And the American people right now are damn 
mad. They do not want us to bail out this industry. And if we 
then pump tens of billions of dollars into this industry over 
the course of the next 6 or 8 months, and the American people 
continue to be angry about that, they are not going to buy the 
cars. So where are we?
    Mr. Sachs. Congresswoman, they are mad that unemployment 
jumped to 6.7 percent today and 560,000 jobs were lost. They 
are going to be very mad when unemployment reaches 9 percent. 
They will be really mad if unemployment reaches 12 percent. If 
we allow the most important industry in this country to 
disintegrate, believe me, the fury will be nothing like what 
will happen when they hear about a $25 billion bailout.
    We have to take the macroeconomics seriously right now. We 
are in the steepest descent we have been in in modern times. It 
is crucial to stop this. So the American people need to 
understand this isn't a favor for the industry, this is a favor 
for the American people. That is the most important thing they 
need to understand. This is to break a collapse of our economy 
that is under way right now. And this can be understood.
    Ms. Speier. All right. Let me ask you a further question.
    Does it make sense--and this is a question for any of you 
who would like to answer it--for us to create a tax credit so 
that American motorists go out and buy cars that American 
manufacturers build that get more than 30 miles per gallon?
    Mr. Friedman. Congresswoman, we have actually been working 
in California for a plan very much like that, based on vehicle 
emissions, where if you purchase a vehicle that gets improved 
emissions, you get a tax break from the government. That will 
encourage people to buy better vehicles, it will encourage more 
competition in the industry. And right now when we are in the 
world of a fiscal stimulus we can probably afford to just do 
that part of it.
    Now, in the long run, you want to add a financing portion 
of that, and that is some sort of fee for vehicles that pollute 
too much and use too much gas. So I think this is an 
opportunity again to take some of the policies that are being 
formulated in California and move them nationally.
    I also think we have other opportunities to stimulate 
demand and to deal with the fact that, as gas prices go up, 
people are also going to be looking for alternatives to cars. 
We have a lot of truck plants that build vehicles that have 
body-on-frame construction. You can start moving some of these 
plants over to rail, over to buses. We can revolutionize our 
transportation industry while stimulating our economy.
    So this is a down payment. We need a whole other 
conversation about a broader macroeconomic stimulus to get 
consumers buying, but also get consumers options other than 
cars.
    Ms. Speier. Thank you.
    Now, the other train of thought: Cerberus really troubles 
me. They paid $7 billion for Chrysler, and now they want $7 
billion as part of their rescue. And they have just stripped 
Mervyn's of all its real estate, and now 30,000 employees of 
that company are on the street because they are liquidating.
    They are a private equity firm. We don't know anything 
really about their holdings and what they have done to Chrysler 
or how much money they have already taken out of Chrysler. I 
don't understand why we should be bailing them out.
    Comments?
    Mr. Dodaro. I think that in that particular case, there 
needs to be a really high threshold and representations that 
credit is not available in other sources before the government 
moves in. This is why I think that there needs to be a Federal 
guardian. There needs to be somebody asking for additional 
information before the Federal Government makes that decision. 
Not that we go around with a particular point of view, but you 
need more information. And I think you need a greater degree of 
representation for the reasons that you mention.
    Ms. Speier. Thank you. I yield back.
    The Chairman. I thank the panel.
    And responding again to Mr. Levin, let me leave people with 
a two-part question: Should we do something, and if so, what 
should we do? There is a lot more agreement that we should do 
something, unless the President apparently today called on us 
once again to make the $25 billion from the energy efficiency 
part available in ways that many of us disagree with because it 
would too greatly loosen those.
    And I think it is fair to say that the job report today, 
this disastrous job report, has heightened the interest in 
doing something.
    The one thing I will say is that it is obviously going to 
be incumbent upon us, given the wide recognition that it is 
important to do something, we are going to have to have some 
give here; and if we are lucky, we will come out with a bill 
next week that nobody likes. Because any bill that any 
individual liked couldn't pass.
    But--there is a sufficient consensus that we have to do 
something, but I hope we will get something acceptable to 
enough Members of both Houses so we will avert disaster.
    I will just repeat--and Mr. Rohatyn said it might not be 
popular--one of the things we have learned is, if we didn't 
know it before, averting disaster is no basis for a political 
campaign. If you do something good, people are happy. If you 
avoid something bad, people are not happy.
    One thing--and I have to say to my friends, the economists 
here, on whose judgment we rely a great deal; and they 
understand this--there is one very important metric in 
economics which is a disaster in politics, that is, reducing 
the rate at which something bad is happening. That can be a 
sign of real success in a public policy term. Any politician 
who goes and takes credit for saying, yes, things are really 
bad, but boy, would they have been worse if it wasn't for me, 
perhaps should study to become an economist because he or she 
will need an alternative profession.
    But I believe--and I am encouraged from talking to my 
colleagues informally as well as formally--there is an 
understanding that we have to work together. There are a lot of 
ways to do this. No one can be certain, but I have some more 
optimism than I had before that we will get ourselves to a 
point in a reasonable way until next year, and we will have 
several months in which we can work on this.
    The hearing is adjourned.
    [Whereupon, at 3:00 p.m., the hearing was adjourned.]


                            A P P E N D I X



                            December 5, 2008


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