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



 
INNOVATION, JOBS, AND ENERGY INDEPENDENCE: REINVIGORATING THE DOMESTIC 
                             AUTO INDUSTRY

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


                                HEARING

                               before the
                          SELECT COMMITTEE ON
                          ENERGY INDEPENDENCE
                           AND GLOBAL WARMING
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                            DECEMBER 9, 2008

                               __________

                           Serial No. 110-51


             Printed for the use of the Select Committee on
                 Energy Independence and Global Warming

                        globalwarming.house.gov



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                SELECT COMMITTEE ON ENERGY INDEPENDENCE
                           AND GLOBAL WARMING

               EDWARD J. MARKEY, Massachusetts, Chairman
EARL BLUMENAUER, Oregon              F. JAMES SENSENBRENNER, Jr., 
JAY INSLEE, Washington                   Wisconsin, Ranking Member
JOHN B. LARSON, Connecticut          JOHN B. SHADEGG, Arizona
HILDA L. SOLIS, California           GREG WALDEN, Oregon
STEPHANIE HERSETH SANDLIN,           CANDICE S. MILLER, Michigan
  South Dakota                       JOHN SULLIVAN, Oklahoma
EMANUEL CLEAVER, Missouri            MARSHA BLACKBURN, Tennessee
JOHN J. HALL, New York
JERRY McNERNEY, California
                                 ------                                

                           Professional Staff

                   Gerard J. Waldron, Staff Director
                       Aliya Brodsky, Chief Clerk
                 Thomas Weimer, Minority Staff Director
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hon. Edward J. Markey, a Representative in Congress from the 
  Commonwealth of Massachusetts, opening statement...............     1
    Prepared statement...........................................     3
Hon. Candice Miller, a Representative in Congress from the State 
  of Michigan, opening statement.................................     5
Hon. Jay Inslee, a Representative in Congress from the State of 
  Washington, opening statement..................................     7
Hon. Emanuel Cleaver II, a Representative in Congress from the 
  State of Missouri, opening statement...........................     8
    Prepared statement...........................................     9
Hon. Jerry McNerney, a Representative in Congress from the State 
  of California, opening statement...............................    10
Hon. Marsha Blackburn, a Representative in Congress from the 
  State of Tennessee, prepared statement.........................    11

                               Witnesses

Ms. Joan Claybrook, President, Public Citizen....................    13
    Prepared Statement...........................................    16
    Answers to Submitted Questions...............................    92
Mr. Reuben Munger, Chairman and Co-founder, Bright Automotive....    27
    Prepared Statement...........................................    30
    Answers to Submitted Questions...............................    96
Dr. Peter Morici, Professor of International Business, Robert H. 
  Smith School of Business, University of Maryland...............    37
    Prepared Statement...........................................    39
    Answers to Submitted Questions...............................    99
Mr. Geoff Wardle, Director of Advanced Mobility Research, Art 
  Center College of Design.......................................    43
    Prepared Statement...........................................    45
Mr. Richard Curless, Chief Technical Officer, MAG Industrial 
  Automation Systems.............................................    58
    Prepared Statement...........................................    60
    Answers to Submitted Questions...............................   101


INNOVATION, JOBS, AND ENERGY INDEPENDENCE: REINVIGORATING THE DOMESTIC 
                             AUTO INDUSTRY

                              ----------                              


                       TUESDAY, DECEMBER 9, 2008

                  House of Representatives,
            Select Committee on Energy Independence
                                        and Global Warming,
                                                    Washington, DC.
    The committee met, pursuant to call, at 10:04 a.m., in room 
2175, Rayburn House Office Building, Hon. Edward J. Markey 
(chairman of the committee) presiding.
    Present: Representatives Markey, Solis, Cleaver, McNerney 
and Miller.
    Staff present: Jonathan Phillips.
    The Chairman. Welcome to the Select Committee on Energy 
Independence and Global Warming.
    This week Congress will vote on whether to extend a 
lifeline to a broken domestic industry teetering on the brink 
of bankruptcy. The same companies that fought seat belt 
requirements in the 1960s, air bags in the 1980s, and fuel 
economy for more than three decades have returned, hat in hand, 
unable to survive the month without a taxpayer intervention. 
Once untouchable symbols of American industrial might and 
ingenuity, it has become clear the Detroit Three have ceded 
leadership to the innovators and are now running in fear.
    Consumers and businesses around the world are tightening 
their belts to survive the current economic crisis, and some 
are being driven to bankruptcy. But make no mistake, the 
fundamental reason the Big Three need life support today is 
their inability to move from Car 1.0 to Car 2.0 over the past 
half century. A business model premised on bigger cars, wider 
highways, and more oil is a failed equation. Any recovery of 
these companies will require more than just fresh cash. It will 
require a change of culture, a culture that answers challenges 
with innovation rather than lobbying and litigation, a culture 
that tries new ideas rather than crushing them.
    I believe Detroit can be reborn. The brainpower and 
technical brilliance are still there. The hardworking men and 
women in the factories are willing to sacrifice and do their 
part to ensure the companies' survival. The domestic industry 
needs to pick itself up and use this moment as an opportunity 
to transform, not incremental change, but a total conversion 
that reorients these companies towards raising the standards of 
automotive excellence and reversing decades of decay and 
complacency. But the deal must be a fair one for the taxpayers, 
and it must be a policy supportive of innovation and 
technological change over the long term. And it must destroy 
forever the industry's fear of change.
    I have reviewed the pending draft legislation that would 
make available $15 billion in emergency loans and require the 
Big Three to withdraw pending lawsuits against the States that 
support adopting California's greenhouse gas emission 
standards. I commend that provision and strongly believe that 
Congress must go one step further and grant the waiver to 
California, which would allow California, along with 13 other 
States that want more efficient, less polluting vehicles, to 
require them. Recent analysis by the National Resources Defense 
Council of the plans submitted to Congress by Ford and General 
Motors shows that these companies are likely to achieve the 
California targets by 2015. It only makes sense to put into law 
what companies have said in their plans they are going to do 
anyway. That is accountability.
    Last year, as part of a landmark energy bill, Congress 
enacted a $25 billion program to help the auto industry 
transition to building the efficient, high-tech cars of the 
future. It is the Green Car Factory Fund. That is really what 
we should call what we are doing. However, due to President 
Bush's intransigence on using a piece of the $700 billion 
financial bailout to pay for the auto industry package, we are 
now forced to raid the Green Car Factory Fund. This is like 
borrowing from a kid's college fund. The program represents the 
technological future of our Nation's transportation sector. 
This fund must be replenished, and it needs to happen soon. 
Failure to repay it in a timely manner will mean more of the 
same, Car 1.0, and the vehicles of the future will remain 
distant dreams, and our foreign oil dependence will only 
intensify.
    We are very fortunate to have a panel of experts that 
understands the problems the industry is facing and has a 
vision for its future. I thank them for being here, and I look 
forward to hearing their views.
    [The statement of Mr. Markey follows:]

    [GRAPHIC] [TIFF OMITTED] 62131A.001
    
    [GRAPHIC] [TIFF OMITTED] 62131A.002
    
    The Chairman. I would now like to recognize the gentlelady 
from Michigan Mrs. Miller for an opening statement.
    Mrs. Miller. Thank you very much, Mr. Chairman. I certainly 
want to thank you for holding this very important hearing on 
the energy independence implications for the proposal to extend 
emergency bridge loans to the domestic auto industry and really 
what it will mean to the industry as well. I look forward to 
hearing from our distinguished panel very much.
    I appreciate the comments that you made, Mr. Chairman, in 
your opening statement, and I would say that the domestic auto 
industry will take the challenge that you have laid before us 
and other Members of Congress have laid before our industry as 
well. And I think, to put this in perspective, I would like to 
just point out and ask that we would consider for a moment the 
entire history of this very cornerstone industry and really 
what it has meant for the United States of America.
    Actually, during World War II--and I mean I come from 
southeast Michigan, and everybody there--everything ratchets 
off the auto industry very much for our State, in full 
transparency. But during World War II, Michigan was known as 
the arsenal of democracy. People have heard us say that, but it 
is because when our Nation and our freedom were in dire 
jeopardy, our domestic auto industry literally had the 
manufacturing capability to build the armaments that led the 
entire world to peace. You had Henry Ford churning out B-24 
bombers one an hour at Willow Run, which is still a functioning 
airport there in southeast Michigan. We actually didn't even 
build vehicles for 2 years during the war effort because we 
were so totally engaged in the war effort, whether it was 
planes or tanks or jeeps or everything that our Nation needed 
really to be able to protect and expand freedom and liberty and 
democracy. I think that should be pointed out.
    As well, when you think about the middle class of America, 
I think it would be a very difficult argument to be made that 
AIG or CitiGroup or whatever have created the middle class of 
America. They may have created the upper class, or assisted 
with the upper class, but the middle class was really created 
by the domestic auto industry. When you had millions of 
Americans who joined the middle class, they got quality health 
care, earned secure retirements, and were able to send their 
children to college and build a better life.
    I think that much of what has happened to the auto 
industry, they have not--obviously, mistakes have been made, 
but everything that has happened, the problems have not been 
created by them. Many of the problems that they are facing have 
been in large measure because what has happened on Wall Street.
    I would also point out again in this historical look back 
in history, really, to remember after the absolutely horrific 
attacks on our Nation of 9/11, at a time when the terrorists 
really wanted to bring our economy to collapse. That was a big 
part of why they attacked our Nation in the way that they did. 
It was the domestic auto industry, led by General Motors, I 
would point out, who came out with the Keep America Rolling 
Program. They offered zero-interest financing and rebates, et 
cetera, to keep people working and economic activity going so 
that we would deny the terrorists one of their primary goals, 
again, crippling our national economy.
    Now, the domestic auto industry is leading the way to new 
technology and innovations that will build the auto industry of 
the future; innovations that will provide dramatic leaps in 
fuel economy and which will help reduce greenhouse gas 
emissions and make America much more energy independent.
    General Motors, Ford, and Chrysler have already invested 
billions of dollars in these technologies. In fact, Ford is 
estimating by 2011, 50 percent of all of their vehicles will 
either be hybrid or flex-fuel, which is a wonderful statistic 
to be able to talk about. Additionally, General Motors is 
making great progress toward the introduction of the Chevy 
Volt, which will be the first extended-range, electric-powered 
vehicle that is expected to be in showrooms in 2010, and the 
domestic auto industry has already created many other 
revolutionary technologies that will lead us to the auto 
industry of the future and the energy independence that all 
Americans desire.
    If any one of these companies were allowed to fail, it 
would not only have catastrophic effects on our economy in the 
loss of American jobs, but those very same technologies that 
these American companies are on the verge of producing that 
will make America the technological leader of the new green 
automotive technology and that will help foster our goal of 
energy independence will not reach the American consumer. We 
will lose the progress made on innovative projects such as the 
lithium ion battery and other fantastic opportunities; and we 
will abnegate American leadership positions to foreign 
competitors. If we truly want energy independence in America, 
led by American innovation that creates good American green-
collar jobs, we do need to act on this bridge loan, and act 
now.
    Could I have another minute, Mr. Chairman?
    The Chairman. Without objection, yes.
    Mrs. Miller. Thank you.
    We certainly heard from the CEOs of the Big Three auto 
companies again late last week, and they have submitted quality 
plans to Congress on how they would use these loans and how 
they are progressing toward the technologies that all of us are 
desirous of. There certainly seems to be a consensus building 
now about the bridge loan, and I look at that obviously as a 
very, very important thing.
    I believe that the bridge loans will allow some breathing 
room until the new Congress and the new administration can take 
office next year to work on longer-term solutions that will 
establish a much more vital industrial policy in this Nation 
that can help our entire manufacturing industry to thrive. We 
all know that doing nothing is not an option. We do not want 
the demise of the Big Three automakers, but also many of the 
suppliers which are leading as well toward the technological 
innovation that I have just talked about.
    We have a great panel here today. I certainly want to in 
particular welcome Mr. Richard Curless, who joins us. He is the 
chief technical officer of MAG Industrial Automotive Systems, 
which is an international machine tool manufacturer, and has 
substantial operations in my district as well. They are 
actually the only remaining U.S. power train supplier to the 
auto industry, and they are the third largest machine supplier 
in the world as well.
    Again, I look forward to Congress voting affirmatively on 
the bridge loan. Hopefully, that will happen in the next couple 
of days. And I look forward to hearing the testimony of the 
witnesses. Thank you.
    The Chairman. Great. The gentlelady's time has expired.
    The Chair recognizes the gentleman from Washington State, 
Mr. Inslee.
    Mr. Inslee. Thank you. Thanks to the Chair for having this 
hearing.
    We cannot rescue companies today if they are going to die 
tomorrow. I believe that unless we adopt whole new propulsion 
systems, whole new drive trains, whole new systems of energy 
and fuel, that is what is going to happen to our domestic auto 
industry.
    I am hopeful that in the next several months, not just this 
week, but several months, the Congress will respond to this 
magic moment where we will either see the ultimate demise of 
our domestic auto industry if it does not adopt these whole new 
generations of propulsion systems and fuels, or the U.S. 
assuming again its rightful place as the most innovative 
industrial engine in the country, or in the world.
    I want to point out what it is at stake right here. I am 
looking at a Wall Street Journal article of October announcing 
that the Chinese BYD Company would begin sales in November of 
their all-electric car with a range of 110 kilometers when 
fully charged. We look at the Renault Company that is signing 
contracts with the Better Place Company, that is now totally 
electrifying the transportation fleets of Israel, Australia, 
Denmark, and now San Francisco. We have to get in this game 
nationally or we will be left at the starting post with bridges 
to nowhere.
    So I want to point out that I am hopeful that this Congress 
will adopt the measures that will assure that the United States 
gets in this international game at the last possible moment.
    Let me give you an example why I think it is the last 
possible moment. We have a company that makes lithium ion 
batteries in the Midwest, and right now it is the only 
potential manufacturer domestically of lithium ion batteries. 
They got an offer for about $300 million from China to 
essentially move their company to China. We are in the cusp of 
trading addiction to Middle Eastern oil for addiction to 
Chinese lithium ion batteries. So we need to make sure that 
this industry responds to this opportunity by going to the 
future, not being tied with the past.
    I sent a letter November 17th, and I will submit it to 
Chairman Frank, suggesting six measures: an open fuel standard; 
investments in alternative fueling infrastructures; energy 
efficiency requirements; a Cash for Clunkers program; full 
funding for plug-in hybrid electric vehicles; and the Federal 
procurement programs. Those measures will assure the United 
States doesn't get left at the post in this international 
competition. I hope we will get this job done. The future of 
this industry depends on it.
    Thank you.
    The Chairman. The gentleman's time has expired.
    The Chair recognizes the gentleman from Missouri, Mr. 
Cleaver.
    Mr. Cleaver. Thank you, Mr. Chairman. We appreciate your 
appearance here before this committee. Hopefully, you will 
provide us with information, ideas, and proposals that will 
help us as we move into some very difficult times.
    I am on the Financial Services Committee as well, and we 
struggled before we approved and set on this $700 billion 
package. Most of the people around the country believe that 
Congress voted on AIG and we voted on Bear Stearns. While that 
troubles me because most people are not really looking at the 
process, I am more troubled because we, as we often do, have 
begun to major in minors.
    The big talk is not about what is important, which is, I 
think, coming up with alternative forms of energy as it relates 
to automobiles, but we are talking about how people arrived in 
Washington. I think it is dumb to fly in, if you are going to 
ask for money, in a private jet, but that is irrelevant. The 
issues that we need to deal with I think we are going to deal 
with. I mean, after all, those of us on this committee usually 
don't fly our planes in to meetings. We will just take 
commercial airlines like regular people. But I am concerned 
about what we need to do to make the automobile industry 
viable.
    I am from Kansas City, Missouri. We have two plants in my 
district. Seventy-two hundred people work there, not to mention 
all of the people who are connected to the manufacturing arm of 
General Motors and Ford. I am not interested at all in seeing 
them lose their jobs, which I think will impact all kinds of 
other industry there.
    The package should not be limited to only loan emergency 
credit to the Big Three auto manufacturers to get out of this 
short-term crisis. It should also encourage our American 
companies to further retool their plants and produce much more 
energy-efficient, higher-mileage cars that are less prone to 
the volatilities of the oil market.
    Everyone is for progress; it is the change they don't like. 
The proposals that we are going to have to embrace will require 
change. Things cannot continue as they have gone. I do think 
that there have been some efforts made, but I think we have 
clearly not moved as quickly as we could have to put on the 
highways the kinds of cars that Americans are buying, with 
titles like Toyota and Datsun.
    And so as we go through this hearing, you will, of course, 
be asked in any number of ways what you would recommend. 
Closing down the automobile industry in this country is not an 
option. No one would burn down their house to get rid of a rat. 
No one would cut off their nose because they are having a bad 
hair day.
    I think that if we cannot see through this, then this 
Nation is not as great as we all believe it to be. And so we 
look forward to your testimony. Thank you.
    [The information follows:]
    [GRAPHIC] [TIFF OMITTED] 62131A.003
    
    The Chairman. The gentleman's time has expired.
    The Chair recognizes the gentleman from California, Mr. 
McNerney.
    Mr. McNerney. Thank you, Mr. Chairman.
    The situation today is very frustrating because the Big 
Three have fought us tooth and nail against producing the kind 
of cars that we need to make to meet America's needs. As 
mentioned by the Chairman, they filed lawsuits, they have 
flooded the Congress with lobbyists, and all this is to fight 
change and innovation, including California's clean air laws. 
They filed lawsuits, and they prevented us from moving forward 
on that score. So now, today, they are sitting here demanding 
billions of dollars or else they are going to lay off 5 million 
workers. This is a significant threat.
    Part of my district was the epicenter of the financial 
crisis we are facing. We have had 10 percent unemployment for 
decades, so we know economic pain, and we know that we don't 
need any more of it.
    Now, before we make decisions we are going to be making 
this week, I want to hear from what the panel has to say, what 
the alternatives look like, what we can decide to do besides 
giving billions of dollars to the Big Three, what alternatives 
are there out there that make sense for us. So I am looking to 
you to answer that question.
    And also we heard this morning that the auto industry got 
some credit for keeping the Nation rolling after 9/11, but I 
can tell you what they did was perpetuated our dependence on 
imported oil. So we need to look at this as an opportunity to 
transform our transportation system in a way that meets the 
needs of the 21st century.
    So a lot is sitting on your shoulders to inform us what we 
can do. Thank you very much.
    [The prepared statement of Ms. Blackburn follows:]
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    [GRAPHIC] [TIFF OMITTED] 62131A.005
    
    The Chairman. We will now turn to our very distinguished 
panel. Our first witness this morning is Joan Claybrook. She is 
the president of Public Citizen, where she has a been a 
consumer advocate and overseer of good government for more than 
25 years. Before that, she was the Administrator of the 
National Highway Traffic Safety Administration in the Carter 
administration, the period during which fuel efficiency and 
auto industry bailouts were also hot issues of the day.
    We are honored to have you here with us, Ms. Claybrook. 
Whenever you are ready, please begin.

 STATEMENTS OF JOAN CLAYBROOK, PRESIDENT, MASSACHUSETTS PUBLIC 
    CITIZEN; REUBEN MUNGER, CHAIRMAN AND CO-FOUNDER, BRIGHT 
 AUTOMOTIVE, ANDERSON, INDIANA; PETER MORICI, ROBERT H. SMITH 
   SCHOOL OF BUSINESS LOGISTICS, BUSINESS AND PUBLIC POLICY, 
   UNIVERSITY OF MARYLAND; GEOFF WARDLE, DIRECTOR, ADVANCED 
  MOBILITY RESEARCH, ART CENTER COLLEGE OF DESIGN, PASADENA, 
 CALIFORNIA; AND RICHARD CURLESS, CHIEF TECHNICAL OFFICER, MAG 
   INDUSTRIAL AUTOMATION SYSTEMS, STERLING HEIGHTS, MICHIGAN

                  STATEMENT OF JOAN CLAYBROOK

    Ms. Claybrook. Mr. Chairman, I would like my testimony 
submitted for the record.
    The Chairman. Without objection.
    Ms. Claybrook. I am going to adjust it a little bit because 
the legislation that is now on the table to be enacted by the 
Congress this week has just come out. I didn't have a chance to 
deal with that in writing my testimony.
    I would like to say that I have worked on auto industry 
issues since 1966 when I first came to Washington, D.C., and I 
worked for a member of this committee on the legislation 
creating the National Highway Traffic Safety Administration, 
and within 3 months of getting here, I was nicknamed the Dragon 
Lady by the auto industry because I was pushing for Federal 
legislation of safety by this industry.
    I was interested to note that just this week General Motors 
published an ad in Automotive News apologizing to the public 
for its failure to carry out its obligations really to the 
public for fuel economy and other improvements in their 
vehicles.
    I think that what I would like to just mention particularly 
is that we do favor having a bailout of this industry, but a 
bailout with lots of conditions, and those conditions are 
listed in my testimony. Most important in those conditions 
should be that there is strong and tough oversight to make sure 
that this industry uses the money well and comes to the 
conclusions that the American public wants.
    We did not favor taking the money out of the 2007 law, 
section 136, which is the innovative fund, because we believe 
that that is an extremely important fund to help not only the 
manufacturers, but the suppliers, who are the real innovators 
in this industry. And we talked to Speaker Pelosi's office, and 
she said the money would be refunded through the stimulus 
program that is coming forward.
    So the three areas that we are concerned about are 
accountability and with a car czar of stature who will oversee 
this and also to make sure that there is a return on the 
investment to the public by the improvements in vehicles, and 
then, particularly important, safety and environmental 
considerations.
    Now, I looked at the bill, and I would just like to 
highlight the things that are not in the bill that we think 
should be in the bill. And I am sorry they are not in my 
testimony because we didn't have a chance to read it then.
    The first is there is nothing about safety in here. The 
auto manufacturers for years have complained that the reason 
they couldn't make more fuel-efficient vehicles is because it 
would cause unsafe vehicles, and that is malarkey because most 
of the improvements in fuel efficiency come from technology. It 
is not all smaller vehicles. Plus, the fact that with the 
safety improvements such as air bags and so on and the 
structure of the vehicles that absorb the energy of the crash, 
safety is about the same for most vehicles today that are 
manufactured today, including the smaller-size vehicles. So 
safety is a technology issue as well. We think it ought to be a 
piece of this. It ought to be mentioned.
    Secondly, on page 7 of the legislation, subsection 
6(a)(1)(b), there is a definition of ``interested parties.'' It 
has employees and retirees and trade unions and creditors and 
suppliers and auto dealers and shareholders, but doesn't have 
anything about experts on emissions and fuel economy and 
safety. We think that ought to be in the definition of an 
interested party because that is what this bill is all about is 
the failure of the manufacturers to really listen to the people 
who have advocated this for so many years.
    Third, we think that the so-called dual-fuel credit, which 
is a 1.2 MPG credit that the manufacturers got stuck in the law 
many years ago for a very discreet, short period of time and 
then was extended by the Energy Act, should be eliminated 
because in calculating the fuel economy, if they have a dual-
fuel vehicle, they don't have to meet 1.2 MPG of the required 
standard. In the NRDC calculation, Mr. Chairman, that you used, 
they presume that they didn't have that 1.2 MPG.
    We believe, as you do, that the waiver should be granted in 
California. I think in the new administration that they are 
going to grant that waiver at EPA. Why not take care of it now?
    One of the most important things is the auto industry has 
made promises, promises. Promises to have all air bags in all 
cars by 1975, the President of General Motors Ed Cole said. 
Promises to have greater fuel efficiency, all the auto 
manufacturers said in 2000. By 2005, they would have a 25 
percent increase. Then they didn't do it. Then they said they 
were going to have side head air bags. Then they didn't do it. 
They did it in some vehicles. Again and again promises that 
have not been carried out.
    Anything we want these manufactures to do should be in the 
law. It has to be in the law, because if it is not done, then 
organizations like Public Citizen and NRDC and others can sue 
and force this to happen, and there won't be the delay that 
there traditionally has been when there have been promises and 
everyone has relaxed and said, Great, and they don't do it.
    Another thing that I think would be really important to put 
in here is a requirement that Federal procurement and 
encouragement for fleet procurement by private companies 
purchase the best vehicles that these manufacturers make, 
because I did that when I was head of the National Highway 
Traffic Safety Administration to get air bags on the highway. 
Ford Motor Company agreed to make 5,000 air-bag cars before 
they were generally available to the public. It is a good help 
to the manufacturers to have Federal procurement of their 
better vehicles.
    I believe that there ought to be a person from the Federal 
Government on the board of directors of each of these 
manufacturers that gets a bailout loan, because it is on the 
board of directors that you really see as much of the inside of 
a company as you are ever going to see. That was something that 
the UAW had worked out with the Chrysler bailout, and I think 
it ought to be in this legislation.
    Those are the major things that I think are missing.
    Finally, the last thing is that the requirement for meeting 
fuel economy here is only to meet the 2007 law, which is a 
meager provision, as the Chairman and I have debated on a prior 
occasion. It is 35 MPG by 2020. That is not enough. We have 
been talking about having 25 percent above that. That is not--
at least the way I read this bill, it is not in this bill. And 
it should be in this bill that if they are going to get these 
loans, they have got to go beyond the 2007 law and do at least 
a 25 percent increase.
    Now, that is what they say in their plans they are going to 
do. Right? But that is in their plans. Remember, promises, 
promises. They do promises, promises. We don't know that that 
is ever going to happen.
    So the other point and the other reason for doing it is 
that the manufacturers--when I first went to see Ford Motor 
Company, one of the vice presidents pulled out a long drawer 
and had a long list of requirements they had to meet, and he 
said, This is how we make our vehicles. We meet these 
requirements. Well, if it is not in the law, it is only a 
promise, it is not going to be on the list. So let us make sure 
it is on the list and make it a requirement in the law.
    Thank you very much, Mr. Chairman, for the opportunity to 
testify.
    The Chairman. Thank you, Ms. Claybrook, very much.
    [The statement of Ms. Claybrook follows:]
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    The Chairman. Our next witness is Mr. Reuben Munger, 
cofounder and chairman of Bright Automotive. His Indiana-based 
startup company is developing a high-volume, purpose-built, 
highly efficient plug-in hybrid electric vehicle. We look 
forward to your testimony, Mr. Munger.

                   STATEMENT OF REUBEN MUNGER

    Mr. Munger. Thank you, Mr. Chairman and members of the 
committee. Bright Automotive appreciates the opportunity to 
testify before you this morning.
    Chairman Markey, I am Reuben Munger. I am chairman of 
Bright Automotive. We are, as you mentioned, a startup 
automotive company based in Anderson, Indiana.
    I have a written statement and ask that it be submitted for 
the record, and I will summarize that statement here.
    The Chairman. Without objection.
    Mr. Munger. My statement also provides written answers to 
some of the committee's questions.
    I am joined today by John Waters, chief executive officer 
of Bright, and Lyle Shuey, vice president of marketing and 
sales. Both gentlemen have over 20 years of automotive 
experience. This is a typical situation among our team. It 
includes experienced members with time at Chrysler, General 
Motors, Delphi, and Johnson Controls. The key aspect of this 
industry is they are experts who understand and know how to 
deliver on what this country needs in the way of advanced 
vehicles.
    We are at a unique moment of time where there is an 
alignment between the national and industrial interest. The 
goal here is for me to discuss a little bit about what Bright 
has found to be possible. We are responding to a congressional 
mandate and to a public challenge to make better vehicles that 
are more efficient, that are cost-effective, and that are 
greener, and, by building those vehicles, to provide new 
sustainable jobs in the automobile industry.
    Bright is a startup company whose mission is to bring to 
market advanced vehicles. We were launched as a stand-alone 
company out of the Colorado-based Rocky Mountain Institute, the 
outcome of a longstanding nonprofit-based consortium that 
included partners like Johnson Controls, Alcoa, Google.org, and 
the Turner Foundation. Our flagship product, the first of 
several from a common platform, is a plug-in hybrid electric 
vehicle which will go for up to 100 miles per gallon. That is a 
five times improvement over the best-in-class competitor in our 
class.
    Bright is on track to be in production at an annual rate of 
50,000 vehicles per year by 2012, and to grow from there. As a 
new startup, Bright will ramp to scale, and do it immediately. 
Our focus is on optimizing platform physics. Beyond just an 
advanced power train, it is a combination of lightweighting, 
best-in-class aerodynamics, low-rolling resistance tires, 
sustainable materials, and that advanced electric power train 
that combine to provide truly breakthrough opportunities.
    To make the vehicle of the future, you can't begin with an 
existing or normal platform. Retrofitting and adaptation is 
only part of the solution. You need to begin from scratch and 
build from the ground up. This solves some of the economic and 
efficiency challenges that are presented by advanced batteries 
and technologies.
    Bright adopted a longstanding ``listen to the customer'' 
approach. We spoke to numerous vendors, drivers, program 
managers, users, and other customers of our vehicle across more 
than 20 States so that the customer, the user of our vehicle, 
helped us design our first program. We see the future of the 
auto industry as a smart electrified fleet that intelligently 
communicates with the grid, incorporates heavy renewable 
sources, and accelerates the decarbonization of two of the 
largest U.S. energy consumers, transportation and 
electrification/buildings.
    In order to increase efficiency of the U.S. vehicle fleet, 
industry needs to focus on new platforms and materials; develop 
and bring to scale batteries, motors, and power electronics; 
and prepare for the ecosystem of innovation. Bright's new 
vehicle platform does each of these things. The technologies 
available and necessary for this transformation are here. The 
path forward is merely one of implementation and execution.
    On December 19, 2007, 10 days short of a year ago, the 
President signed into law the Energy Independence and Security 
Act of 2007. This law recognized it was in the national 
interest to have a more efficient vehicle fleet. Congress, 
realizing that this presented enormous challenges to the 
industry, created section 136 of that law, which you, Mr. 
Chairman, refer to as the Green Car Factory Fund. This advanced 
technology program----
    The Chairman. I get tired of people calling it 136. It is 
what it is, the Green Car Factory Fund. If people would call it 
that, then the public would understand what the fight is over.
    Mr. Munger. This loan program is being administered by the 
Department of Energy. The Green Car Factory Fund is cited in 
all the plans of the Detroit Three as a key component of 
funding their compliance with new efficiency regulations.
    Section 136 is a critical component of the transformation 
of the industry. It has the potential to be the catalyst for 
achieving positive change. As an example of that, Bright 
Automotive last week submitted our proposal for a loan under 
this fund. It is a critical component of the path forward for 
companies like us, as well as the Big Three. You have seen 
numerous applications under the program.
    Our Nation's small business has a longstanding and proud 
tradition. It is the financial and economic backbone of this 
Nation. It is also the incubator of new ideas, new challenges, 
and new industries.
    Bright Automotive is a small business, a startup company 
that accepts the challenges of the day. It is dedicated to the 
design and production of a new cost-efficient, effective, next-
generation vehicle that has the potential to revitalize the 
automobile industry, to serve our customers, and to put people 
to work, and in the process make our Nation and our world a 
better and greener place.
    I appreciate your attention and thank you for the 
opportunity to speak to you.
    The Chairman. Thank you, Mr. Munger. By actually using that 
phrase, it shows your company gets this. They know what this is 
all about.
    [The statement of Mr. Munger follows:]
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    The Chairman. Our next witness, Dr. Peter Morici, a 
professor of international business at the University of 
Maryland. Prior to joining the university, he served as 
Director of Economics at the U.S. International Trade 
Commission. He has years of experience overseeing the Trade 
Commission investigations, and has provided useful guidance to 
Congress along the way.
    We thank you, Dr. Morici, for being here. Whenever you are 
ready, please begin.

                   STATEMENT OF PETER MORICI

    Mr. Morici. Thank you, Mr. Chairman. My university and I 
are deeply honored that you have invited me here to testify 
before a committee with such an important mission and with such 
a distinguished panel. Three weeks ago, I testified with the 
CEOs of the three largest automakers. It is somewhat refreshing 
to be among people who talk about what can be done, not what 
can't be done.
    The automobile industry, despite its various warts, is 
central to the health of the U.S. economy and essential to any 
effort that we might have to accomplish reductions in 
greenhouse gases; to reduce our dependence on foreign oil, 
which is a very choking dependence; and to recover from the 
recession that now plagues the Nation. The tailpipe offers 
among the greatest opportunities to reduce emissions and to 
also create a vital export industry because of all of the 
components that will go into the next generation of cars, which 
you called it the 2.0 platform.
    Seemingly exotic forms of propulsion are about to become 
commonplace on the American highway. Within the next 10 years, 
we will see vehicles that people thought are were very far away 
very close at hand. I have driven the hydrogen vehicle at Ford. 
It is very practical. Its basic problem is it costs too much to 
make. Hybrid vehicles are much closer, and they will prove to 
be plug-in hybrids that transition to all-electrics, and then 
hydrogens and so forth. And this is very good.
    The United States needs personal transportation. Our 
patterns of settlement and urbanization make mass 
transportation impractical for most commuters, and even more 
impractical for noncommuting travel, which is a much larger 
component of day-to-day car use than we realize. We are going 
to have these new vehicles one way or the other. The question 
is whether the United States makes them, whether they are made 
here, and whether they are made by U.S. car companies or 
foreign companies either here or abroad.
    The U.S. automobile has two components: the Detroit Three, 
which make almost one-half of the vehicles we use, and the 
transplants. Both are vital to the regions where they are 
domiciled. However, the Detroit Three, frankly, use many more 
components and embody more technology made in America and more 
high-quality jobs than when we buy vehicles from the 
transplants, so their future is important to us.
    I would say this to you, that right now as they stand they 
are not competitive. They claim they will be in 3 or 4 years. I 
do not believe that on the basis of what they have shown me. I 
don't believe that giving them a bailout will make them 
competitive no matter how many conditions we attach. The 
Congress is very good at writing laws. I don't know that it is 
very good at the proceedings of a bankruptcy court. What these 
companies need to do is go through Chapter 11, or at least have 
the threat of Chapter 11 with regard to the stakeholders to 
bring them into line to get the results that they need. They 
just have too much debt, and a labor agreement that doesn't 
work, and, frankly, management that doesn't see the future 
clearly enough, although there is considerable variability 
among the Detroit Three in that regard.
    My feeling is if you bail them out, they will politicize 
the process, find some way around the restrictions. They will 
find a way to lobby the system. If they don't do it, the union 
will do it for them, and we will end up over time with an 
industry that is still less cost-competitive; and when we 
finally, after hundreds of billions of dollars, decide to cut 
them loose and go through Chapter 11, it will be a smaller 
industry than it is now, and we will save fewer jobs by 
reorganizing them. The sooner we give them the cure, the more 
jobs we will save.
    That said, there are a lot of things that the Congress 
could do to improve the competitiveness of making cars in North 
America and in the United States. For one thing, we could do 
something about currency manipulation, not just in Japan and 
Korea, but China and other places where components are being 
made.
    We can have the clunker subsidy that one of the Members has 
mentioned; that is, when you trade in your clunker, you get a 
tax rebate of some kind. I would make it larger depending on 
the size of the vehicle and the age of the vehicle. If you 
bring me a brand-new Tahoe, you get a bigger subsidy. If you 
bring us a 30-year-old Chevette, you get the smaller subsidy, 
as long as it goes through the crusher so we never see it on 
the road again.
    Congress could provide substantial development assistance 
to U.S.-based automakers to make more fuel-efficient cars. I 
would provide this to all the automakers, Toyota, Nissan, 
Honda, the whole bunch; the battery makers, anybody who wants 
to be involved, under the condition that they share their 
patents with one another for reasonable fees; the Japanese 
model of the 1970s and 1980s. You get to participate in the 
development and research, but if you get a new patent, you have 
to share it with your competitors for a reasonable fee so we 
accelerate the development of these vehicles. The conditions 
for participating would be that you undertake your R&D here, 
and you do your first round of production here, your full-scale 
mass production, in the United States.
    These kinds of smart industrial policies, along with smart 
additions to the power grid, which are going to be absolutely 
necessary to plug in this gentleman's vehicles, I think could 
give us a fuel-efficient export industry for the future. I 
would suggest to you it would probably be run by very different 
people than are running it right now.
    Thank you.
    The Chairman. Thank you, Dr. Morici, very much.
    Mr. Morici. Mr. Chairman, could you have my full statement 
put in the record?
    The Chairman. Your full statement and the full statement of 
all of our witnesses will be included in the record.
    [The statement of Mr. Morici follows:]
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    The Chairman. Our next witness is Mr. Geoff Wardle, the 
director of advanced mobility research at the Art Center 
College of Design in Pasadena, California. The school is one of 
the world's leading automotive design schools and has produced 
the heads of design at BMW, Nissan, Ford, and other companies. 
Mr. Wardle has spent more than 25 years as a professional 
designer in the industry and as a design educator.
    Thank you for joining us, sir. Whenever you are ready, 
please begin.

                   STATEMENT OF GEOFF WARDLE

    Mr. Wardle. Good morning, Mr. Chairman and members of the 
committee. I appreciate this opportunity to talk about these 
issues right at a time when perhaps we are entering a new era 
of thinking about transportation and energy policy. I think 
that future transportation and energy policy are inextricably 
entwined.
    I would also like to point out today I am joined by my 
colleague Dave Muyres, who coauthored the written testimony 
that was circulated to you. Mr. Muyres is the vice president of 
educational initiatives at Art Center College of Design.
    We have similar but separate backgrounds as professional 
car designers, and now educators, where we are focusing our 
passion, design passion, on research and advocating future 
sustainable advanced mobility and transportation solutions. And 
so we would like to bring design and its creative processes and 
big-picture systems thinking to these discussions on Detroit.
    In our written testimony we make four major recommendations 
on how to deal with the rescue plan for General Motors, 
Chrysler, and Ford, but we are here to confirm that the 
business model of the traditional American automobile industry 
is broken. The future of personal mobility is no longer just 
about cars. So insisting that the auto industry develops 
energy-efficient vehicles is, by itself, not an adequate 
prerequisite for financial assistance, in our opinion.
    I think it is fair to say, though, that the legacy auto 
industry does an exceptionally good job of designing, 
developing, and making vehicles that, unfortunately, people no 
longer really want. Meanwhile, there are startup companies like 
Tesler; Aptera; Bright Automotive, represented here; and Fisker 
that are financially challenged to get products that Americans 
do need into manufacture and into market. So we would recommend 
using some of the bailout funds to deploy idle manufacturing 
capabilities of the legacy companies to enable the startups to 
get their already developed products to market sooner rather 
than later, and on a meaningful scale.
    America's current transportation network is based on the 
Futurama Vision that was showcased at the 1939 New York World 
Fair. We are now well overdue for a brand-new Futurama Vision, 
but a vision that does not rely on cheap energy, vast 
quantities of raw materials, destruction of natural habitats, 
and disregard for climate change, human safety, and quality of 
life.
    So we also recommend that some of the funding should go 
towards a far-reaching, nationwide, smart and sustainable 
network of transportation systems. This will also provide much 
of the new business for an overhauled and revitalized Detroit, 
simultaneously providing a guaranteed customer for these new 
products that they would make.
    Finally, some of the money should go toward setting up a 
powerful independent commission that will define and develop 
policy for these sustainable transportation systems that 
America badly needs to replace its current outmoded model. We 
have referred to this independent commission in our written 
testimony as a think tank, but, in retrospect, we realize 
probably that is not the most appropriate term for what we have 
in mind. What we do have in mind is a multidisciplinary group 
of forward-thinking transportation-minded specialists that 
should include engineers, transportation designers, 
sociologists, urban planners, scientists, architects, 
environmental designers, manufacturers, and economists, who can 
bring a really broad insight into what our future 
transportation needs really are.
    This multidisciplinary group of forward-thinking 
transportation-minded specialists would enable, as I say, great 
oversight into what our true transportation requirements are. 
Thus, we would have a much clearer picture of the role the 
automobile industry would play in that. The future role of 
designers in industry will also move just beyond designing new 
vehicles. Designers already understand that new transportation 
solutions are more about complete systems. We have to think 
about complete systems.
    Finally, I would like to conclude by saying that we think 
that the debate nationally currently seems to revolve around a 
rescue plan for the next 100-days. We strongly feel that this 
discussion needs to be centered on the next 100-years. Thank 
you.
    The Chairman. Thank you, Mr. Wardle, very much.
    [The statement of Mr. Wardle follows:]
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    The Chairman. Our final witness is Mr. Richard Curless, the 
chief technological officer at MAG Americas. His company is one 
of the largest component suppliers for the domestic auto 
industry, and he personally brings a lifetime of expertise in 
the machine tool industry to our hearing here today.
    We welcome you, sir. Whenever you are ready, please begin.

                  STATEMENT OF RICHARD CURLESS

    Mr. Curless. Chairman Markey, Congresswoman Miller, who 
asked me to testify here today, and members of the committee, 
good morning, and thank you for having me participate in this 
hearing.
    My company, MAG Industrial Automation Systems, is the 
largest machine tool company here in the United States. We are 
the only U.S. machine tool company remaining that has the 
technological breadth and skill sets to meet the equipment and 
process needs of our U.S. automotive companies.
    U.S. companies like MAG are critical to automotive, energy, 
aerospace, and other manufacturing industries. Automotive 
couldn't efficiently produce engines and transmissions without 
MAG processing technology and machinery.
    Today's equipment is nearly 300-percent more efficient and 
flexible than just 10 years ago. In aerospace, MAG has served 
as a pioneer in the supply of composite machines that are 
producing the airplanes of the future for major companies such 
as Boeing and Airbus, as well as many of their suppliers.
    MAG's machinery and process R&D is a critical enabler for 
supplying new technologies in manufacturing that will make 
companies more competitive, create jobs, and assure long-term 
success. Our high-end industries must implement lower-cost, 
efficient, long-term manufacturing solutions, and the solutions 
must be green. Our United States factories must be healthy and 
advanced in their performance.
    With the continuing rise of the world population and its 
use of energy, fossil fuels will continue to grow in scarcity. 
In order to combat a shortage in fuel, vehicles will have to be 
designed and produced that use alternate fuels and consume less 
energy.
    MAG wants to take our know-how and develop solutions that 
will help the automotive industry manufacture these new, fuel-
efficient automobiles at a much lower cost than they are able 
to do today. As best we can, our company tries to offer our 
manufacturing solutions to the automotive companies. However, 
it is difficult to work with them because they buy cheap parts 
from the Far East and often will source their equipment needs 
strictly on global price and not necessarily to get the best 
technology for the future. They must be cost-competitive, but, 
with shortsighted goals, will spend money for the moment and 
not for the long run.
    Providing bailout money to the automotive industry is 
absolutely the right thing to do, but it must be done with 
strong conditions. The entire supply chain must be considered. 
R&D, parts, assemblies, and so on need to be part of a long-
term solution involving American labor and know-how. Providing 
the funds and watching the funds go overseas is not an 
effective solution. Today, as an example, if you were to 
consider the flow of funds, for every $100 taken in by the 
automotive companies, $30 go overseas for purchase of 
materials. Equipment, R&D, other purchases add additional 
dollars going overseas.
    The automotive transplants coming to the United States are 
a great benefit to our economy, offering new assembly jobs. 
However, what about the supply of equipment and parts for these 
transplants? For Japanese transplants, these opportunities go 
straight back to Japan. For example, MAG receives no orders 
from these Japanese companies. On the other hand, MAG does very 
well working with some of the best automobile companies in the 
world, including companies out of Germany, France, and Korea, 
to name a few. Every country in the world is offering 
incentives to their technology provider companies and doing all 
possible to encourage collaboration. Grants and tax forgiveness 
are part of those countries' strategy to be sure their 
manufacturing base will be sustained and grow. The U.S. needs 
the same type government support programs to survive. The 
automobile industry is the place to start.
    Taxpayer funding must require, by means of incentives or 
guidelines, that the funds be used to buy U.S. technology. U.S. 
manufacturers and suppliers need to have access to low-interest 
project funding. Funding programs need to be available to these 
companies serving as a catalyst to develop new manufacturing 
technologies and processes, and taxpayer funding to foreign 
transplants should require buying U.S. technology.
    The government's decision has a serious impact on the 
creation of transportation solutions for the future. Not 
investing in these technologies will cause the U.S. to 
jeopardize their superpower status and soon become dependent on 
foreign nations for the technology that defines one of our many 
freedoms, the automobile.
    The $25 billion in the Department of Energy Green Car 
Factory Fund is required for retooling. GM, Ford, and Chrysler 
and their suppliers will not be able to retool their factories 
without these funds. If the money is used for general cash flow 
issues, it must be replaced, or the alternate energy will be 
severely compromised.
    The countries that can manage their energy needs will be 
superpowers of tomorrow. Companies with forward-thinking 
technologies such as lightweight CGI engines, carbon fiber body 
panels and power train components, carbon fiber hydrogen 
storage tanks, advanced high throughput machining, and so on, 
will be the automobile companies of the future. Those that do 
not adapt fast enough will fail.
    Mr. Chairman, members of the committee, thank you for 
having me speak here today and to share openly and honestly our 
company's views for addressing the proposed automotive bailout 
and what it could mean for more energy-efficient automobiles 
and other transportation vehicles. It is critical that whatever 
decisions are made will be to assure a long-term, sustainable 
and growing economy for the United States of America.
    Thank you.
    The Chairman. Thank you, Mr. Curless, very much.
    [The statement of Mr. Curless follows:]
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    The Chairman. I will turn to questions from the committee. 
The Chair will recognize himself.
    Ms. Claybrook, what do you think about an idea of tying 
these loans to an interest rate for each one of the companies 
depending upon how successful they are in moving to more 
efficient vehicles that are constructed? For example, if a 
company beats their efficiency requirement by 1 mile per 
gallon, they get a quarter of a point reduction in interest 
rate; or if they are making 200,000 all-electric vehicles by a 
certain date, that they get a half a point or a whole point 
taken off of their interest rate. What do you think about that 
as a positive incentive for companies to move in that 
direction?
    Ms. Claybrook. I think it is a great idea. I just think 
that the fuel economy number that they have to meet has to be 
higher than what is in the law for 2007 before you would do 
that. So I hope that the bill will be amended to require a 25 
percent increase over 2007, and that be the starting point.
    The Chairman. What do you think, Mr. Munger, of this idea 
of tying the interest rate to how successful they are so it is 
a positive incentive to exceed whatever the baseline is that we 
establish for them to meet?
    Mr. Munger. Mr. Chairman, I think it is an interesting 
idea. An extension of that that I have been talking about with 
a few people is if you set a high enough baseline where there 
is actually a forgiveness of some of the loans if you achieve a 
very high level of efficiency, in effect you pay back the 
industry for some of the national savings in reducing oil 
consumption. The orders of magnitude, when you spread it across 
the size of some of these fleets, of doubling efficiency could 
cause 100 million barrels of oil of forgotten demand in a year, 
and that could pay back, you know, on the order of magnitude 
something similar.
    The Chairman. Dr. Morici, what do you think?
    Mr. Morici. First of all, you have to set it high enough.
    The Chairman. We agree with that. Assuming that is the 
case, if they exceed that goal.
    Mr. Morici. What I want to talk about, what's high enough.
    The Chairman. Assuming they exceed that goal.
    Mr. Morici. I want to talk about what is high enough, and 
that is that they just can't accomplish it by tweaking the 
internal combustion engine, that they have to be using 
alternative platforms to get it done without specifically 
requiring it. There is so much that can be done just with the 
engines that we have. We don't want them to retune them a bit 
and get some money back. We want them to start to earnestly 
make a transformation to hybrids, and do it in a way that they 
get rewarded for it, and that is fine.
    The Chairman. So that is what I said. If they make a 
quarter million all-electric vehicles.
    Mr. Morici. Figure out what the number should be.
    The Chairman. You like that concept though.
    Mr. Wardle.
    Mr. Wardle. I think we all respond positively to 
incentives. The trick will be to make sure the numbers are 
right. I would also like to point out in the long term it is 
not just fuel efficiency or energy efficiency that we have to 
address, we have to address other issues of sustainable 
industrial activity. I think those same incentives should be 
applied to that as well.
    The Chairman. Mr. Curless.
    Mr. Curless. Yes, I agree milestones need to be 
established, and the amounts that we talk about need to be 
considered along with those milestones.
    The Chairman. Mr. Munger, you have testified that your 
intention is to produce 50,000 of your electric vehicles by the 
year 2012. General Motors is touting the fact that they are 
going to build 10,000 Volts in 2010, and maybe 50,000 to 70,000 
in 2011. How can Bright Motors be on the same exact track 
almost as General Motors and you don't even have a factory yet? 
How can you be so bold as to make such a statement?
    Mr. Munger. Thank you, Mr. Chairman. I think that the key 
that--Bright has done a very thorough analysis of figuring two 
things: One, really understanding what our customer is 
interested in; and, two, by focusing on the total vehicle 
platform, we have achieved a cost level that is much more 
attractive than what news reports suggest around the Volt.
    The Chairman. As you look at General Motors and the Volt, 
does that send a chill down your spine in terms of your 
vehicle's competitiveness?
    Mr. Munger. We are not going to be directly competitive 
with the Volt.
    The Chairman. What segment are you in?
    Mr. Munger. We are a larger-format vehicle. Light trucks. 
SUVs and minivans instead of a passenger car. There is actually 
a lot of opportunity to gain efficiency in those larger 
vehicles.
    The Chairman. Is there, Mr. Wardle, a company that is going 
to directly compete with the Volt, that you know of, that we 
should have some confidence will be there in the marketplace?
    Mr. Wardle. I suspect there is competition from overseas 
companies close to the Volt. Some of the companies have 
products that I think would be extremely competitive with the 
Volt, if they can get them into production soon enough.
    Mr. Morici. Both Toyota and Ford have plug-ins in the 
pipeline as well. It is the same concept.
    The Chairman. You don't seem very optimistic about the Big 
Three in the long run. Do you really believe any amount of 
money that we can give to them is going to be sufficient to 
allow them to be competitive in the long run? Right now General 
Motors only has 85,000 hourly workers. How many hourly workers, 
using your analysis, do you think they will have in 3 years?
    Mr. Morici. I don't have that number, but I know that it 
will continually decline even if they are productive, even if 
they become competitive, because it requires fewer hourly 
workers to make an automobile each year.
    It is an inexorable process. It is like your personal 
computer. My feeling is that the technology is there to be 
competitive, and the products are in the pipeline there to be 
competitive. If you look at Ford and you ask them, well, why 
didn't you have these products 2 years sooner if you look at 
their plan, and they have a very good answer. They have a very 
different management team than they had 3 or 4 years ago. And 
the management team they had 3 or 4 years ago very much looks 
like the management team that General Motors and Chrysler has 
right now, wedded to the SUV and the truck and all the rest of 
that.
    But my feeling is the technology is there. If you could 
take them through the Chapter 11 process and shake them down 
and shake them out and restructure their debt and all the rest 
that they could get it done. And I don't think the Congress can 
simulate that. And I think Rick Wagoner's scare tactics are 
unfortunate, but I think it is possible to do.
    The Chairman. Thank you.
    Mr. Munger, if the Green Car Factory Fund is empty or 
closed to you and your company and companies like your company, 
how would that affect your timeline and overall viability?
    Mr. Munger. It would certainly delay our process. We were 
pursuing a pretty aggressive and attractive private capital 
path. The credit disruptions that have hit everyone, we are 
having struggles around that just like all the other innovative 
companies that have been referenced here today. So the Green 
Car Factory Fund is an accelerator. You know, the amount of 
money required to push quickly certainly get enabled by that 
fund to get things done faster.
    The Chairman. And, Mr. Curless, could you answer that 
question in terms of how you think it affects the competitors 
to the Big Three?
    Mr. Curless. Well, I think it is definitely a requirement. 
Because capital is very difficult to come by, and these loans 
are going to be really critical for just not the Big Three but 
the others as well.
    The Chairman. If the others can't have access to that 
money----
    Mr. Curless. Then it is going to create a difficult 
situation for them. That is for sure.
    The Chairman. And how many companies do you think that 
would affect?
    Mr. Curless. Maybe four or five.
    The Chairman. Four or five companies?
    Mr. Curless. Yeah.
    The Chairman. And in a lot of ways that could ultimately 
represent a hundred thousand new jobs in a relatively brief 
period of time, huh?
    Mr. Curless. Right. Correct.
    The Chairman. When you are making 150,000 of these 
vehicles, sir, how many employees do you anticipate that you 
will have?
    Mr. Munger. We have a direct employee base of about a 
thousand employees between the factory and the headquarters and 
development staff. And then, because it is a largely outsourced 
model for a number of your supply partners, that is probably 
another 2,000 employees working on the body or the engine or 
various components of the vehicle.
    The Chairman. Okay. Thank you.
    My time has expired. The Chair recognizes the gentleman 
from Washington State, Mr. Inslee.
    Mr. Inslee. Thank you.
    Mr. Munger, in this bailout plan, as far as you have seen 
it, is there any benefits to your organization at all? The one 
that is being proposed?
    Mr. Munger. As far as I have seen on the draft legislation 
that came out last night there isn't anything. You know, I 
think particularly the money that is in the green factory fund 
needs to be returned to it. It would be really beneficial I 
think to the smaller companies to make it clear that, you know, 
the legislation already reads that there is an opportunity for 
them to apply, but if the Congress found it in their wisdom to 
actually create a set-aside for those small companies that 
would be very beneficial.
    Mr. Inslee. Right. By the way, I would love to yield to 
Mrs. Miller if she is prepared.
    Mrs. Miller. That is fine.
    Mr. Inslee. That is fine. Thank you.
    So if we deplete the Green Car Factory Fund and send it to 
those who are in this dire financial strait and not assist you 
who have a--what many of us hope to be a very viable product, 
how would we defend that?
    That is a rhetorical question, but----
    Mr. Munger. I am interested in how you will, sir.
    Mr. Inslee. So is there a proposal and should we consider a 
proposal to accelerate some assistance to what we will say are 
the little guys in the race, yourself included with Tesla and 
some of the other companies that have been mentioned? Has that 
group, the little guys in the race, have they made any proposal 
that they be part of this tranche, if you will, that is going 
out the door in the next 30 days?
    Mr. Munger. I don't believe a proposal around that has been 
made, but I think there have been proposals to create that 
allocation to small companies and to encourage the Department 
of Energy to act quickly. If there are funds in the program, 
they could allocate loans immediately.
    Mr. Inslee. Given the relatively small scale, it would seem 
to me that would be doable, would it not? I mean, you are 
talking about small percentages of the amounts that would go to 
the Big Three that would still have a large impact with your 
capital needs in the next 6 months, would it not?
    Mr. Munger. Yes, it would. Ten or twenty percent would 
certainly fund five to ten Brights.
    Mr. Inslee. So is this group making any proposal in this 
regard?
    Mr. Munger. We will pursue that.
    Mr. Inslee. Well, to me--I mean, you look at there is the 
Chevy Volt, there is the Bright product, there is Tesla, there 
is several others, there is a guy on Bainbridge Island making 
an all-electric car named Bob Fraik, who is a neighbor of mine 
who lives two miles from where I am. Okay? Why isn't he 
involved, have some option to get capital from the Federal 
Government? He is paying his taxes, too, frankly.
    And I think your options for success may be as great as the 
Big Three's. So, to me, it is a little troublesome to take care 
of only the larger players here when we know that innovation 
can come from two bike makers in Dayton, Ohio, who built the 
first airplane. I have to tell you that troubles me, and I 
would encourage you to at least think in those terms.
    I actually talked to Tesla last week about some ideas in 
this regard, because I think America wants to go forward here, 
and we want to take care of the employees of these existing 
companies. But we want to see growth as well.
    Anyway, I just encourage you. I think it is worth thinking 
about.
    Ms. Claybrook, can I ask you about the idea of increased 
requirements for increased mileage for access of this? What do 
you do about the argument of the Big Three that if we had an 
increased mileage condition to get these receipts of these 
funds that that would put them at a competitive disadvantage, 
and they are already in a weakened position? And is a response 
to simply increase the mileage standards for everyone, whether 
you take the money or not?
    Ms. Claybrook. Well, of course, we would love to see that. 
We have urged increased fuel economy requirements for a long 
time. In this bill, though, I think that the plans that the 
manufacturers submitted, which do show an increased capacity 
for fuel economy, should be mandated. Their plans should not 
just be their plans, but they could change--they get the money 
today and they change their plans tomorrow.
    So that is the first and foremost most important thing. And 
so we would certainly like to see the increase, you know, for 
everybody. But it is not going to put them at a competitive 
disadvantage. Because they are now at a competitive 
disadvantage because they have not invested in technology and 
innovation, and they have taken the cash cow SUV and used all 
the money, and they still have a debt at General Motors of $66 
billion. So they need to have products that people want to buy. 
That is what we have been talking about today.
    So I think that it only helps them to have these tough 
requirements, because they don't want to miss the bet here. And 
they are scared to death--and they should be--that they are not 
going to be a manufacturer 2 years from now.
    So to say, okay, you are going to make this a priority, I 
would put safety in that number as well, because they have been 
fighting the same kinds of safety requirements for roof crush 
and rollover and children, protecting children and side head 
impact and other things.
    Just the other day the Department of Transportation delayed 
the implementation of a standard that was issued a couple of 
years ago on side impact protection. So when they are 
redesigning these vehicles they should do the whole job as one 
piece.
    When I was NHTSA Administrator, we designed an experimental 
safety vehicle. And it was in 1977. It met the 1985 fuel 
economy standards, and they were tough. And it also had 
improved safety.
    When you redesign a vehicle you should do the whole thing 
at once. So I believe this will only help the manufacturers, 
not hurt them. And I would be happy to see those standards 
adopted for all cars, all vehicles.
    Mr. Inslee. Thank you.
    The Chairman. The gentleman's time has expired.
    The gentlelady from Michigan, Mrs. Miller, is recognized.
    Mrs. Miller. Thank you very much, Mr. Chairman.
    You know, we feel a little defensive being from Michigan. I 
can't even get my microphone to work. I guess that is sort of 
indicative here.
    But we feel a little defensive, obviously, in Michigan. And 
we look at what has happened with the bailouts, the $700 
billion TARP bailout. And I will also say for the record that 
we feel that it would have been optimal to have any loans for 
the domestic auto industry coming out of that bailout fund, 
rather than coming out of the Green Car Factory Fund, which I 
also agree section 136 is not very descriptive of it.
    Unfortunately, the optimal was not possible. And as we look 
at this now--and I also say we feel as though there has been a 
double standard. I recognize that there have been mistakes 
made. However, we on the Hill here, you have the domestic auto 
industry that is almost in a capacity of abject groveling, it 
seems like to us. And that is why I went through my litany of 
some of the historical significance of this industry to our 
Nation and why I think it is so important and why we want to be 
a critical component of our Nation going forward in every way.
    But perhaps the Big Three shouldn't have--you know, it 
wasn't a very good PR move to be flying here on their corporate 
jets. The good thing for the guys from Wall Street that got all 
this money, they never had to come to Washington to ask the 
money. You know, those guys that helicopter in from the 
Hamptons every day, you know, they didn't even have to come 
here and ask for any money because it was hand-delivered to 
them.
    And I hear people saying, you know, Wagoner has got to 
resign and so on and so forth. I don't hear anybody talking 
about the president of Citigroup that got in the neighborhood 
of $40 billion so far, I think, that maybe he ought to resign. 
There is no talk of any of that.
    And I also think that in some ways because of what has 
happened here in our Nation and the response of Congress with 
the bailouts, et cetera, that the industry, the domestic auto 
industry has gotten caught up a bit in bailout fatigue. That is 
very apparent here on the Hill.
    But, at any rate, hopefully there is a deal and a 
compromise that has been agreed to. We hope there is going to 
be enough votes. I think you are going to see a restructuring, 
and I think the country is going to have a high degree of 
confidence as we go forward that we have gotten the message, 
and things are going to change, and all the stakeholders are 
going to do what we need to do to make this a competitive 
industry.
    I guess my first question would be for Mr. Munger, and you 
mentioned that your company had actually made a--submitted a 
proposal for some funds. Could you flesh that out a bit for me? 
I am just curious, if you could, how much did you apply for and 
how would you utilize those funds?
    I believe the batteries that you are using right now are 
made in China. I only mention that because we see all of these 
other countries that have an auto industry are bailing out or 
loaning money to their industry. It was mentioned about the 
lithium ion batteries. I think last year the nation of Japan 
spent over a billion dollars on R&D for lithium ion batteries, 
not just for their vehicles but for their electronics, et 
cetera. And in our country we have expected the auto industry 
to do all of this themselves. But how would you actually spend 
some of the money out of that fund?
    Mr. Munger. Certainly. Thank you for the question.
    We applied for a $450 million loan under the Department of 
Energy loan program. Those funds are as purposed for OEMs to 
finalize vehicle engineering and fund, you know, sort of 
engineering validation work as well as pay for tooling and 
construction of our facility. And, you know, to your question 
regarding the battery, we actually are discussing options with 
multiple battery suppliers.
    Mrs. Miller. In America?
    Mr. Munger. We have encouraged some of the people we are 
talking to to actually apply under that program to make sure 
they get a facility built here in America.
    Unfortunately, section 135, which is a battery focused 
fund, wasn't funded. But the battery companies that have worked 
here in the United States are focused on section 136 as 
component suppliers to vehicles to try to get their facilities 
built here in America.
    I think the Congressman from Washington made a good point 
that we don't want to transition our dependence on foreign oil 
to foreign batteries, and Bright Automotives is open to 
economically buying from domestic suppliers.
    Mrs. Miller. Okay. Dr. Morici, as an economist, let me just 
follow up a little bit on this, on the concept of whether or 
not any of the Big Three would go through bankruptcy, whether 
that be Chapter 11 or Chapter 7 or liquidation that may follow 
with some of those kinds of things and what the cost actually 
would be to the Nation for such a thing.
    We feel as though bankruptcy is a bit different--I mean, I 
have no problem getting on an airline that has declared 
bankruptcy and is in the process of reorganization, et cetera. 
However, I might have a different concept of purchasing a 
$40,000 vehicle from a company that may be in bankruptcy or 
close to bankruptcy if I have consternation about warranty and 
service work and all these kinds of things. We think it is a 
bit of a different animal.
    But we have had economists that have theorized that the 
costs to the country of bankruptcy could be as much as four 
times what we are talking about here for loans when you think 
about unemployment costs, when you think about the cost to the 
PBGC, some of these kinds of things. And I guess my question 
would be, as an economist, have you looked at any other 
previous situation? Is there any analogy that we could use with 
some historical benchmarks of an industry like this where there 
has been governmental intervention, now all of this oversight, 
everybody is an expert on the industry now? I mean, I know 
there has got to be changes made, but all of these various 
things, and how did it work out, and how do you think this is 
going to work out?
    Mr. Morici. Well, I wonder whether you have answered your 
own question to some degree.
    When we talk about bankruptcy, it could be many different 
concepts. A prepackaged Chapter 11 would ensure that suppliers 
are paid, so there wouldn't be that breakdown, so the industry 
essentially wouldn't shut down.
    The transplants by themselves cannot produce enough 
vehicles to satisfy U.S. demand even at 10 million vehicles a 
year. So these factories are not going to go out of existence. 
They are going to be used. The question is, who uses them and 
how?
    In Chapter 7, the factories are worth much less to the 
existing creditors than if they continue in production. So the 
logical sources of credit for a Chapter 11 debtor-in-possession 
bankruptcy are the existing banks who have already received 
considerable largesse from the U.S. Government and could likely 
finance it. After all, we have given them $8 trillion in loan 
guarantees when the problem was caused by $2 trillion worth of 
collateralized debt obligations; and I am still trying to find 
the other $6 trillion.
    In terms of governments becoming so heavily involved in the 
management of industries, we, to my knowledge, don't have 
peacetime analogs. However, I would ask you to look at the 
experience they had in Britain and France with nationalized 
industries of various kinds in the '50s, '60s and '70s and 
ended in tears. Essentially, if you try to manage an industry 
with all of those experts involved, you become involved in 
management by committee; and you don't get a good outcome.
    I am not in favor of shuttering the industry. After I 
testified, I called up Ford and I said, no reasonable person 
wants you guys to shut down. However, the question is not 
whether we reorganize them but how do we reorganize them to 
ensure that we get the outcomes that we need?
    I think there is a very grave danger, I think, of what was 
suggested here this morning. If we impose mileage requirements 
on the Detroit Three that are not imposed on the Japanese and 
the price of gasoline falls to $1.50 a gallon and stays there, 
we put them at a competitive disadvantage. So we have to apply 
it to everybody. That may or may not be politically possible. 
But it is one example of the kinds of complications that we 
could become engaged in.
    And there is the other issue of the politicization. You 
asked a very rhetorical question. Why is no one calling for 
John Thain's ouster this morning? I would suggest you might ask 
serious questions about campaign contributions and things of 
that nature for the committees involved in overseeing them. I 
know that is--I don't want to cross the line and become 
impolite, but I find it remarkable that members of the United 
States Congress called for Rick Wagoner's resignation--and I 
have not been known to be a big fan of Rick Wagoner--but they 
have called for his resignation after he asks for $12 billion, 
and Merrill Lynch has gotten how many hundreds of--you know, 
and there is John Thain arguing yesterday in front of his board 
for $10 million subsidies. You know, I suggest the easiest way 
to solve this problem is for Ford to make themselves a bank, 
take some deposits, pay themselves too much money, and go over 
to the Senate Banking Committee and ask for help.
    Mrs. Miller. Thank you.
    I know my time has expired, and I appreciate the Chair's 
indulgence.
    The Chairman. The gentlelady's time has expired.
    The Chair recognizes the gentleman from Missouri, Mr. 
Cleaver.
    Mr. Cleaver. Thank you, Mr. Chairman.
    Dr. Morici--well, first of all, let me associate myself 
with the comments of the gentlelady from Michigan. I do think 
we have a double standard. I do think, you know, the people who 
go to work with lunch buckets are not receiving the kind of 
respect as the people who drive to Broad Street in New York 
City.
    But to go back to Chapter 11, the issues that I am 
concerned about, as I believe the gentlelady was, just the 
stigma of Chapter 11, no matter what other components are put 
in place, I think would do damage to the--whichever of the Big 
Three, whether it is Ford, GM and Chrysler or not, people are 
going to back away from those automobiles. Don't you think 
that? I mean, we are backing away from them already.
    Mr. Morici. If we repeat it over and over again, it becomes 
a self-fulfilling prophecy. If Rick Wagoner tells everybody 
they shouldn't buy his own cars and you tell them they 
shouldn't buy his own cars because there is a stigma, then they 
won't.
    Please hear what I am saying. The country cannot get along 
with those factories closed. We cannot produce enough vehicles. 
So if they are in Chapter 11 reorganization with debtor-in-
possession financing and the suppliers are being paid, there is 
reasonable expectation established that they will continue in 
operation. Not only that, we can provide third-party 
warranties.
    When you go down to Circuit City this Christmas season and 
buy a stereo or whatever it is that you want for your kids and 
you buy a store warranty, it is not being guaranteed by Circuit 
City. It is being guaranteed by a third party. These warranties 
can be insured. And if we explain that to people, then that 
will change the psychology.
    But Rick Wagoner saying that Chapter 11 is not possible, 
even though his board says he should consider it; and running 
around the country saying my warranties will be no good if I am 
chapter 11 creates that environment.
    So, you know, I guess what I am getting back to, the real 
question is, how do we do this? Because they are going to have 
to be reorganized. So the question is, how do we do this? And I 
would suggest that the bankruptcy courts have a comparative 
advantage in imposing the conditions that are necessary to get 
us from here to there, that the Congress is very good at many 
things, but running a car company it is not. And the lessons of 
Europe when they tried to run car companies and steel companies 
and coal companies is it didn't work out very well there 
either.
    Mr. Cleaver. So would you support the car czar, which is 
apparently the direction----
    Mr. Morici. If you are going to give them the money, how 
could I not support the oversight? What I am suggesting is it 
is not prudent to give them the money based on what they have 
said to you so far. You give them this first $15 billion and 
you better draw two lines on the budget right above HUD for 
Ford and General Motors, because they are going to be back year 
after year looking for money. They are not competitive now, and 
they will not become competitive if you give them that cash. 
You cannot spend $1.25--spend $1.25 on lemons, sugar, and water 
and sell lemonade for a dollar a glass and make money. And that 
is what they are trying to do right now. Their costs are simply 
too high.
    Mr. Cleaver. Now do all of you agree that the Big Three 
will attempt to avoid complying with the letter of the law that 
is in the language that will be considered later this week, 
hopefully? I mean, do all of you believe that they will do 
everything in their power, in spite of agreeing now, but at a 
later date will begin to try to backtrack?
    Ms. Claybrook. I use the term ``promises, promises'' in 
terms of fuel economy and other things. I have seen auto 
industry plans come before the Congress and before the 
regulatory agency with promises; and when it wasn't locked into 
either law or regulation, they changed their mind.
    I think that the situation today is somewhat different 
because their life is on the line now, and they know that, and 
it is not just this year, it is this year and next year and the 
next 5 to 10 years. And also they know there is going to be 
extreme oversight of how they spend that money and what 
products they produce. So I think it is more likely that they 
are going to do everything that they can and to comply, but I 
still think that they ought to have the clarity about what it 
is that they are supposed to do in terms of meeting fuel 
economy. And that is why I think it ought to be in the law.
    But I don't think they are going to set about to undermine 
this. And I wouldn't be at all surprised if, after the money is 
granted, which I believe it will be now, that Rick Wagoner will 
step down and there will be somebody else there so that this 
issue about the leadership will change.
    And the other two companies--well, particularly Ford--does 
have younger and more innovative management now than they have 
had in the past. So whether or not we tell them to change, the 
government tells them to change, I don't think that that is a 
good idea. And I think that if there is a concern about a 
particular manager there ought to be negotiations and 
expressions of concern.
    Mr. Cleaver. I think all three of them are troglodytic in 
their management style.
    Ms. Claybrook. Right.
    Mr. Cleaver. But my question I guess is, if this is a 
unique moment, which I think all of us would agree, then why 
not go all the way? Why not--would all of you agree to raise 
the CAFE standards in the legislation?
    Mr. Morici. If it applies to everyone, sir.
    Mr. Cleaver. I am sorry?
    Mr. Morici. If it applies to everyone, not just them.
    Ms. Claybrook. Yes.
    Mr. Morici. I would also say to you we have had other 
unique moments in history. For example, when we had the Asian 
currency bailout, we imposed all kinds of conditions on 
Thailand and Korea and all those. But after they got their 
money and got healthy again, they went on their merry way and 
manipulated their currencies.
    I would suggest to you that you can get all the promises 
you want out of General Motors, but you are dealing with an 
enormous entity with an enormous cultural resistance to change 
and that you are going to have a lot of trouble writing it all 
down. I know you have the best of intentions. I really do. But 
I just don't think you can change General Motors from here. And 
if you give them the cash, they will do what they have to to 
get it from you, and you will find they will be back over and 
over again. This is going to cost you hundreds of billions of 
dollars. Get ready for it.
    Ms. Claybrook. I would just like to disagree and say, when 
the fuel economy standards were issued in 1977, that these 
companies made major changes; and they knew they had to or they 
were going to pay huge penalties. So another issue is that 
there are very significant penalties in the law if they don't 
meet these higher fuel economy standards, in addition to 
everything else that is in this legislation. And they did--
General Motors did a major, major change in their fuel economy. 
They doubled their fuel economy. And from 1977 to 1985 they 
doubled the fuel economy of their vehicles.
    Now, they started with a low number, but there are still 
lots of opportunities for innovation here, and there are some 
fabulous engineers in this industry. And I do agree that the 
management needs to change, but I think that there is capacity 
to do it.
    Mr. Cleaver. One final question, though. I mean, I agree 
that we need strong penalty provisions in the law. The problem 
is you can't penalize people who are broke. You know, can we 
pass legislation to put----
    Ms. Claybrook. It is already in the law. It is already in 
the law.
    Mr. Morici. Joan, just because something is in the law 
doesn't mean someone is going to do it. If you have a financial 
penalty and they have no money to pay, you can't get money from 
a man with empty pockets. If they are going to go out of 
business if you don't give them the cash and you say, well, I 
want you to do X, Y, and Z or I will take the cash away, they 
are coming here to make up the difference between what their 
revenues and their costs are. You are right. It doesn't make 
sense.
    Ms. Claybrook. But I think that you have to argue, as has 
been argued here, that it is going to really hurt the 
purchasing of these vehicles if they go into bankruptcy.
    Mr. Cleaver. The only thing that would probably trouble 
them is we say if you violate the letter of the law in this 
legislation you will have to play football for the Detroit 
Lions. I mean, that would probably be the worst thing we could 
do. They are broke. I mean, there is nothing else to do.
    I yield back the balance of my time, Mr. Chairman.
    The Chairman. I thank the gentleman.
    And it was nothing personal there, Ms. Miller. The Patriots 
are hurting this year, too. We are struggling with the loss of 
our quarterback. Without good leadership, it is difficult to 
make it to the Super Bowl.
    The gentleman from California, Mr. McNerney.
    Mr. McNerney. Thank you, Mr. Chairman.
    I want to reiterate that I think this is a great 
opportunity for us as a Nation to look at our transportation 
system and start planning how we can make it better for the 
next century. Now, is Detroit capable of participating in this 
change? That is the question that is in front of us. I like to 
think that it is, and I hope that we can find a way to make 
that happen. But it is not a given in my mind, by any means. 
They have this culture that we have talked about, but, on the 
other hand, we have a big stick here. So I think we have an 
opportunity to do what is needed.
    Your inputs have been appreciated. I am kind of intrigued 
by your technology, Mr. Munger. Could you tell me a little bit 
about what you mean when you say 100 miles per gallon? Is that 
sort of a hard figure or is that sort of a squishy plug-in 
figure?
    Mr. Munger. You have highlighted one of the issues around 
electrification. You know, you have a choice in deciding what 
kind of propulsion you want. You can have an internal 
combustion gas-fueled engine, you can have a pure electric 
vehicle, or you can have a plug-in hybrid. And the issue is one 
of range. And a pure electric has range constraints. So when 
you run out of battery, you need to find a place to recharge 
it.
    To solve that, we have proceeded with a plug-in hybrid. 
Because the cheapest way to get range is actually through an 
internal combustion engine. Because the average vehicle drives 
40 miles or less a day, we tried to optimize with the minimum 
amount of battery to achieve the most efficiency.
    We have a 30-mile pure electric range, and then the vehicle 
proceeds to drive in hybrid mode and would be about 40 miles 
per gallon. So on a 50-mile day, as an example, you would use a 
half a gallon of gas, getting to that hundred mile per gallon 
number. That is a calculation that is similar to what GM has 
been using around the Volt. And that is----
    Mr. McNerney. So there is a standard way to make that 
calculation?
    Mr. Munger. The industry is working towards it, yes.
    Mr. McNerney. Okay. What is the limitation in terms of you 
getting to where you need to be by 2014 or 2012, the number--
the year that you gave for the production of your vehicle?
    Mr. Munger. The primary limitation for us moving forward is 
capital.
    Mr. McNerney. Capital.
    Mr. Munger. The availability of funds for a $550 million 
program.
    Mr. McNerney. So the battery technology is not a limitation 
in your mind?
    Mr. Munger. You know, we have a very deep team in battery 
technology. John Waters behind me was one of the first builders 
of a plant to provide lithium ion batteries to the 
transportation sector in North America. They sold lithium ion 
batteries into the Segway program out of Delphi. He has been an 
executive in the industry. So we are pretty well aware of what 
batteries are able to do. We do also have a fallback to be able 
to provide a nickel cadmium solution.
    Mr. McNerney. Sure.
    Dr. Morici.
    Mr. Morici. I don't know those guys. I never met them 
before. But 3 years ago about I worked on a project for the 
Defense Department concerning, you know, alternative vehicle 
technologies; and I went through the Rocky Mountain Institute 
stuff and all the rest. The difference between this man and 
Rick Wagoner is no one told him he can't do it. You are looking 
at the future if you let him happen.
    Mr. McNerney. Not bad. Not bad.
    Mr. Morici. It is all there, sir. It is all there. This guy 
is real.
    Ms. Claybrook. What you should do is send a note to the 
Department of Energy and ask them to hurry up.
    Mr. Morici. Exactly. Get the money to this man as quick as 
you can.
    Mr. McNerney. Well, we don't want to go that far in 
promoting a business, but I certainly want to encourage new 
innovation. And one of the things that the gentleman from 
Washington raised a question is, are we going to be dependent 
on batteries from overseas? And that is where we don't want to 
go either. So do you have a comment on that?
    Mr. Munger. You know, I think there are battery 
technologies here in the U.S. that are working to build 
facilities. They have a similar constraint. You know, there is 
a chicken-and-the-egg problem in the industry where capital 
providers want to see them on a program, and program developers 
want them to have a facility. I think maybe you should speak to 
some of the people that were involved in GM's process. I know--
I believe they are going to be applying for section 136 funds.
    Ms. Claybrook. Green Car Factory Funds.
    Mr. Munger. Maybe we should submit for the record that we 
change that name of that program to the Green Car Factory Fund.
    The Chairman. Thank you.
    Mr. Munger. But there are efforts under way to get that 
capacity and technology here into the U.S. You know, people 
realize that building them here is important.
    Mr. McNerney. One other question. In what ways do the 
future of the auto industry require the resources of the Big 
Three? So you are proposing that you ramp up production and so 
on. What do we need from the Big Three if we were to move 
toward smaller businesses? I mean, there must be some part of 
that infrastructure that is needed to carry out the 
transportation needs of our country.
    Mr. Munger. In our specific case, we have been working 
actually and talking to all three of the Detroit Three. We have 
an interest in procuring some of the parts that they use. We 
have talked to them about buying efficient engines. We are not 
trying to innovate with a new internal combustion engine. They 
buy and build lots of them. They have excess capacity in some 
of their parts. And so we found them to be very productive 
partners in some of those dialogues.
    I think you have to recognize that they do have really good 
engineers, really good designers. There is a lot of skill set 
within those companies that is critically important to the 
industry as a whole.
    You know, I don't want to get into what the structure of 
deploying those resources should be. But, you know, I don't 
think we should lose sight of the amount of capacity, 
knowledge, and understanding that exists within those companies 
because they are important in that light.
    Mr. McNerney. Thank you.
    With that, I yield back.
    The Chairman. Great.
    The gentleman's time has expired. The Chair recognizes the 
gentlelady from California, Ms. Solis.
    Ms. Solis. Thank you, Mr. Chairman.
    I am really excited to be here to hear this discussion with 
all of you having your various opinions. I represent a very 
interesting part of the State in California, Southern 
California, which is just a catastrophe right now in terms of 
air pollution and congestion; and we desperately need help in 
terms of our fleet vehicles.
    I want to just pose a question. No one here has talked 
about the infrastructure. In California right now, we have an 
initiative by our governor, Republican Governor Arnold 
Schwarzenegger, who says he wants us to turn to fuel-efficient 
vehicles, but we don't have enough stations there to provide 
that capacity. There hasn't been enough moneys made available 
to allow for these sorts of traditional stations that need to 
be set up in appropriate places. So it is beyond me that we can 
talk about new cars and what have you, but if we don't have an 
infrastructure that is ready, available, and willing to make 
themselves available and accessible to our public, then what 
incentive is there for people in Los Angeles to move in that 
direction?
    That is one question.
    The other one, I represent a very poor working class 
district; and auto parts resonates with me in terms of where 
people have to get their parts. I hear that a lot. They have to 
go overseas, and then the reliability of those parts is not 
very good. They are not very efficient. They break down. You 
have to spend more money. I would hope that we can somehow 
begin to address that portion, that we begin to refocus our 
energies and maybe look at how we can develop those parts here 
and keep those jobs here.
    And then the green collar jobs aspect of it all. I know in 
South Central Los Angeles there was an experiment that is still 
going on with Toyota. Toyota wasn't told by the Federal 
Government to come in and help train workers. They did it on 
their own; and I think they put in maybe a couple of million, 
$7 million I think, to help restart and provide free training 
for individuals in low-income, depressed areas. The Green 
Collar Job Act was really an idea also to try to get people 
into these new industries, not just in putting pieces together 
but also learning the technology.
    I have not heard anything from the Big Three about, you 
know, reinventing themselves in that manner. Because that is 
where I think the market has focused on in the last few years. 
I know they target the Latino community very heavily, the Big 
Three in terms of their SUVs and their pickups. Now we need to 
change that kind of behavior amongst our community as well.
    Toyota has done a great job. They do advertising. They do 
all kinds of things. They give incentives. They do charitable 
work. I don't know that the Big Three have done enough to 
really include communities of color. So those are my issues. 
And I will let you speak.
    And Mr. Munger, one question for you, though. Of the 50,000 
cars that you are going to develop, what is the price, what is 
the unit price for one car, just right off the top?
    Mr. Munger. We have been talking to our customers about a 
price in the high 40,000s. In the high 40,000s, and they would 
save over $5,000 a year in fuel costs.
    Ms. Solis. That is still relatively high for an average 
community like mine, where the gross--well, their annual 
salaries range from 20 to 30,000. So that is not affordable for 
people that I represent.
    Mr. Curless. Let me comment on that, too, about volumes. We 
have been hearing about the 50,000, and that is wonderful. And 
what is going to happen is we need the Big Three to handle 
volume, and we need their understanding of manufacturing and 
technology to get to this volume. Because we are talking about 
millions of cars here, folks, millions of cars, not a hundred 
thousand. So when we talk about, for example, looking at 
automation, just to automate a factory, we don't even want to 
start looking at it until we are talking about a hundred 
thousand parts. And, more typically, I hear about 800,000 
parts. This is the kind of volumes that we are talking about to 
be affordable.
    And if we keep trying to buy this overseas, what do you 
think the foreign companies that our automobile company is 
sitting right next to those parts makers are doing? They are 
getting those parts at a lot less price than we are going to 
pay here in the United States. So we need to bring it here to 
the United States, and we have got to use our technology for 
volumes and for automation and for production.
    Mr. Munger. I just want to jump back on the pricing point a 
little bit. Because I think the question isn't--you know, very 
few of the people you are referring to and customers globally 
actually buy a car in a single lump sum. So what we are talking 
about is actually a transition of paying a high fixed--you 
know, a high price for your gasoline and a lease payment for a 
fixed price more or less that is actually lower on a combined 
basis.
    So there is an education process that needs to take place 
to help people understand what it means to buy these vehicles. 
Because you are essentially paying for your gasoline up front. 
And there are policies that, you know, we have gotten pretty 
clear confidence from our customers that they will pay that 
price, because we do have a different demographic target, but 
also it is really important that, you know, things like 
feebates that transition or charge a fee for inefficient 
vehicles and provide a rebate for the most efficient vehicles 
can help bridge that gap to the consumer to understand it is 
actually an NPV-positive calculation. So they save money over 
the time they own the vehicle, but it is hard for consumers to 
understand that.
    Ms. Solis. Is that mostly for commercial, though?
    Mr. Morici. He is not selling compact cars, though. He is 
selling a much larger commercial vehicle. So we are not pricing 
a $45,000 vehicle against a Mazda Three or a Ford Focus. We are 
pricing it against a much larger vehicle.
    The other thing to remember is that when the Tandy personal 
computer first came out at Radio Shack it cost about $8,000. 
You have to have an opportunity to go down the 
commercialization curve of this technology. If we can start 
making them, then we will make them cheaper. So, you know, some 
patience is required. The automobile started out being a 
vehicle for the very wealthy or a commercial vehicle and then 
it got commercialized. Well, the same thing will happen here.
    As for parts factories that your constituents might work in 
or people that compete with might work in, the single most 
significant thing this body could do to assist them would be to 
fix the Chinese currency problem. That is what is moving all 
these factories over there. It creates a 45 percent subsidy on 
Chinese exports to this country. What is more, in order to sell 
cars in China you have to make them there; and then they make 
you move your parts factories there. That is what we have to 
fix. We don't have a free trade policy with China; we have a 
dumb trade policy. That has to be fixed, or none of this can be 
fixed.
    Mr. Wardle. I would quickly like to respond, if I may, to 
your three questions about infrastructure, spare parts, and 
green collar training.
    I would like to remind the committee that when the Model T 
Ford was introduced in 1908, there were no filling stations. 
You had to buy your gasoline at a pharmacy. So I think it a 
chicken-and-egg situation. As these new kinds of vehicles do 
come into the market, the infrastructure to support them will 
follow.
    When it comes to spare parts, a lot of these new 
generations of vehicles which are predominantly electric drive 
will require less spare parts. Electric motors and the drive 
trains associated with them are a lot less complicated, a lot 
more reliable than the traditional internal combustion engine. 
So your constituents in a few years' time won't be looking for 
spare water pumps and all of the other things that typically go 
wrong with older cars.
    Also, at the beginning of my career--when it comes to green 
collar training, you talked about how Toyota has been training 
and being good stewards. At the beginning of my career, I 
watched the British car industry crumble as the Japanese car 
manufacturers moved into Great Britain; and I saw a sea change 
in management attitudes as these companies came in. They took 
far more care to make sure that their new, often green in 
another sense of the word, vehicle workers, factory workers 
were trained properly. And it brought a completely different 
dynamic. So it is very, very important that the industry takes 
care of training its work forces.
    The Chairman. The gentlelady's time has expired.
    We just have a few members here. I am going to, as a 
result, recognize members for a second round of questions.
    This is a very important and, actually, an historic panel 
in terms of what this discussion represents in terms of what 
our expectations should be for 15 billion, 34 billion, or, as 
Dr. Morici is saying, an infinity sign next to the amount of 
money which the automotive industry is going to request from 
us. Excuse me?
    Mr. Morici. It is very big.
    The Chairman. A big, big number.
    So let me go down and ask each of you this question. In 
testimony last week, Mr. Mulally at Ford and Mr. Wagoner at 
General Motors submitted plans to the Congress. Here is what 
the plans said.
    For Ford, they said that they would make a 26 percent fleet 
improvement by 2012. They would make a 36 percent improvement 
in their fleet by 2015.
    Here is what Mr. Wagoner said that General Motors would do 
for the money, that they would average 37.3 miles per gallon in 
their cars by 2012 and 27.5 miles per gallon for their trucks 
by 2012.
    Now, some very smart people at the Natural Resources 
Defense Council translated these standards into grams of 
CO2 per mile. When they did that, they found that 
these plans actually meet the California standard, which is 
being debated over whether or not there should be a waiver for 
California to impose these standards. So that actually 
translates into an equivalent of 36 miles per gallon by 2015.
    So the question is, going back to Ms. Claybrook, if they 
are testifying to the effect that they can meet that standard 
and they want money from us, and that is what their promise is 
to us, even if as Dr. Morici or others might say they might try 
to wiggle out of it, doesn't it make sense to put their 
promises technologically into the law as the condition of 
getting the money so that at least Ms. Claybrook and others can 
sue them, the NRDC, the Sierra Club and others, if they don't 
meet that standard, so that they know that there will be some 
accountability?
    Let's go down quickly and have each one of you answer that 
question. President Bush is saying he really doesn't want to go 
in that direction. But we are going to have a big debate about 
this in the next 24 hours. That is the question of whether or 
not we should have these conditions or some type of conditions 
attached in terms of what the goals should be of these 
industries from a mandated perspective, given the fact that 
they are saying that they can meet these standards.
    Ms. Claybrook.
    Ms. Claybrook. They should be in the law.
    The Chairman. They should be in the law.
    Mr. Munger, in the law, not in the law?
    Ms. Claybrook. In the law for all companies, by the way.
    The Chairman. In the law for all companies. Good.
    In the law.
    Mr. Munger. In the law for all companies.
    The Chairman. In the law for all companies. Dr. Morici.
    Mr. Morici. In the law for all companies, including the 
transplants. Make sure that ``all'' means including the 
transplants.
    The Chairman. ``Transplants'' means?
    Mr. Morici. The Japanese car manufacturers that operate 
here, the Germans, the Koreans, all those people that make cars 
here.
    The Chairman. Okay. Good.
    Mr. Wardle.
    Mr. Wardle. Yes, I think they should be included in the 
law. However, I think that the standards, the figures that you 
have just described are woefully unimaginative for the future. 
There are companies already that can deliver cars with that 
corporate average fleet.
    The Chairman. Mr. Wardle, you and Ms. Claybrook have 
already made this point; and that is why we have you testify. 
You are idealists who are testifying. But President Kennedy 
said to people who looked like me when I was 14 years old that 
our job in politics was to be idealists without illusions, and 
that is what that 15-foot gap between the witness table and 
those of us who are sitting up there represents. And so we try 
to do the best we can, given the incredible political 
opposition that is presented by very powerful institutions, 
including someone who sits in the Oval Office of the United 
States of America right now.
    So I agree with your vision. I thank you for it, and I 
thank Ms. Claybrook. We are trying here to take advantage of a 
political opportunity as idealists without illusions. And so, 
yes, I would do more myself if I could, wearing my idealist 
cap, but I don't have that luxury right now. I have to try to 
figure out what we might be able to get done in the next 24 
hours or the next 24 days or so when we come back and revisit 
the issue.
    Mr. Curless.
    Mr. Curless. Yes. You need to put performance measures in. 
Absolutely.
    The Chairman. And would you take the performance measures 
that the industry----
    Mr. Curless. Absolutely. That is the way to do it. Now, you 
may want to go back and double-check them one more time, but it 
should be there.
    And, technologically speaking, they are going to be able to 
do this. It is a question of just exactly what vehicles they 
are talking about and how the mix looks. But, in the end, they 
can achieve this; and those measures need to be in the law.
    Ms. Claybrook. Mr. Chairman?
    The Chairman. Yes, Ms. Claybrook.
    Ms. Claybrook. So that is through 2015. But the existing 
standards go through 2020. So what are you going to do now? The 
existing standards through 2020 are 35 MPG. They say 36 by 
2015. So what are you going to do between 2015 and 2020 in the 
law?
    The Chairman. I agree with you, Ms. Claybrook. We will try 
to figure that out. But, as President Kennedy used to say, the 
fact that we can't make progress on all fronts doesn't mean 
that we shouldn't make progress on any fronts. So let's look at 
2015 right now. If we get them to this standard by 2015, they 
are going to be hard pressed to say they can't go further than 
that by 2020.
    Right now, you are saying that 35 miles per gallon by 2020 
is not a good enough goal. How about 36 by 2015? You know, we 
should be having some consensus that if they say they can do it 
that we will hold them to do that. But we know 36 won't be the 
standard in 2020. We know it will be 38; it will be 39; it will 
be 40, 41, 42. So we start at 36. And I think that is probably 
a good way of having this discussion.
    Mr. Munger. Or--I am sorry, Dr. Morici.
    Mr. Morici. Please forgive me for reversing roles with you, 
but then that brings me to the next question, is what do we do 
when these guys 2 years from now are saying we are making all 
these efforts and all these bad things have happened to us and 
we need yet even more money than you have given us so we can 
meet these goals that you are requiring of us? Because you know 
the reason they wouldn't want to meet them was not because they 
would--they are not inherently evil people.
    The Chairman. No.
    Mr. Morici. But the reality is if the price of gasoline 
sinks and stays at a buck and a half a gallon, then all of a 
sudden those big pickup trucks start looking good again, and 
they can make a lot of money at them.
    The Chairman. Can I say this, Dr. Morici? And again Ms. 
Claybrook already made this point. I will restate it.
    Which is that, in 1975, over the objection of the auto 
industry, we doubled the fuel economy standards from 13 to 27 
miles per gallon. Now, at that point, we had an oil crisis. We 
had another one in 1979, 1980. However, as she pointed out, 
beginning in 1977, when the rules began to be implemented, by 
the time we reached 1985-1986 we had gone from 13 to 27 miles 
per gallon. Now, a lot of that in the 1980s was as the price of 
gasoline and a barrel of oil went down to $12 a barrel. But 
they were under a mandate, a Federal mandate.
    Now, you say, well, what penalties are they going to have 
imposed if they don't have any money? All of that, I understand 
everything you are saying, Dr. Morici. But it happened once. 
And then successfully they blocked any further increase in the 
fuel economy standards from 1986-1987, all the way until 
December of 2007 when my amendment passed raising it to 35 
miles per gallon.
    Now, believe it or not, it had gone backwards to 25 miles 
per gallon by 2007. So that 10-mile per gallon increase was the 
best we could do. Okay? Now, if there is a problem in the 
subsequent years, at least we will have the law on the books.
    Mr. Morici. I agree with you. What I am saying is watch out 
for them to come back and say that we need more money to do 
this, you know.
    The Chairman. I understand what you are saying, Dr. Morici. 
Okay? The recidivism rate is very high in the auto industry. 
Okay. If that is your point, I have served in Congress. This is 
my 33rd year sitting on the very same committee, the Energy 
Committee. Okay? So I am aware. I am actually an eyewitness to 
each one of the hearings that has been held on the subject for 
33 years. I don't think anyone else in the room, with the 
exception of Ms. Claybrook, can say that. Okay? So that gives 
me, you know, a perspective that understands that I could very 
much look like Charlie Brown with Lucy pulling the football.
    But that is why you need a law. Okay? You don't need a 
promise. That is her point. And you are helping us to say let's 
turn the promise into legislative language that we then attach, 
and we might not do it this round, but they are coming back 
again real soon, okay?
    Mr. Morici. You watch.
    The Chairman. No, again, I have watched over and over and 
over again. Okay. The law actually called for----
    Mr. Morici. Like a kid with an allowance.
    The Chairman. You need to attach conditions. That is what 
we are talking about. And then I think that empowers, Dr. 
Morici, the technologists in the companies, that empowers the 
younger generation, that empowers the people who thus far have 
been walled out by the people who went to Harvard Business 
School. And, by the way, I love Harvard Business School. I love 
the Sloan School up in my district. I love them. They are great 
people. I prefer, though----
    Mr. Morici. Don't you love the Maryland Business School?
    The Chairman. Excuse me?
    Mr. Morici. Don't you love the University of Maryland 
Business School?
    The Chairman. I love the University of Maryland Business 
School.
    Mr. Morici. I want to make sure you get that in.
    The Chairman. But each of them pretty much gets a three-by-
five card that shows you how you make money. We are trying to 
empower the people that go to MIT or the University of 
Maryland, okay--that is the Google boy's father over here at 
the University of Maryland, who is not in the financial sector 
but over here in the technological sector, okay--Sergey Brin's 
father--and say to the technological people at the University 
of Maryland or at MIT or at Harvard, now you are in control, 
you know. Because they are going to have to talk to you, the 
people over at the B school or the Sloan school, huh, as to 
what you are going to have to now talk about in terms of 
improving the technology, right?
    Right now, they just straight-arm them. They are out of the 
room. They are not listening to you. You know, we don't have to 
improve anything. Okay?
    So that is really what we are talking about. How do we 
create a formula that accomplishes that goal?
    So my--you know, my goal here is just to find a way of 
holding them to what they are saying right now they are going 
to do, like an allowance, okay? There has got to be some 
penalty. There has got to be something you are going to take 
away. You are grounded. If you don't perform on the allowance, 
okay, you are grounded for 2 weeks. And then you have to make 
it stick, right? So we need to find a way of doing that. When 
we move forward, you know, we just have to accomplish that 
goal.
    I am just going to ask one more quick question right now. 
And that is that, Dr. Morici, you proposed that when we provide 
the assistance to the companies that they perform the R&D and 
their first large production runs in the United States. The 
condition would be that beneficiaries share their patents at 
reasonable costs with other companies who will be here in the 
United States making vehicles. You suggest that this could 
attract producers from around the world and rejuvenate the U.S. 
auto supply chain. Do you think that people would continue to 
develop these new technologies if the large profit margin 
disappeared?
    And I would like you to just answer that question, so that 
we don't kind of create something that actually doesn't attract 
anyone to that fund.
    Mr. Morici. I think that the reasonable has to be 
reasonable. If you come up with a great idea and it is worth 
something, the other car companies have access to it, but they 
have to pay for it as well. And that worked in Japan. It worked 
just fine. That is what they did in the 1970s and 1980s with 
their technology program.
    If we require that Americans drive vehicles with high 
mileage standards and we provide R&D incentives to develop the 
products here, I don't think we are going to have much 
trouble--the reason I want to do that is I want to get Toyota, 
Nissan, and Honda involved because we want access to their 
technology. We want to encourage them to locate more of what 
they do here.
    The Chairman. Okay. And one of the suggestions on the panel 
was that these factories that General Motors and Ford and 
Chrysler have right now that they might not be using in the 
future might be made available--I think I heard someone say 
that--to people like Mr. Munger and others. Okay? So it just 
doesn't get shut down, but we move it over to the new 
companies. Was that you, Mr. Wardle? Somebody made that 
proposal.
    Mr. Wardle. Yes, I certainly believe that.
    The Chairman. So talk about that concept in the context of 
Mr. Munger and Tesla and these other companies.
    Mr. Wardle. There is no doubt that these new companies have 
already worked out the products that we need; and, at the same 
time, the legacy auto industry certainly has a lot of expertise 
and capability of turning products into high-volume 
manufactured vehicles. And so I think it would be a missed 
opportunity if some way was not found of harnessing those idle 
capabilities in the legacy industry to the benefit of the 
start-up companies so long as none of the defensive attitudes, 
if you like, of the legacy industry would dilute in any way the 
innovation of the start-up companies. So it has to be the right 
relationship so that the best parts of the current auto 
industry are made available to the innovative aspects of 
entrepreneurial start-up companies.
    The Chairman. Great. And I will just give you the quote 
from the White House press spokesperson Perino today. As 
opposed to building the kind of the promise of the industry 
into the law, she said, quote, today, if the viability advisor 
says that they are not making progress, then that company, the 
automaker, would have to pay the taxpayer back right away. So 
there is the incentive for everybody to work hard to make this 
work.
    Good enough for you, Ms. Claybrook?
    Ms. Claybrook. No.
    The Chairman. Good enough for you, Mr. Munger?
    Mr. Munger. It is not obvious how you repay a loan when it 
is a loan you require.
    The Chairman. Dr. Morici, good enough for you?
    Mr. Morici. No, it is not good enough for me. I want more 
than that.
    The Chairman. Okay. Thank you.
    Mr. Wardle. Good enough for you?
    Mr. Wardle. No.
    The Chairman. No.
    Mr. Wardle. No.
    The Chairman. Thank you.
    Mr. Curless was shaking his head vigorously sideways. So 
you know what his answer was.
    Let me now turn and recognize the gentlelady from Michigan, 
Mrs. Miller.
    Mrs. Miller. Thank you, Mr. Chairman; and I appreciate all 
of the witnesses and some of the testimony that has been given 
here.
    And to my colleague, Mr. Cleaver from Missouri, the Detroit 
Lions are having a rather tough season this year along with the 
domestic auto industry, but, hey, how about those Red Wings?
    You know, there has been some talk about the CAFE 
standards. I think uniformity is key. It was interesting for us 
to note--I realize I sound a little defensive here again--
interesting to note that Nissan got a loophole in the CAFE 
standards last time. I am not quite sure how all of that worked 
out. But I do think uniformity is a key.
    And I appreciate and we are going to see how all of this is 
going to work when you have various States coming up with their 
own emission standards, and as part of the law it will be--it 
will preclude the auto industry from any litigation trying to 
stop that.
    I do wonder sometimes--I mean, for instance, if you took 
a--maybe an industry from California, from Hollywood, I mean, 
if you were a movie maker and every single State in the Union 
could have their own determination of what the rating was on a 
movie, how would you market that movie? PG in some States and R 
in others and these kind of things. So I do think uniformity is 
a key, but I recognize that there is a bit of a double standard 
here.
    But my question would be--and I appreciated some of the 
comments Mr. Wardle was making about in Britain and the 
experience that you had there when some of the transplants, as 
we call them here, came into your country.
    But it seems to me that our Nation has not--and our 
Congress has not done as good a job as we should have of having 
a manufacturing policy, really, or a comprehensive, cohesive 
industrial policy. For instance, in Britain now we see Ford 
manufacturing there a diesel engine which is apparently 
getting--can get 65 miles per gallon there, but yet there was a 
concerted effort to incent people--deincent them to purchase 
gasoline and to incent them to purchase diesel as part of sort 
of the country's policy and through the EU as well.
    I am just not quite sure who I am asking this question of, 
but it does seem to be that if our Nation had a more 
comprehensive industrial policy and a manufacturing policy, we 
could advantage ourselves in many ways because of this crisis 
that we are finding ourselves faced with now as we are busy 
putting all of these laws an oversight and et cetera. I think 
we all want the same thing at the end. Maybe we could look at 
it in a little broader vision of how we can help our country go 
forward with such a policy.
    Mr. Morici. Mrs. Miller, we have a manufacturing policy in 
the United States. We have an anti-industrial policy. It is 
that simple. Whether we have a Democratic administration or a 
Republican administration, we get the same Treasury Secretary. 
We get Bob Rubin in one form or another. The guys from Wharton 
on up through the Charles River don't know much about 
factories, aren't much interested in them, and don't really 
care very much. Okay.
    As a consequence, I have watched this body, I have urged, I 
have written op ed articles, I have sent you press releases 
over and over again about our toleration of the Chinese 
currency policy and how it is devastating your part of the 
country. You know, nothing ever happens.
    The inability to move on trade policy has done more damage 
to the manufacturing base in the United States than can 
possibly be managed by one man or woman. But we have tolerated. 
When Wall Street gets in trouble, you guys passed a $700 
billion bailout, which gave them essentially all the money they 
wanted, and then some, and whatever you don't give them, the 
Federal Reserve gives them, with virtually no strings. They 
haven't done any of the responsible things to speak of 
necessary to reopen credit markets, such as reopening the 
securitization pipeline from good, sound regional banks to 
fixed-income investors. That goes on and on and on.
    So we have a policy. Somebody said to me, People don't want 
to study engineering in this country. They are too lazy. They 
are not too lazy. There is a reason the finance department is 
full. The same math that is in an engineering textbook or 
physics textbook is in a finance textbook. I know. I have 
studied it. But we have lots of kids who want to study finance 
because that is where the rewards are in our society and, to a 
large measure, that is a product of public policy. Engineering 
doesn't pay out because manufacturing doesn't pay out. 
Manufacturing doesn't pay out because we have a dumb trade 
policy.
    Mrs. Miller. Mr. Wardle.
    Mr. Wardle. Yes. I see a lot of parallels, as I mentioned 
before, between what happened in the UK and what is happening 
in Detroit now, largely because of inept management in the 
British car industry that refused to acknowledge that overseas 
companies were developing products that UK consumers actually 
needed bad. But one of the mistakes I think that was made in 
Britain, which hopefully can be avoided in the U.S., was that 
the government intervention in the British car industry was of 
the wrong kind. What we really need here is clear direction and 
policy from government, which I believe is something that is 
always needed, which industry can respond to, which is why I 
think that, first of all, we need to set up what I would say is 
a mobility czar to look at this situation rather than an auto 
czar, so that it is quite clear what kind of transportation 
future that we have so that we know--and from that, to direct 
policy so that everybody knows what the hurdles are that they 
have to jump over or what the parameters are that they have to 
operate their businesses in.
    And so it would be wrong to directly intervene with the 
existing car industry through too much internal messing around, 
but the parameters need to be very clear through government 
legislation and policy. That needs to come from very clear 
oversight as to what are the right answers. That is something 
that was never established in Britain in the 1970s. Nobody 
actually stated what the clear objectives were for the rebirth 
of the British car industry. So it didn't happen.
    Ms. Claybrook. Mrs. Miller, I would like to associate 
myself with both of those remarks and say that I do hope that 
this committee and, Mr. Chairman, this committee will have a 
hearing on transportation policy. Because we actually don't 
have a transportation policy in this system, in this country, 
and the President-elect has just announced that he wants to 
have a huge infrastructure expenditure. If you are going to 
spend a huge amount of more money on infrastructure, you better 
figure out what infrastructure you want and what really makes a 
difference. We have bridges and roads that are in disrepair, 
admittedly, but we don't have mass transit systems that go to 
the airport, for example.
    One of the provisions in this legislation that you are 
going to be voting on, section 13, requires the auto 
manufacturers to study whether or not they should get involved 
in producing mass transit-type vehicles, whether it is rail or 
whether it is urban transit as a way to expand the scope and 
the view of their manufacturing activities.
    I would urge that this committee hold some very soon 
hearings because the infrastructure committee--one of the 
problems with the Congress, it is divided up. The public works 
crowd is a different committee than the Commerce Committee, 
which looks at transportation generally. I would urge both this 
committee and the Infrastructure Committee to look at 
transportation policy and what is it that we really want. What 
makes a difference.
    People in this country are really frustrated with the 
changes that have been made by the airline industry because 
they are in financial trouble. Now you can't get from here to 
there without going through three different cities in an 
airplane and changing planes. So there is a lot of opportunity 
here in the middle of this crisis as well for looking at 
overall transportation policy.
    I would like to make one last comment, Mrs. Miller, about 
something you said about the States setting standards. The 
reason that advocates like myself have favored that is because 
the lobbies have overtaken the Congress and stopped any 
improvement in fuel economy from 1990 when we lost a bill in a 
filibuster by two votes that would have by 2001 have required 
40 miles per gallon fuel economy, which would have----
    Mrs. Miller. Thank you.
    Ms. Claybrook. If I could just say, the way that you can 
get around having it be variable is the manufacturers meet the 
highest standard. So if California sets the highest standard, 
then there are not a lot of different standards you have to 
meet. It is the one standard.
    Mrs. Miller. Just one more question, with the Chair's 
indulgence. I want to pick up on what has been talked about 
with the trade policies and some of the disadvantages that our 
manufacturing companies have run into as a result of that. I 
want to mention about MAG again. My question is to Mr. Curless. 
I think it is important to note MAG really was Cross and a 
number of other various other manufacturers that you have 
consolidated with. As you mentioned, you are the only remaining 
U.S. powertrain supplier to the automotive industry and the 
third largest machine supplier in the world. Yet, if you go 
into some of the auto plants of the transplants here, the 
machinery that they use there, do you find any American-
produced machinery in those plants, or are they produced in 
their native nations? If there are no American-produced 
machinery in those plants, why not?
    Mr. Curless. That is true. From Japan, the Japanese 
transplants come here, will not buy MAG equipment. That is our 
facilities here in the States, in Europe, around the world. We 
do supply the equipment though to people like the Korean 
transplants here. So, like the Hyundai engine, that is all MAG 
equipment, and they are produced in that engine, which is 
great. That shows that we can do it. We have the affordability 
factor to go with putting that equipment in there. But it is 
very clear the Japanese will not work with us.
    Now China is going to be a different picture again. That is 
yet to be decided, what is going to come up there. But at this 
point I would say there is a good chance we won't get some of 
that business. On the other hand, we get a great deal of 
business out of Europe, we get strong business through all the 
other ones in the United States, and then there are the other 
companies, the heavy equipment suppliers, the big diesel 
engines for Caterpillar and Cummins and other companies. We get 
all that business as well. It is just a matter of what country 
you are really talking about when you are dealing with these 
transplants.
    Mrs. Miller. Thank you, Mr. Chairman.
    The Chairman. The gentlelady's time has expired.
    The Chair recognizes the gentleman from Missouri, Mr. 
Cleaver.
    Mr. Cleaver. Thank you, Mr. Chairman. I want to express 
real appreciation for you today. This has been very helpful to 
me, although I think Dr. Morici should come here with a bit 
more passion when you are testifying before Congress.
    Mr. Morici. You should have seen me when I was 35.
    The Chairman. Would the gentleman yield? I have the third 
most Italian district, so imagine a whole district of people 
like that.
    Mr. Morici. You don't know how much more I just decided to 
like you.
    The Chairman. I am used to this.
    Mr. Cleaver. A friend of mine, Hosea Haywood, said to me 
yesterday, and he is in the automobile industry and he sells 
automobiles, and he said that a year ago he could take 12 
applications to one of the financing arms and he would get two 
or three approved. Today, he takes 12 and he gets none 
approved.
    The crisis that we are in now is a credit crisis. One of my 
complaints with the Big Three is that even if we give them 
money, even if we make this bridge loan, they are still going 
to have a problem because GMAC, Chrysler financing and Ford 
financing are all three requiring a credit score of 700. You 
know where I am going.
    If there is a credit crisis with the Big Three, and they 
all have financing arms, Mr. Munger, how in the world are you 
going to be able to make it without a financing arm? If we 
don't figure out a way to put money into the financing arms, 
maybe the industry can manufacture more cars but the public 
still won't be able to buy them because there is no credit, and 
if you are producing trucks with a unit price of $25,000, you 
are still going to have difficulty, and you will have a much 
more difficult time than the Big Three. Am I right?
    Mr. Munger. I hope that by 2012 our credit crisis has 
passed. But I think you are very accurate in highlighting the 
issue. Chrysler was actually explicit about the need for TARP 
funds for Chrysler Financial. There is a differentiation where 
essentially the auto industry funds itself out of those 
affiliated lending arms and they aren't able to lend because 
they don't have access to capital. They have been hurt by the 
same things. That is why you are seeing them apply to become 
bank holding companies or do other actions to activate their 
access to credit to facilitate the flow of vehicles.
    You do have the manufacturing businesses losing money, but 
there is need for assistance on the financial side. The risk 
profile is very different for a financing entity. That is much 
more of a TARP situation.
    Mr. Cleaver. Where will the potential customers come from? 
I mean, where will they get financing for your vehicles?
    Mr. Munger. We have a commercial offering so it is a 
totally different financing situation.
    Mr. Cleaver. So they will go to depository banks.
    Mr. Munger. They have their own lines of credit and there 
are some other entities that provide credit to that market. It 
will still benefit from a smoother, more operating credit 
market, but we have some time to get there.
    Mr. Cleaver. All right.
    Mr. Wardle. At the risk of sounding like an idealist, I 
would point out that we see that there are aspects of future 
mobility systems where direct ownership of vehicles and access 
to mobility systems is not as necessary as it is today. I think 
there is a good case for looking at in the longer term how 
people can access personal mobility without having to make a 
large loan in the first place through leasing programs or other 
forms of shared ownership.
    Mr. Cleaver. Dr. Morici.
    Mr. Morici. The securitization problem is really at the 
root of the automobile financing issue, and that is that 
historically the finance companies associated with the Detroit 
Three made the better loans. They are raising their credit 
scores because they have less money to lend so they are giving 
it to their best customers. But if we don't solve the 
securitization problem, we simply will not solve the problem of 
the automobile industry or the student loan issue, or what have 
you, and that has to be solved if we are going to pull out of 
this recession.
    It is really not, I know, the scope of this committee, but 
we need to put conditions on the money we are giving the banks. 
For example, the banks buying smaller banks does not increase 
the deposit base. And the deposit base in the United States is 
insufficient to finance all the auto loans, home mortgages, and 
what have you, business loans. It has to be financed by 
accessing fixed-income investors. We haven't imposed those 
conditions, the Federal Reserve hasn't imposed those 
conditions, and until it is prepared to do so, we are not going 
to solve anybody's problems. It is that simple.
    I am hopeful that by 2010--if we haven't solved this 
problem by 2012, we are in the soup in a much bigger way than 
we discussed today.
    Mr. Cleaver. Thank you very much. Thank you, Mr. Chairman.
    The Chairman. The gentleman's time has expired.
    I am going to give each one of you 1 minute to summarize to 
the Select Committee and to the Nation as to what you think 
should happen in terms of automotive industry and its 
relationship with the Federal Government, the taxpayers of our 
country, and their justifiable expectations if they are going 
to become partners with the Big Three financially. We will go 
in reverse order of our opening statements. We will begin with 
you, Mr. Curless.
    Mr. Curless. Thank you. First off, I want to reiterate that 
bailout funds need to be made available to the Big Three. 
Certainly for the short term, we have an economic crisis going 
on here, and a lot of the discussions we have had here today 
have been about the next generation vehicle and the standards 
and the laws and where do we go for the future and can we get 
our milestones in and all that. We need to strive for those 
things but, let's face it, if we keep producing automobiles and 
there is no one out there to buy them, we are just going to 
watch that money go down the tubes, not because the automotive 
companies did a bad thing, it is because our whole economy did 
a bad thing.
    And so we need to look at both aspects of it and maybe do 
some separation there and make sure that we look at both the 
short term and the long term. So from MAG's viewpoint or from a 
manufacturing company's viewpoint we need those companies 
there. We need the Big Three. We need the volume. We need to 
see these millions of automobiles being produced, not just 
50,000 or 80,000 or something like that.
    So I want to encourage us to try to put more tax incentives 
in, encourage us to provide other types of incentives to the 
entire supply chain that is working with the automotive 
industry, and let's see if we can get this off the ground as 
far as looking at the next generation while we solve our 
economic crisis here. Thank you.
    The Chairman. Thank you, Mr. Curless, very much.
    Mr. Wardle.
    Mr. Wardle. Yes. I recommend funding for a powerful 
visionary multidisciplinary commission to define an innovative 
and far-reaching vision for America over the next few decades; 
funding in investment in building a far-reaching integrated 
transportation network across the Nation, which a revitalized 
American car industry could participate in; and financial 
assistance to help the innovative start-up companies get their 
products to market.
    When these three things are achieved, then we can talk 
about the necessary financial assistance for the current auto 
industry as it adapts to a new business model that will support 
this overall vision.
    I would also like to say my colleagues and I would be very 
happy to work with the committee to try and define what those 
requests or initiatives would be to help the so-called little 
guys in the automotive industry right now.
    The Chairman. We thank you, Mr. Wardle, very much, and your 
Art Center College of Design in Pasadena, California. Back in 
1962, when the Beach Boys were singing The Little Old Lady from 
Pasadena: ``go, granny, go granny, go, granny, go,'' no one 
could catch her vehicle, hopefully out of Pasadena will come 
that new vehicle that we keep selling around the world that is 
a model for our future, our 21st century, not 100 days, as Dr. 
Morici said, but 100 years.
    Dr. Morici.
    Mr. Morici. As a realist and not an idealist, whether we 
are talking about a bailout or a structured chapter 11, it is 
important to provide the industry with the right incentives to 
create a market here for high-mileage vehicles through higher 
mileage requirements for cars; to encourage the rapid 
deployment of higher mileage vehicles with the clunker subsidy 
to make it possible for people to trade in and get rid of the 
low mileage vehicles as quickly as possible; to provide 
development assistance for both vehicle manufacturers and 
component makers, and require them to share their knowledge 
with one another at a good return so that they are encouraged 
to continue developing technology, and to require vehicles and 
components benefiting from such incentives to be made here, at 
least in their first commercial runs so that we have an 
industrial policy that is positive. Finally, we do something 
about currency manipulation and Asian trade policies that hurt 
our industries.
    The Chairman. Thank you, Dr. Morici.
    Mr. Munger.
    Mr. Munger. We are at a unique time where industrial need 
is aligning with the national interest. It is in our interest 
to have an industry that builds more efficient vehicles to lead 
to cleaner air, reduce carbon emissions, freedom from imported 
oil, and an industry that leads in innovation.
    It is important to link accelerating efficiency with any 
bailout that goes along to the Detroit Three. The industry has 
the skills and the knowledge to do things beyond what they have 
done to date. There are also existing funding mechanisms in 
place to help the industry and to help smaller companies 
achieve those goals. Companies like Bright Automotive are 
prepared to accelerate this process independently of what is 
happening in Detroit. But it is important for the Nation that 
we work together, come up with a solution and achieve a more 
independent and oil-free country.
    The Chairman. Thank you, Mr. Munger.
    Ms. Claybrook.
    Ms. Claybrook. Thank you very much, Mr. Chairman, for the 
opportunity to testify. In the short term, I think that this 
legislation ought to pass as rapidly as possible, but I would 
urge the inclusion of a goal for fuel economies we have 
discussed and also that the citizens be more involved in this 
process by being defined as interested parties. We are the ones 
that are supposed to buy the vehicles, right? That is the one 
group that has been left out of this legislation and also left 
out are any requirements for them to take into consideration 
when they do this, redesign the safety rules that are pending 
in the Department of Transportation.
    The longer term issue, I think, is huge. I think you have 
got some great recommendations today. I agree with preserving 
the Green Car Factory Fund so that it is the full measure of 
the $25 billion so that it can support innovative companies 
such as those we have heard from today. And that the stimulus 
package include refunding that money so that it is available. 
And that a transportation policy be looked at in the course of 
discussing the infrastructure future of this Nation in terms of 
transportation, and I think that can only help the U.S. auto 
industry, particularly if it gets into some of the mass transit 
issues.
    Finally, I would say that we need more innovation as well 
about what we do in terms of personal transportation. There 
have been proposals on the table, for example, to not allow 
cars into the inner city and have people jump into free, 
available, you put a couple quarters in the box and get into an 
electric car and that is all that can come into the city, and 
get rid of some of the pollution. So it is an encouragement for 
people to think themselves differently about what kind of car 
they want and how they use their car. That is certainly going 
to influence the industry as well.
    The Chairman. Thank you. We thank each of you.
    Now some people are saying, Can we do this? Are we being 
unrealistic? I remember back as the chairman of the 
Telecommunications Committee back in 1991, 1992, 1993, 1994, 
when I was introducing legislation to move from narrow band to 
broadband. The telephone companies, the bigger companies said, 
We can't do it. The cable companies, Going to be very 
difficult. Now, mind you, the telephone companies had already 
invented these broadband technologies 15 years before and had 
won awards in basic research for their invention, but they had 
not deployed them yet.
    And so when finally that law passed in 1996, the 
Telecommunications Act of 1996, it gave a lot of power to 
people who wanted to innovate because there was a brand new 
competitive paradigm created in the telecommunications sector. 
If someone told you that 10 years later the new language would 
be Google, eBay, Amazon, YouTube, and that a younger generation 
wouldn't know anything but that language just 10 years later, 
you would have said that is completely unrealistic. But what 
had happened there was because of that law an unleashing of 
innovation, of competitiveness, that created between 2 and 4 
million new jobs in our country. I am very proud of that.
    I think the same thing is going to happen here in the 
energy and the transportation sector. I think if we get the 
model correct, we are not going to be trying to put a man on 
the moon, as Mr. Munger said. The technology is largely there. 
We are talking about batteries. We are talking about 
technologies that are much more available than that which 
President Kennedy challenged us to invent in the 1960s to put a 
man on the moon, and to return them.
    So I think that this is a great opportunity for our country 
disguised as a crisis. Because if we don't meet this challenge 
in a timely fashion, we will be importing all of these vehicles 
from India, from China, from Japan, and from Europe. And that 
would be the tragedy.
    So we actually have this warning hopefully in time for us 
to change the way in which we view our manufacturing sector and 
what we can do in order to meet this marketplace of 6 billion 
people who look at us as the innovators. We are 4 percent of 
the population in the world. The 96 percent of the rest of the 
world sees us as the technological giant. That is why they want 
their children to go to our colleges and our graduate schools, 
because they think we are the best. We must now meet those 
expectations. If we do so, then I believe that 10 years from 
now we will look back and we will have actually put us on a 
path to solve the global warming and energy independence issues 
that we have ignored for an entire generation.
    It is the kind of advice that you have been giving our 
Select Committee today, however, that the leaders of our 
country must listen to if we are to accomplish that goal. But 
if they do, I am confident, like we did in the 
telecommunications sector, that we can empower the Sergey 
Brins, the sons of professors at the University of Maryland, to 
go out and to reinvent the way in which we communicate.
    With that final compliment to the University of Maryland, I 
thank you all for testifying. This hearing is adjourned. Thank 
you.
    [Whereupon, at 12:30 p.m., the committee was adjourned.]
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