[Senate Hearing 110-878]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 110-878
 
    EXAMINING THE STATE OF THE DOMESTIC AUTOMOBILE INDUSTRY--PART II

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



                                HEARING

                               before the

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                                   ON

 FURTHER EXAMINING THE STATE OF THE U.S. DOMESTIC AUTOMOTIVE INDUSTRY 
AND ITS OVERALL IMPACT ON THE NATION'S ECONOMY, THE AUTOMOTIVE WORKERS, 
   AND THE COMPANIES INVOLVED IN THE SUPPLY CHAIN AND THEIR EMPLOYEES

                               __________

                            DECEMBER 4, 2008

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban 
                                Affairs


      Available at: http: //www.access.gpo.gov /congress /senate/
                            senate05sh.html




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            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

               CHRISTOPHER J. DODD, Connecticut, Chairman

TIM JOHNSON, South Dakota            RICHARD C. SHELBY, Alabama
JACK REED, Rhode Island              ROBERT F. BENNETT, Utah
CHARLES E. SCHUMER, New York         WAYNE ALLARD, Colorado
EVAN BAYH, Indiana                   MICHAEL B. ENZI, Wyoming
THOMAS R. CARPER, Delaware           CHUCK HAGEL, Nebraska
ROBERT MENENDEZ, New Jersey          JIM BUNNING, Kentucky
DANIEL K. AKAKA, Hawaii              MIKE CRAPO, Idaho
SHERROD BROWN, Ohio                  ELIZABETH DOLE, North Carolina
ROBERT P. CASEY, Pennsylvania        MEL MARTINEZ, Florida
JON TESTER, Montana                  BOB CORKER, Tennessee

                      Shawn Maher, Staff Director

        William D. Duhnke, Republican Staff Director and Counsel

                       Amy Friend, Chief Counsel

                Mark Oesterle, Republican Chief Counsel

                       Dawn Ratliff, Chief Clerk

                      Devin Hartley, Hearing Clerk

                      Shelvin Simmons, IT Director

                          Jim Crowell, Editor

                                  (ii)


                            C O N T E N T S

                              ----------                              

                       THURSDAY, DECEMBER 4, 2008

                                                                   Page

Opening statement of Chairman Dodd...............................     1

Opening statements, comments, or prepared statements of:
    Senator Shelby...............................................     5
    Senator Akaka
        Prepared statement.......................................   107

                               WITNESSES

Gene L. Dodaro, Acting Comptroller General of the United States, 
  Government Accountability Office...............................     7
    Prepared statement...........................................   108
    Response to written questions of:
        Senators Brown and Tester................................   206
G. Richard Wagoner, Jr., Chairman and Chief Executive Officer, 
  General Motors.................................................    37
    Prepared statement...........................................   121
Ron Gettelfinger, President, International Union, United 
  Automobile, Aerospace, and Agricultural Implement Workers of 
  America........................................................    39
    Prepared statement...........................................   162
Alan R. Mulally, President and Chief Executive Officer, Ford 
  Motor Company..................................................    40
    Prepared statement...........................................   167
Robert Nardelli, Chairman and Chief Executive Officer, Chrysler 
  LLC............................................................    42
    Prepared statement...........................................   169
James T. Fleming, President, Connecticut Automotive Retailers 
  Association....................................................    43
    Prepared statement...........................................   189
Keith Wandell, President, Johnson Controls, Inc..................    45
    Prepared statement...........................................   191
Mark Zandi, Chief Economist and Co-Founder, Moody's Economy.com..    47
    Prepared statement...........................................   194
Allan I. Mendelowitz, Member of the Board of Directors, Federal 
  Housing Finance Board
    Prepared statement...........................................   203

                                 (iii)


    EXAMINING THE STATE OF THE DOMESTIC AUTOMOBILE INDUSTRY--PART II

                              ----------                              


                       THURSDAY, DECEMBER 4, 2008

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Committee met at 10:11 a.m., in room SD-106, Dirksen 
Senate Office Building, Senator Christopher J. Dodd (Chairman 
of the Committee) presiding.

       OPENING STATEMENT OF CHAIRMAN CHRISTOPHER J. DODD

    Chairman Dodd. The Committee will come to order. Good 
morning. I would ask the Committee to come to order, and our 
friends that cannot find a seat in the hearing room--as you all 
noticed, we moved the hearing this morning. The last hearing 
obviously drew a sizable audience of interested people, and so 
we moved the hearing to this room this morning. I want to thank 
my colleagues. I know many had planned, obviously, to be 
probably elsewhere this week, but I am very grateful to all of 
you for being here for this second hearing on the subject 
matter. And I am going to take a minute or so this morning and 
just explain some housekeeping provisions and then some opening 
comments on the subject matter.
    We are here, obviously, ``Examining the State of the 
Domestic Automobile Industry: Part II,'' if you will, of these 
hearings. This could quite possibly be, I would point out to my 
colleagues--and I say that with some hesitation--the last 
hearing of this Committee in the 110th Congress. And I want to 
just take a moment, if we could, all of us here, to recognize 
the service and valuable contributions of some of our 
colleagues who will be leaving.
    Senator Hagel, Chuck Hagel of Nebraska. He is a dear, dear 
friend and a great--we served on two committees together over 
the years, the Foreign Relations Committee and this Committee, 
and you have been a valued friend and a wonderful member of the 
U.S. Senate. We thank you immensely, Chuck, for your service.
    Elizabeth Dole, our good friend from North Carolina, we 
thank you for your service on this Committee as well and your 
and Bob's wonderful contribution. You are very much part of the 
Senate family and have been for a long time. So we thank you 
immensely.
    And, of course, Wayne Allard, my good friend from Colorado, 
we thank him. Where is he? He is not here yet, but he is 
coming, and we thank him very, very much as well for his 
service, and their staff members on this Committee. Tewana 
Wilkerson, Joe Cwiklinski, and Robbie have done a great job, 
and I thank them for their service.
    Let me make, as I said, a couple of housekeeping points, if 
I can.
    First, given this is the second hearing on the auto 
industry and given the large number of witnesses we have before 
us this morning, I would like to propose that Senator Shelby 
and I make our opening statements and then move immediately to 
our witnesses as a way of moving along here rapidly, given the 
number of people who will be testifying before us.
    And, second, the automobile companies represented here this 
morning have provided this Committee and the Senate with 
extensive information about their status and their plans. In 
the case of one company, in the case of Chrysler, some of that 
information is proprietary in nature. It is a private company, 
not a public company. We have left it up to that company to 
provide that information to each interested Senator in a manner 
that both parties deem consistent with protecting the privacy 
of proprietary data. Should any questions be raised today that 
might trigger a request for proprietary information, I would 
ask that these questions be answered by the auto companies to 
the member's satisfaction in a manner that preserves the 
confidentiality of the information sought.
    Today the Committee meets, as I pointed out, for the second 
time in as many weeks to consider the state of the domestic 
automobile industry. As we consider the challenges facing this 
industry, I want to be clear that Congress has already given 
the Bush administration the authority to stabilize this 
industry. I would like to take note that I invited the Treasury 
Department and the Federal Reserve Board to testify here this 
morning, and they have declined to do so. Yesterday I sent a 
letter to Chairman Bernanke requesting his comments on the 
industry's plans and whether there is anything that prevents 
the Federal Reserve from lending any of these domestic--
providing any lending to any of these domestic auto 
manufacturing companies.
    When we last met, I said that the fate of the industry is 
an important subject matter, obviously, for our Committee's 
consideration. That statement even is truer today than it was a 
few days ago. In fact, the very purpose of this hearing is 
fundamentally to answer three very straightforward questions.
    First, are the automobile companies in dire straits? Are 
they in danger of failure?
    Second, if they were to fail, what would be the 
consequences for our overall economy?
    And, third, if the economic consequences would be severe, 
does the American Government have a responsibility to do 
anything to help?
    In just 2 weeks' time, the clouds on the economic horizon 
have grown even darker and greater in number. Just this week, 
we learned what many of us have believed for a long time. Our 
economy is mired in a deep and sustained recession--a recession 
that began some 12 months ago, a recession that has contributed 
to the greatest loss of manufacturing jobs, including in the 
automobile industry, in over a quarter of a century, and a 
recession that was in many respects precipitated by massively 
irresponsible actions by those in the financial sector, 
including lenders who are now the recipients of hundreds of 
billions of dollars in Federal taxpayer bailout assistance.
    Amidst this backdrop of intensified economic turbulence and 
uncertainty, the leaders of the domestic automobile industry 
are here once again to explain why they are seeking assistance 
from the Committee and from the Congress of the United States. 
None of us relishes this task that we are asked to consider, 
yet who among us believes we should risk the consequences of 
the collapse of one or more domestic automobile manufacturers?
    Make no mistake about it. Those consequences would be 
severe and sweeping. Tens if not hundreds of thousands of jobs 
would be lost in the auto industry itself. More would be lost 
among suppliers, dealers, and all of the other businesses, from 
restaurants to garages and others across our Nation in ways 
large and small that depend on a domestic auto industry for 
their livelihoods.
    Moreover, at a time when taxpayers are already bearing an 
extraordinary burden in funding economic recovery efforts, that 
burden would only increase in the event of a failure of one or 
more of these companies. Pension obligations alone could run 
into the tens and maybe hundreds of billions of dollars.
    A partial or complete failure of the domestic automobile 
industry would have ramifications far beyond manufacturing and 
pensions. It would affect virtually every sector of our 
economy. That includes the financial sector, which is a 
particular focus of this Committee. A collapse within the auto 
sector would unquestionably worsen the credit crisis. By some 
estimates, the domestic auto companies already comprise more 
than 10 percent of the high-yield bond market and one of the 
largest sectors in the leveraged finance for banks.
    The Big Three have hundreds of billions in outstanding debt 
liabilities, including tens of billions in short- and long-term 
debt obligations. In addition to their outstanding debt, these 
companies hold billions in credit default swaps. A failure in 
the auto industry could trigger obligations by manufacturers 
and counterparties that could have financial firms reeling. 
Ultimately, the ability of those firms to inject credit and 
liquidity into the overall economy could be impaired, stifling 
job creation and further income growth. None of us--none of 
us--wants to see that outcome.
    So let us be clear this morning. In my view, we need to act 
not for the purpose of protecting a handful of companies. If 
that were the extent of the issue, I would let them fail. I 
acknowledge those who advocate such a course on the assumption 
that pressure from the outside will produce the desired 
results. My concern with such an approach is that it plays 
Russian roulette with the entire economy of the United States. 
Inaction is no solution. Inaction would only add more 
uncertainty and instability to our economy. These are the 
ingredients that currently we have an overabundance, 
ingredients that are contributing to the crisis of confidence 
that has gripped the markets and precipitated the worst 
economic crisis since the Great Depression.
    It seems to me that the request being made by the 
automobile industry, while large by any measure, is modest in 
comparison to what this Committee has lately witnessed in the 
financial sector. If the Federal Reserve and the Treasury 
Department under President Bush can find $30 billion for Bear 
Stearns, if they can concoct a $150 billion rescue for AIG, if 
they can commit $200 billion to Fannie Mae and Freddie Mac, and 
if they can back Citigroup to the tune of more than $300 
billion, then there ought to be a way to come up with a far 
smaller dollar figure to protect this economy from the 
unintended consequences that would be unleashed by a collapse 
of the automobile industry.
    With regard to the automobile industry, certainly we should 
not throw good money after bad, nor should we subsidize 
ineffective performance and inefficient production. We must 
demand that the auto companies demonstrate their commitment to 
reform. We must insist that if they are going to be backed by 
the American taxpayer, they owe it to those same taxpayers to 
make vehicles in a far more environmentally and economically 
sound manner.
    The latest plans submitted by these companies over the last 
several days, which I have read completely, all three of them, 
are not perfect by any means. But, on average, I think they 
represent a commitment to that kind of necessary reform that 
Detroit must adopt if our economy and our country is to have an 
automobile industry in the 21st century.
    Some of the companies are to be commended for going back to 
the drawing board, making tough decisions, and stepping forward 
today. You have come a long way in 2 weeks, I would say. Some 
may ask whether these proposed changes go far enough. In 
addition, I think these plans still leave many questions 
unanswered. In particular, will taxpayer assistance truly 
ensure long-term viability for these companies? Or will they be 
back here within weeks seeking more taxpayer assistance?
    But let us be clear. There is no doubt that the automobile 
companies have done far more--far more, I would suggest--than 
the financial companies to show that they deserve taxpayer 
support. The Treasury Department has given the Nation's largest 
lenders hundreds of billions of dollars, as pointed out, as 
this graph here behind me demonstrates. Even now, weeks after 
the fact, Americans are still waiting for most of them to show 
that they deserve the dollars they have received, still waiting 
for them to appropriately increase lending to consumers and 
businesses, still waiting--still waiting--for them to more 
aggressively act to mitigate foreclosures in our country, and 
still waiting for these lenders to rein in bonuses and other 
forms of excessive compensation while the American taxpayer is 
sacrificing on a daily basis.
    The Nation's largest financial institutions are among the 
largest culprits in causing the credit crisis, and yet 
Secretary Paulson and the Treasury, despite being given 
complete authority to condition aid to financial institutions, 
have in no meaningful way insisted that these banks and 
insurance companies adopt tough reforms to ensure that the kind 
of shabby lending practices they engaged in will not happen 
again. On the contrary, the Treasury Department's largesse with 
taxpayer funds has been remarkably free of conditions placed on 
the recipients of those funds. Indeed, in the spirit of the 
season, Secretary Paulson has given the Nation's largest 
financial institutions the biggest holiday present in the 
history of American capitalism.
    In my view, if we are going to insist on reforms by the 
auto industry as a condition of receiving Federal funding, we 
ought to do the same for the financial companies. For that 
reason, I will do all I can to insist that any auto company 
bill also place tough conditions on any loans to financial 
firms, including provisions that require tax dollars to be used 
for responsible practices, like lending that requires lenders 
to get much more aggressive about attacking the foreclosure 
crisis that is still at the root cause of the larger financial 
crisis and that prohibits executives from paying themselves 
obscene sums while they are essentially receiving a welfare 
check for the American taxpayer.
    At a time when average Americans are sacrificing mightily 
for the sake of our Nation's economic recovery, we must, I 
believe, insist that companies benefiting from those sacrifices 
act as if they deserved them. At the same time, I believe we 
need to take action to help our domestic auto industry in order 
to protect our Nation's economy and America's workers.
    Finally, I want to respond to recent stories indicating 
that the administration is considering asking for access to the 
final $350 billion we provided in the Emergency Economic 
Stabilization Act. We passed a bill that gave this 
administration broad authority to use funding to address the 
economic crisis we find ourselves in. Regrettably, they have 
misused the authority in two ways, in my view:
    First, they are not doing what we clearly expected them to 
do. Most importantly, they are not using the money to help 
homeowners in distress. The FDIC has put forth a program that 
would help 2 million homeowners keep their homes, and the 
Treasury Department is refusing to fund that idea.
    Second, they have spent the money--they have spent the 
money, they have done so in an ad hoc and arbitrary manner, in 
my view. They seem to be careening from pillar to post. Both 
the Treasury and the Federal Reserve have spent trillions of 
taxpayer dollars without adequate controls and without adequate 
transparency.
    I do not believe this administration should seek the use of 
this additional funding unless they can present to the Congress 
and the American public a comprehensive, coherent plan for 
addressing those concerns.
    Let me thank all of our witnesses again this morning for 
appearing here. We look forward to hearing from each of you, 
and with that, I want to turn to my colleague from Alabama, the 
former Chairman of the Committee, Senator Shelby.

             STATEMENT OF SENATOR RICHARD C. SHELBY

    Senator Shelby. Thank you. Thank you, Chairman Dodd.
    Only 2 months ago, Congress passed a bill that gave the 
Secretary of the Treasury unprecedented authority to spend $700 
billion to address the credit crisis. At the time, I expressed 
grave concerns with this approach and questioned then whether 
it would be an appropriate use of taxpayer dollars. The erratic 
implementation of the TARP, its questionable efficacy, and now 
the GAO report highlighting a number of deficiencies in the 
program's administration and oversight have only confirmed my 
original concerns.
    My primary focus in these deliberations was and continues 
to be the interest of the American taxpayer. We that in mind, I 
opposed the creation of the TARP. Applying the same standard, I 
intend to oppose bailing out the Big Three auto manufacturers. 
Industry analysts contend that the firms continue to trail 
their major competitors in almost every category necessary to 
compete and to make a profit.
    When we last met, the CEOs of the car companies were unable 
to convince this Committee that they had done enough to reverse 
this trend. They were asked to go back to the drawing board and 
devise a plan to transform their respective business models and 
return them to profitability.
    Now that they have each submitted a plan that proposes to 
do so, I am once again interested to hear how they plan to deal 
with current management, labor, cost and quality control, and 
product development shortfalls. How do they plan to address 
changes in the marketplace such as long-term reductions in 
annual sales? On what do they base their forecasts, and what 
happens if they are wrong? Why do they believe their proposed 
actions will reverse the continued loss of market share to 
other car companies?
    How are their plans structured to adapt to an international 
market that demands greater efficiency and flexibility? Do the 
additional changes that they propose go far enough to ensure 
that taxpayers' dollars are being used to transform an industry 
and not just prop up a failed business model for a few months?
    Finally, how is the money going to be used, and how do we 
account for it? And I guess, last, how are you going to pay it 
back to the taxpayers?
    At our last hearing, I asked whether this was the end or 
was it just the beginning. We now have an answer, I believe. In 
just 2 short weeks, the price tag has jumped from $24 billion 
to $34 billion--$25 billion to $34 billion in 2 weeks. I am 
interested to hear what changed and why we should believe that 
things will get better as our economy continues to contract.
    A recent report by Standard & Poor's states that all the 
automakers ``face a similar array of threats in the near 
term,'' and that any government assistance would be viewed ``as 
buying more time for the automakers rather than solving the 
fundamental business risks, especially deteriorating demand 
globally.''
    Each of the automakers have based their plans on what I 
believe are optimistic sales forecasts. Today's witnesses need 
to assure this Committee, and I believe the American people, 
that their plans can account for the unexpected, which seems to 
be the norm rather than the exception in today's economy. It 
has been argued that a great deal is at stake in this debate. I 
could not agree more. The strength of the American economic 
system is that it allows us to take risks to create, to 
innovate, to grow, to succeed, and sometimes to fail. Every 
time Government endeavors to alter any of these dynamics, it 
undermines and distorts the forces at work in all of them. I 
believe that this can impose a cost that is too high to pay as 
well.
    I also believe that adversity can present opportunities. 
The question is whether one is prepared to seize them. I look 
forward to hearing if what the automakers are proposing 
demonstrates that they are truly prepared to do so. I have my 
doubts.
    Thank you, Mr. Chairman.
    Chairman Dodd. Thank you very much, Senator Shelby. And as 
I mentioned earlier, we are going to go right to our witness, 
and I want to welcome Mr. Gene Dodaro, the Acting Comptroller 
of the U.S. Government Accountability Office. Mr. Dodaro has 
worked for over 30 years in a number of key positions at the 
GAO, including Chief Operating Officer of that entity, and has 
certainly strong experience in this area. We welcome you to the 
Committee, and we look forward to your testimony.
    Let me also say to you and for the record that any 
documentation or supporting materials that you wish to have 
submitted to the record, consider them accepted, both from this 
witness and the other witnesses as well, to compile our 
necessary record. That will be also true of my colleagues as 
well as witnesses.
    Mr. Dodaro, the floor is yours.

STATEMENT OF GENE L. DODARO, ACTING COMPTROLLER GENERAL OF THE 
                   UNITED STATES, GOVERNMENT
                     ACCOUNTABILITY OFFICE

    Mr. Dodaro. Thank you very much, Mr. Chairman. Good morning 
to you, Ranking Member Shelby, and all the Members of the 
Committee. I am very pleased to be here today to assist your 
deliberations on the automakers' request for Federal 
assistance. GAO has been involved in a number of Federal rescue 
efforts and bailouts dating back to the 1970s during the 
Chrysler-Lockheed Martin assistance, and over the years we have 
developed three fundamental principles that we think can help 
guide decisions on the Congress in this matter.
    First is clearly identifying what the problem is we're 
trying to solve. In this case, we have got short-term liquidity 
problems with the confluence of fundamental restructuring of 
the industry, and it is all occurring against a backdrop of an 
uncertain economic climate.
    The second fundamental principles is making a clear 
determination that it is in the national interest to provide 
Federal assistance and, if that policy determination is made, 
that there are clear, concise Federal objectives for the 
assistance and a clear exit strategy to return the companies to 
their normal status.
    Last, the third fundamental principle is protecting the 
Government's interest, and here there are several principles. 
First is concessions, concessions by all parties--in this case, 
management, labor, suppliers, dealers, and creditors of the 
affected industry seeking assistance; that there also be clear 
collateral and that the Federal Government be put in a first 
lien holder position and senior creditor status for whatever 
assistance is provided; that there be compensation for risk on 
the part of the Federal Government and, if the entities 
benefit, that the taxpayers share in that benefit through 
warrants or other means going forward; and that there be 
controls over management, and in this case that there be limits 
on compensation, but there be clear and consistent Federal 
control over the disbursement of the money, the monitoring of 
what the money goes for, and also, you know, the ultimate 
effect of whether or not the money is achieving the objectives 
of the program.
    Now, there are two points I would really like to highlight 
this morning before I take questions. One is if the Congress 
determines that Federal intervention is needed here and Federal 
assistance is provided, there needs to be a rigorous board put 
in place to oversee this process and to have clear 
decisionmaking authority about when and how the money is to be 
disbursed to the companies. The board has to have access to all 
the information it needs from the entities in order to provide 
that type of oversight on behalf of the Congress. The board 
needs to monitor the situations, particularly important in this 
case because you have a lot of changes undergoing with the 
economy and the changing circumstances of the entities. The 
board has to have the ability to protect the taxpayers' 
interest, has to have the right leadership, the right 
expertise, and the right resources to succeed.
    My clear message here today is the fact that this board has 
to be established in order to succeed in this particular 
endeavor if the decision is made to move forward. And it is 
also very important to deal with the timing issues here. Many 
of the needs of the companies put forth in their plans are 
going to occur while we are having a change in and a transition 
to a new administration. And so whatever administrative 
apparatus is put in place, there has to be some continuity 
during the period of time when there is a change in leadership. 
And I have some ideas on how that could be addressed. I would 
be happy to talk about it further in the questions.
    Last, I would say the other fundamental point that we would 
be making here is, because of the urgency of some of the 
requests, that if there is a decision to move forward and to 
provide assistance to the automakers, that Congress may want to 
consider a short-term and a longer-term type of an approach and 
that the money be phased in and doled out in increments over 
time rather than large, up-front commitments. And this is where 
the board would play a particular role in making sure that 
there is enough justification and due diligence done on the 
part of the Government with the companies' records to make sure 
that the loans or whatever other assistance is provided is 
warranted.
    So, with that, Mr. Chairman, that concludes my opening 
statement. I would be happy to address questions, and I also 
want to underscore GAO's commitment to the Congress to work 
with the Congress and providing all the help that we can in 
making this difficult and very important decision.
    Chairman Dodd. Thank you very much for your testimony this 
morning. I have a couple of quick questions for you, and then I 
will turn to my colleagues as well. We thank you for your 
involvement.
    There are a number of ways in which we can address this 
issue, and obviously the one which has received a lot of 
attention is whether or not Congress will act. Obviously, there 
are various proposals, both in the House and some various ideas 
that have been surfaced here, and, obviously, given the time 
constraints and others, if Congress is going to act, it is 
going to require some significant effort over the coming days. 
The Majority Leader has suggested that we try to do something 
next week, if we can, to come together.
    But there are alternatives to that, and the two other 
alternatives are: one, under the Emergency Economic 
Stabilization Act, which this Congress supported back around 
October 1st, granted broad authority to the Treasury to respond 
to situations involving the economic difficulties in our 
Nation. And while a lot of focus was paid to financial 
institutions, the underlying point was to get economic 
recovery.
    Would you please share with us your analysis as to whether 
or not, one, the Treasury has the authority under that 
legislation to respond to this by utilizing the so-called TARP 
funds in this case and has the authority to condition those 
resources in a manner that they might see fit, given the 
authority under that legislation.
    And, second, under 13(3) of existing law dealing with the 
Federal Reserve, as you saw them respond to the AIG situation, 
do they not have the authority under that provision of law that 
would allow them to respond to this situation? In effect, which 
I have written to the Chairman of the Federal Reserve, Mr. 
Bernanke, asking that question, but I would like to hear it 
from the GAO this morning. Does that authority exist in your 
mind in both cases?
    Mr. Dodaro. First, as it relates to the authorities under 
the Economic Stabilization Act for the Secretary of Treasury, 
we believe that that legislation is worded broadly enough that 
it would permit the Secretary of Treasury to provide the 
assistance using TARP funds. And the Secretary has broad 
discretion to set whatever conditions on the assistance that he 
would determine necessary.
    I would comment, though, that in my opinion, if TARP money 
is used, there needs to be still additional changes in the 
board oversight structure. Senator Shelby mentioned our recent 
report on the TARP program where we pointed out the fact that 
there are many critical management issues that are not yet 
addressed as part of that oversight over that program.
    Chairman Dodd. I want to get to that in a minute here about 
the oversight.
    Mr. Dodaro. And I will answer on the Federal Reserve 
question, we also believe that the Federal Reserve has the 
authority under the statutes that you cite to do this, provided 
that there is a super majority vote of the Board of Governors, 
the fact that there is certification that credit not available 
through any other means to these companies, and that there is a 
clear ability on the companies to repay the assistance. So 
there are some determinations that would need to be made by the 
Federal Reserve in order to exercise that statutory authority. 
But both of those vehicles are potentially available.
    Chairman Dodd. Now, just on the second question related--I 
thank you for your answer to that question. That has been the 
view of this Senator for a long time over the last number of 
weeks that this matter has been discussed. There has been a 
debate, obviously, as to whether or not that exists, but I 
appreciate the clarity from the GAO on that question. The 
authority clearly exists, and the right to condition that 
assistance as well, which gets to the point of a trustee or a 
board, an oversight board. And I agree with you totally on 
that, I think having this disbursal of resources occur not on a 
lump-sum basis but, rather, conditioned on the performance of 
how things are moving forward with the various ideas that we 
are hearing from the industry itself.
    Tell me, though, in terms of the GAO's assessment in 
reference to the oversight board, how do you--one, did they 
require greater public scrutiny? I believe we did, obviously, 
there. And what has been the GAO's assessment of that scrutiny?
    Mr. Dodaro. In terms of oversight boards generally, Mr. 
Chairman, you know, we would point to a couple models that have 
been used before. All the Members here will recall the Airline 
Stabilization Board that was put in place to provide loans to 
the airline industry follow September 11, 2001. That Board was 
made up of the Chairman of the Federal Reserve, the Secretary 
of Treasury, and the Department of Transportation was an ex 
officio member; GAO was a non-voting member of that Board as 
well. That Board hired expertise. It brought in resources and, 
in our view, worked fairly well. A similar type of oversight 
board was put in place for the Chrysler loan guarantee program 
during that period of time.
    So our view in this case, you would want to have a board 
that would have not only financial expertise--and our 
experience has shown over time when an oversight board is set 
up, you want to have the Federal Reserve and the Board of 
Governors and Treasury as members of the board in any case. But 
you also want to have industry expertise. In this case, it 
could be the Commerce Department. Energy is already developing 
the loan program under separate legislative authority given by 
the Congress, and they have hired some expertise, we 
understand, and would be available to help in this regard as 
well.
    So our view would be you would have to have a board 
composition, and I would be happy to give you specifics on that 
with conditions. But those would be our views on the best way 
to address this particular situation.
    Chairman Dodd. Well, we would ask you to do that right 
away, if you would, as well. Just last on that point, is it the 
GAO's opinion that there has been adequate oversight of the 
Treasury's investments?
    Mr. Dodaro. We think there are critical management 
shortcomings, and we made a series of recommendations that we 
believe Treasury needs to implement quickly in order to address 
those issues to make sure that there is proper transparency and 
accountability over the use of the money that has been provided 
already, that the conditions that have been put on for 
executive compensation and payment of dividends, et cetera, are 
adhered to. We also made a series of recommendations about the 
capacity of the Treasury Department to staff up to adequately 
monitor and oversee and implement the program going forward, 
and those are listed in our report. I would be happy to submit 
our report for the record to document that, Mr. Chairman.
    The other point I would make, you know, a lot of our 
recommendations go to ensuring an effective transition given 
the upcoming change in administration. One of the suggestions 
that we might have in this case is if Congress would create a 
board, if they make the determination that Federal assistance 
is needed, that the one entity that is not going to have a 
change in leadership is the Board of Governors of the Federal 
Reserve. And it could be set up where they are members of the 
board and serve in an interim status as chair until a new 
Secretary, if it would be the Secretary of Commerce or one 
other person is the chair of the board, until the new 
leadership team is confirmed during the next session.
    This is really important because, as you point out, you 
have read the plans, as have I, and a lot of the assistance is 
being requested during the next several months when this is 
going to occur. And so you are going to need some continuity 
during this period of time with the proper expertise and 
resources if the Government's interests are going to be 
adequately protected.
    Chairman Dodd. You raised a second set of issues, and that 
is, the transparency of the Federal Reserve and the assets they 
are holding. And this Chairman intends to take a good look at 
how the Fed has handled its investments. They have a lot more 
than Treasury has handled, and, frankly, I have a lot of 
concerns about the opaqueness, to put it mildly, of the Federal 
Reserve's handling of those assets. That is for another hearing 
at another time, but let me turn to Senator Shelby.
    Senator Shelby. Thank you. Thank you, Chairman Dodd.
    I appreciate that you were brought into this, the GAO was 
brought into this without much lead time, and it is my 
understanding that the GAO may not have very deep auto industry 
expertise. In fact, it is my understanding that the GAO does 
not presently employ auto industry analysts on its staff. But 
even if you do not have auto-specific expertise, can you 
extrapolate from your experiences conducting other analytical 
projects and provide your assessment regarding the effort 
required to adequately assess the financial condition of the 
automakers? In other words, is 1 day enough time to prepare?
    Mr. Dodaro. Well, we have been making the most of that 1 
day, Senator, but you could use more time, obviously, and you 
could need more detailed information from the companies. First 
of all----
    Senator Shelby. To make a good decision.
    Mr. Dodaro. Yes, yes. And that is why we think a board 
apparatus is a really important issue. I mean, in this case, 
you know, one of the companies is not a public company, and 
Chrysler, you know, is owned by a private equity firm. So you 
do not have the normal disclosures that you do for the other 
two companies. And so, you know, we have tried to get as much 
information as quickly as we could in this case, but this is 
the type of things that we believe the board could do. The 
board could assure the Congress that credit is not available 
elsewhere, that the cash-flow needs of the particular companies 
are justified from a timing standpoint, et cetera.
    Senator Shelby. But we are not at that point yet, are we?
    Mr. Dodaro. Well, as the Chairman mentioned in his remarks, 
there are questions about the plan.
    Senator Shelby. Absolutely.
    Mr. Dodaro. There is a need for additional information. It 
provides a high-level view, and as it looks into the future, 
there are some assumptions that are being made both from an 
industry standpoint, an overall economic standpoint, but also 
in concessions that would need to be negotiated with other 
parties, for example, in a couple of cases, you know, swapping 
equity for some of the debt that is held by the companies. And 
while that is a laudable objective, exactly how that is going 
to work out and play out as well as other negotiations in the 
upcoming period of time, let alone changes in general economic 
conditions, would remain to be seen. And that is the type of 
thing that a board would monitor closely to protect the 
Government's interest.
    Senator Shelby. The bottom line is that the more 
information one has, a board has, you have, we have, the better 
informed decision we can make. Is that correct?
    Mr. Dodaro. That is absolutely correct.
    Senator Shelby. And you are not telling us this morning 
that you have all the information you would like to make a 
decision today, are you?
    Mr. Dodaro. Well, we are auditors, Senator. We always like 
more information.
    Senator Shelby. Absolutely.
    Mr. Dodaro. And I believe it is always in the Government's 
interest to have everything it needs.
    Senator Shelby. Yes, sir. You noted that the assistance 
program--that these assistance programs from the Government 
pose significant financial risk to the taxpayer. The magnitude 
of that risk and the companies' need for the money can only be 
assessed if we have detailed information about what the 
financial state of each company is and what their plans are for 
fixing their problems.
    Could you tell the American people today that the auto 
companies have provided the General Accounting Office in the 
short time with sufficient information to make those 
assessments of such magnitude today?
    Mr. Dodaro. Well, there is definitely information in their 
plans, if you take it as a self-reported basis, that shows that 
they have some financial difficulties.
    Senator Shelby. Sure.
    Mr. Dodaro. That seemed to be clearly pointed out by them 
in that data. We have not had time to do any independent----
    Senator Shelby. To assess all that.
    Mr. Dodaro. To assess it. But if you take the information 
on a self-reported basis, obviously there are issues that need 
to be addressed. That is why we were suggesting a short-term 
approach and a longer-term approach to deal with the critical 
issues. I mean, the Congress is in a difficult position right 
now because of the urgency that is being expressed over the 
need for this particular assistance, and we think if there is a 
determination made to provide that assistance, there could be 
some short-term issues. But you need to get the board in place 
as soon as possible.
    Senator Shelby. What would some of the possible benefits of 
Chapter 11 reorganization be for these companies?
    Mr. Dodaro. Senator, that is another area where, you know, 
we do not have a lot of experience at the GAO in that area. But 
there are obviously clearly defined legal procedures there that 
are in place.
    Senator Shelby. Under Chapter 11.
    Mr. Dodaro. Yes, yes.
    Senator Shelby. Chapter 11 basically is for restructuring 
companies, is it not?
    Mr. Dodaro. That is correct.
    Senator Shelby. If they are worth of restructuring.
    Mr. Dodaro. Right. That is correct. And, you know, there 
are a lot of pros and cons of those issues. There are a lot of 
risks associated with that as well, given the general economic 
environment, the size of these companies, the 
interrelationships with the suppliers that they have.
    Senator Shelby. OK. I want to touch on something and see if 
I understand what Senator Dodd was asking you and your answer 
in dealing with the Fed. Were you saying a few minutes ago that 
you believe that the Federal Reserve Board, led by Chairman 
Bernanke, the Board of Governors, has the power now, if they so 
wanted, thought it was necessary, to put money in these auto 
companies just like they did with AIG and others? Do you 
believe they have the power, the legal authority to do that if 
they deemed it necessary?
    Mr. Dodaro. Yes. Yes, we believe they do, but they would 
have to make the determination that----
    Senator Shelby. So they could do that without Congress 
doing anything, could they not?
    Mr. Dodaro. Historically, that authority has been used for 
financial institutions, but, you know, our view is it is pretty 
broad authority, and it could fit this circumstance. But they 
would have to make the determinations that the credit is 
available. It requires a super majority vote of the Board of 
Governors to make it have a high threshold, and it has to 
involve a determination by the Federal Reserve that the 
companies would have the ability to repay. But those things are 
present, and we believe it is broad enough authority that it 
potentially----
    Senator Shelby. They could do it if they wanted to do it.
    Mr. Dodaro. Yes.
    Chairman Dodd. Let me just say, I do not have the language 
of 13(3) right in front of me, but believe me when I tell you 
that it is not specific to financial institutions. It can be 
any entity.
    Mr. Dodaro. Right. I just was pointing out historically----
    Chairman Dodd. But I want to make sure that we are not 
confusing that question. It can be any entity at all under 
13(3).
    Senator Shelby. Senator Dodd, one last question. You have 
been generous with my time.
    If the Fed were to do something like that, looking at their 
history, they have historically been a good task master for the 
money, how it was spent, how companies were run--in other 
words, the board you referred to. And that would be positive as 
opposed to us loaning money to auto companies that I personally 
doubt that will ever be paid back.
    Mr. Dodaro. The Federal Reserve does have the expertise 
necessary to be able to do some of the things that were 
associated with the board, or any board or any entity could 
contract for additional expertise that they may not have 
resident in their entity.
    Senator Shelby. Thank you.
    Chairman Dodd. Senator Johnson.
    Senator Johnson. Mr. Dodaro, let us cut to the chase. What 
would be the effect on the Nation's economy if Congress or the 
Fed did not authorize emergency loans for the Big Three 
domestic automakers?
    Mr. Dodaro. Well, Senator, we have not studied that issue 
in depth, as mentioned, but obviously, there would be 
repercussions. And how significant those repercussions would be 
would depend upon, you know, what next steps would occur if 
there was no Federal assistance put in place. But there is no 
question that given the size of these companies, the number of 
people that they employ, that if there are disruptions in their 
operations, it is going to have an effect. And right now we are 
in a weakened state from our economy's standpoint, and because 
of that we are sort of in unprecedented circumstances right 
now. And I think that is a heightened risk if the companies do 
not provide--or are able to get some type of assistance.
    Senator Johnson. What do legislators need to consider 
exactly when writing legislation to ensure better integrity, 
accountability, and transparency if funds are extended to the 
automakers?
    Mr. Dodaro. The number one recommendation, again, is a 
board that has strong authority, that has access to all the 
information that it needs, that has the expertise and it is 
resourced properly to be able to review the information from 
the companies and provide the type of oversight necessary. 
Other safeguards should be the fact that there is collateral 
established for the loan, that the Government is in a first 
lien holder position, has senior status over the loan. If there 
is collateral, we should get collateral during this period of 
time. And there ought to be concessions made by all parties in 
order to provide that assistance.
    But the number one safeguard, Senator, in my opinion, is 
this strong, decisionmaking board with the proper authority and 
resources.
    Senator Johnson. I yield back.
    Chairman Dodd. Thank you very much, Senator.
    Senator Bennett.
    Senator Bennett. Thank you, Mr. Chairman.
    Let us go back to the question of Fed authority. The 
restructuring might very well consist of having current 
creditors take equity. As I understand it, a very large portion 
of the current creditors are, in fact, some of the institutions 
that are on Chairman Dodd's chart, that is, the larger banks, 
the larger financial institutions. Given their status, I am 
sure they would not be happy with the idea of having their 
balance sheets significantly changed by shifting from credit to 
equity.
    On the other hand, would it be possible for the Fed or the 
Secretary of the Treasury, or both, under TARP to say if you 
take equity in replacement for your debt, we then will give you 
an infusion of cash from TARP? Then the balance sheet of the 
auto company changes quite dramatically. The cash-flow 
challenge changes because they are no longer paying interest on 
their credit obligations, but they have an equity situation.
    Discuss that. React to that possibility.
    Mr. Dodaro. That is a very intriguing set of proposals, 
Senator, and, you know, we have not examined the 
interrelationships that you are talking about in terms of how 
they exist. But I would say, though, that one of the tasks of 
the board, or whatever entity is put in charge of this 
particular situation, is to bring all parties to the table to 
have a negotiated type of an arrangement. And certainly, you 
know, at this point we should not rule out any possibilities of 
how those types of negotiated settlements could take place to 
provide the type of circumstances that you are talking about.
    So, you know, I do not know enough to give you a particular 
answer, but the concept of bringing people together that are 
stakeholders in this process and trying to work out an 
arrangement is one duty that the board should have.
    Senator Bennett. Well, in your view, does the Treasury have 
the authority now to do that kind of thing if, indeed, a 
restructuring of that sort made sense?
    Mr. Dodaro. Let me just turn to my General Counsel for a 
minute.
    Mr. Kepplinger. Senator, certainly the Secretary of 
Treasury under the TARP program has a fair number of tools to 
purchase assets. The other thing, too, is that they have the 
authority, I would think, with the fact that they have this pot 
of money available to them to engage the parties in 
negotiations, and particularly to the extent that they are 
mutually advantageous to work out those types of arrangements.
    Is there something specific in TARP that addresses this 
type of situation? Presently, not that I can recall off the top 
of my head.
    Senator Bennett. So if there is nothing currently in it, 
the presumption is that, yes, they do have the authority?
    Mr. Kepplinger. Well, they certainly have a wide range of 
authority in terms of purchasing assets from the financial 
institutions and providing loan insurance and loan guarantees. 
How they could work the deal would depend upon the particulars.
    Senator Bennett. Well, yes. I will not pursue it. My time 
is running out. But it occurs to me that it might go down a 
little better if the financial assistance were given to the 
financial institutions rather than to the auto companies, but 
the auto companies could receive significant relief. And by 
putting the equity on the balance sheets of the financial 
institutions, you create a new set of incentives on the part of 
those equity holders who now become very significant 
shareholders to protect their own investment by creating a 
marketplace pressure for changes in the way the auto companies 
operate. Seats on the board would come with that equity. In 
effect, you take a portion of the oversight responsibility away 
from the Government and put it in the hands of financial 
institutions, at the same time easing the cash requirements on 
the part of the auto companies.
    So I throw that out as one thing for us to consider as we 
go along.
    Mr. Dodaro. Well, Senator, I would be happy to think about 
that idea and provide, you know, some additional information to 
the Committee on that proposal.
    Senator Bennett. Thank you very much, Mr. Chairman.
    Chairman Dodd. Thank you very much, Senator.
    Senator Reed.
    Senator Reed. Thank you, Mr. Chairman, and thank you, Mr. 
Dodaro.
    Are we talking about one board or three boards, giving 
three separate entities, one of which is privately held?
    Mr. Dodaro. I would suggest one board, Senator, to ensure 
consistency. You know, from reading the plans, you obviously 
have three very different situations that are being presented 
here, but there needs to be consistency and equity in 
treatment. One board, Senator.
    Senator Reed. And with respect to the formulation that you 
are talking about and one that seems to have been used both 
with the airlines and with Chrysler back in the 1970s is that 
the funding, the actual funding was contingent upon the board 
determining that these conditions had all been met. Is that 
correct?
    Mr. Dodaro. That is correct.
    Senator Reed. So, procedurally, the board, would it be 
established, the actual disbursement of funds to the companies 
would be made by the board, they would not have an account they 
could draw down at their discretion?
    Mr. Dodaro. That is correct.
    Senator Reed. One of the points you made--and it is 
reflective in several of the questions about assuring a first 
priority for taxpayers in terms of their investment, implicit 
in--at least implicit in what I have heard the companies have 
said--is that this is very difficult for them to do because of 
the ability to coordinate among debt holders, suppliers, et 
cetera. Do you have any comments on that?
    Mr. Dodaro. I think that, you know, each company is in a 
different situation as it relates to that particular question, 
Senator. This is an area that would have to be negotiated, but 
I think the clear preference, if you will, is for the 
Government to be placed in that status and that there be a 
negotiated arrangement with the various creditors or other 
stakeholders in order to make sure that that happens, or that 
there is some other type of collateral or warrants that are 
given for future purchase of stock. There are a lot of 
different arrangements that could be made and negotiated, but 
that would be another task for this board entity.
    Senator Reed. Have you looked at the interlocking 
relationships between the production companies and the finance 
companies?
    Mr. Dodaro. No, we have not.
    Senator Reed. But that has to be something, I presume, that 
should be considered.
    Mr. Dodaro. Definitely.
    Senator Reed. And, in fact, I am under the impression that 
GMAC, at least, is seeking to become a bank holding company or 
a financial holding company?
    Mr. Dodaro. Yes, that is our understanding. That was in one 
of the disclosures.
    Senator Reed. So the Federal Reserve will be the regulator 
of GMAC, effectively.
    Mr. Dodaro. If they would approve----
    Senator Reed. If they would be accepted.
    Mr. Dodaro. If they approved that status.
    Senator Reed. I guess a final point I want to make or a 
question or clarification with respect to what you said is that 
the procedure you seem to be suggesting, the one that we have 
followed in every other situation, is that the critical act 
that we do is establish the board and the parameters, one of 
which would be first lien position, one of which would be a 
definite voice in the management of the company--in fact, even 
perhaps naming directors--and then concessions from everyone, 
not just the UAW but suppliers, dealers, et cetera.
    Mr. Dodaro. That is exactly right, Senator. Congress would 
establish the membership of the board, the authorities of the 
board, and Congress can establish whatever conditions it 
believes necessary to protect the taxpayers' interest to guide 
the board's decisions from a policy standpoint, including 
executive compensation, payment of dividends, et cetera.
    Senator Reed. And the other issue here is one of time 
because what we have heard the companies say is that they are 
in a very precarious cash-flow position, and that this board, 
one, to be established; two, to make a careful review probably 
with independent assistance is not something that can be done 
in a matter of days.
    Mr. Dodaro. Well, that is one of the reasons we would 
suggest, if Congress decides assistance is warranted and 
provided that there be a short-term mechanism to get the money, 
most of the plans--or the two plans that require immediate 
assistance, the General Motors plan and the Chrysler plan, call 
for help during the--immediately, but also the January, 
February, March timeframe, first quarter. You know, we believe 
that there is sufficient expertise now available in the Federal 
Government to get a board together to at least look at, while 
there may be an initial outlay--and that initial outlay ought 
to be conditioned on certifications by the automakers that no 
other credit is available to them and other conditions, but 
then they could immediately focus on the cash-flow positions of 
those entities and then take a look at the longer-term issues 
associated with restructuring. That would buy enough time to do 
that.
    Senator Reed. Thank you. Thank you, Mr. Chairman.
    Chairman Dodd. Thank you very much, Senator Reed.
    Senator Crapo.
    Senator Crapo. Thank you very much, Mr. Chairman.
    Mr. Dodaro, at the outset of your testimony, you indicated 
that we had a short-term liquidity problem. Could you define 
short-term for me? I mean, what are you talking about there?
    Mr. Dodaro. Yes. Basically, that is reflecting what the 
automakers put in their plans, Senator, which is the cash-flow 
problems that they are having, meeting the needs of their 
companies immediately in this particular month, but especially 
in the first quarter for next year.
    Senator Crapo. And these cash-flow projections are based on 
various scenarios, correct?
    Mr. Dodaro. That is correct.
    Senator Crapo. And I know one of the big questions that we 
are dealing with here in Congress is whether bankruptcy is not 
a tenable option, and maybe the word ``bankruptcy'' shouldn't 
be used. Maybe we should be talking about a Chapter 11 
reorganization under the Bankruptcy Code. But aren't the 
assumptions that the automakers are making dependent on the 
public returning to full confidence in the companies?
    Mr. Dodaro. Basically, most of the plans call for resuming 
more of a normal sales status around the 2011-2012 type 
timeframe, which is when they would propose that they would 
start paying back the Federal loans. But there are also a 
number of assumptions in there associated with negotiations 
with their creditors and other stakeholders in the process. In 
fact, the General Motors plan talks about an oversight board 
along the lines of which I have talked about, and they 
basically would be the substitute, if you will, for the 
reorganization structure under the Chapter 11. The board would 
take on that task of working with all the stakeholders.
    Senator Crapo. And that gets to the real question I am 
asking, because as I said, one of the big issues here is 
whether a Chapter 11 reorganization is not tenable in the auto 
industry in terms of the confidence that buyers will need to 
purchase automobiles and so forth. And the question I have is, 
do you believe that the essentially same type of 
reorganization, if that is what we are talking about here, only 
done through an oversight board rather than through a Chapter 
11 proceeding, is going to create a difference in terms of 
consumer confidence?
    Mr. Dodaro. That is hard to predict, Senator, but my point 
would be here, though, if the government takes on that task, it 
needs to have the appropriate people and the resources and with 
eyes wide open to go into that process to take it to a 
successful conclusion. But the idea, particularly in the 
current economic climate, trying to deal with predicting 
consumer confidence or overall standpoint, I am just not 
comfortable that I am in a position to do that.
    Senator Crapo. With regard to the oversight board, what 
authorities do you contemplate that it would have? And what I 
am getting at here is I look back, and I am not an expert on 
what happened in 1979 in terms of the Chrysler bailout that 
occurred then, but my understanding is that at that time, 
Congress was very specific and the terms and conditions that 
Congress laid out were statutory, and I assume that you are 
contemplating, as you suggest an oversight board here, that we 
have again very specific Congressional standards set----
    Mr. Dodaro. Yes.
    Senator Crapo. ----and that this oversight board would have 
some authorities to implement those standards, correct?
    Mr. Dodaro. That is exactly right, Senator.
    Senator Crapo. Do you recall what kind of standards 
Congress put in in 1979?
    Mr. Dodaro. If you would indulge me, Gary Kepplinger, our 
current General Counsel, was the legal counsel for the 
Comptroller General and we were on the Chrysler board, and if I 
could ask him to take this----
    Senator Crapo. That would be very helpful. And the question 
I am getting at here is what kind of specifics did Congress at 
that time require?
    Mr. Kepplinger. As you asked before and as you pointed out, 
the conditions in the Chrysler loan guaranty statute were very 
specific. Congress, I think, developed these conditions through 
over about a three or 4-month period, and I suspect, without 
really knowing, that there was general acceptance by the major 
players before the legislation was passed.
    Now, there was a series of findings that the Chrysler loan 
guaranty board had to make as a condition for issuing a 
commitment--viability, ability to repay, assurances that the 
concessions were in place, a financing and operating plan that 
was satisfactory to the board, because actually, as Gene has 
pointed out before, it is one of the best protections for the 
government is to assure that the government has confidence in 
the financing and operating plans going forward.
    Then in addition to that, at the time of the loan guaranty, 
there were other assurances and requirements that had to be in 
place--guaranty fees, warrants, other protections, financial 
upside advantage for the government should it happen, positions 
in the event of bankruptcy, a senior position, et cetera, et 
cetera, et cetera. I can supply, if you would like, a fairly 
detailed and perhaps more orderly recitation of what they were.
    Senator Crapo. That would be very helpful. I note I am way 
over my time. I apologize to the Chairman for that. I would 
just like to ask one quick follow-up. In terms of these kinds 
of conditions that Congress imposed, and I would like those 
specifics, would the oversight board that we are contemplating 
that you are talking about today, would it have authorities to 
engage in management decisions on behalf of the companies?
    Mr. Dodaro. In Chrysler, the government was not involved 
directly in managing the entities. The government's involvement 
was more indirect through the control over a billion-and-a-half 
in loan guarantees. And if you will also recall, there were 
contributions, I think in the range of another billion-and-a-
half in terms of concessions from the stakeholders and 
additional funding. So----
    Chairman Dodd. In fact, that was a condition. Wasn't that a 
condition?
    Mr. Dodaro. The billion-and-a-half from all were 
conditions. But my point is is that the board wasn't engaged in 
the managing of the companies. The board was engaged in 
financing, and to a, you could say to a good extent, 
restructuring the companies.
    Senator Crapo. And we wouldn't be suggesting anything any 
different than that sort of arrangement now.
    Thank you very much.
    Chairman Dodd. That is a great question, and it again goes 
back to the point that, well, 535 Members of the Congress in 
the next matter of days trying to craft something here is 
difficult and other options exist for managing this situation 
where getting these kinds of decisions could be made almost by 
fiat as opposed to trying to convince two bodies of Congress 
along with others to draft something here that could work. So I 
appreciate the observation.
    Senator Schumer.
    Senator Schumer. Well, thank you, Mr. Chairman. I want to 
thank you. This is excellent testimony and I think it is along 
the right lines we should pursue.
    I have a couple of points I want to make and then I am 
going to ask you to comment on them. First and obviously, at 
least to me, we can't let the industry fail. Millions of 
workers lose their job. We have to have a domestic 
manufacturing base. And to let the auto industry fail during a 
recession would make a sick economy sicker, so we have got to 
do something.
    Second, bankruptcy is not a viable option because it will 
seal the death of the auto companies. No one is going to buy a 
car from a bankrupt company. No one is going to make a loan to 
someone buying a car from a bankrupt company. And everyone 
talks about this prepack. A prepack brings the big players 
together, but it doesn't bring all the players together and so 
once you go to bankruptcy, they can delay it for months, even 
years, and the company fails. So we have to do something, not 
bankruptcy.
    And I think I speak for many of us here. We care less where 
the money comes from--that has been the big debate, should it 
come from the TARP, should it come from the 136--but much more 
how it is spent. And speaking for myself and I think a good 
number of people, I don't trust the car companies' leadership. 
I worry that if they are left on their own, they will be back a 
short time later asking for more and we won't be better off. To 
hand money over with vague, unenforceable promises without an 
enforcement plan for viability isn't good enough.
    So that leads us to where you are sort of, which is 
Chrysler. That is the one model. It is interesting to note, Mr. 
Chairman, that Chrysler wanted direct money or a tax refund and 
the Congress said, no, we are setting up a board. But it wasn't 
just an oversight board. And I think when you call it an 
oversight board, you run into trouble, because this is a board, 
I think, that has to do a lot more.
    If you have a board, and I wouldn't even have a board right 
now, given the time problem. I would have an individual. I 
would let the President designate the Treasury Secretary, who I 
believe was chairing the other board, or someone else, to bring 
all the big parties together and work out concessions quickly 
so that then the money can flow. If you give the money and then 
say, let the auto companies negotiate, you know who is going to 
lose? It will be the workers. UAW made concessions yesterday, 
significant ones, but where are the bond holders? Where are the 
dealers? Where are the other lenders?
    The only way you can do that is the government has the 
carrot, in my view, in the view not of a board. It will be too 
cumbersome, and as Senator Reed alluded to, we don't have the 
time. You let this President or the next one--it may have to be 
this one--pick somebody. He calls all the major players into 
the room, probably the Treasury Secretary, and says, you all 
have to make concessions. And then the carrots, which are not 
just some lending but warranties so that people will buy the 
cars and some back-up for lending, because no one is buying the 
cars without lending, that is the kind of plan.
    I think that can be done within the next three to 4 weeks. 
Look what they did on these financial things. That is not a 
great example in many instances, but I think they can.
    So the worry I have with yours is not the basic concept but 
the timing, the strength of the board to impose conditions, but 
also to do the negotiating, and perhaps it shouldn't be a board 
but one individual or maybe the Treasury Secretary and two 
others, and do it quickly. Now, why isn't that a better plan? 
It is along the models you say, but that takes the Chrysler 
model and adapts it to the problems we have now.
    Mr. Dodaro. First of all, Senator, I want to clarify. I 
have been trying to make sure I exorcise the word ``oversight'' 
out of this board proposal----
    Senator Schumer. Good.
    Mr. Dodaro. ----because I don't want it to be viewed as an 
after-the-fact oversight board proposal. That is not what we 
intend. It should be a decisionmaking apparatus and monitoring, 
as well.
    Senator Schumer. But monitoring is not--when you say 
decisionmaking, do you mean it would help negotiate? It would 
call the bond holders in?
    Mr. Dodaro. Yes.
    Senator Schumer. It would call the dealers in and say, you 
have to make concessions----
    Mr. Dodaro. Yes.
    Senator Schumer. ----before we are going to give some 
money.
    Mr. Dodaro. Yes. Yes. Yes.
    Senator Schumer. Good.
    Mr. Dodaro. And also, we have two concepts. One is the 
board concept. The other is short-term/long-term. Now, short-
term can be done in a wide variety of ways for the immediate 
next few months, but the restructuring plans that have been put 
forth by the automakers take you out two, 3 years----
    Senator Schumer. Right.
    Mr. Dodaro. and there, you need a stronger structure, and 
there, I would highly recommend the board approach as a means 
of continuity over time. But short-term, there are----
    Senator Schumer. What about having one person designated by 
the President, or if it need be the next President--by the 
President to put together this package rather quickly?
    Mr. Dodaro. There are various approaches that could be used 
in the short-term.
    Chairman Dodd. Does the word ``trust,'' a trustee, maybe 
that is the concept. That word ``trustee'' has exactly the kind 
of things, Chuck, I think you are talking about.
    Senator Schumer. Yes.
    Mr. Dodaro. I mean, in the current climate in which we are 
dealing with a lot of these issues that are fast-moving issues, 
all options ought to be on the table, including that one.
    Senator Schumer. Thank you.
    Chairman Dodd. Do you have another question? I am sorry. I 
didn't mean to interrupt you.
    Senator Schumer. No, my time has expired.
    Chairman Dodd. OK. I am sorry.
    Senator Dole.
    Senator Dole. Thank you very much for your testimony this 
morning, which I appreciate very much. Could you talk more 
about the ramifications if the Big Three auto companies, if 
they go through a prepackaged bankruptcy? Just more details on 
that, please.
    Mr. Dodaro. Senator, I wish I could. I mean, we were sort 
of called into this at the last minute to look at the plans 
that they have, so we really haven't studied or are in a 
position to really answer that question with any degree of 
certainty. I think the other difficult issue there will be 
trying to determine exactly what the scope of the so-called 
prepackaged bankruptcy would be. So I really can't offer much 
more insight there. I am sorry.
    Senator Dole. The report that was released 2 days ago by 
GAO, I would like to talk about that for just a few more 
moments because this report acknowledged that the Treasury 
Department has provided more than $150 billion to 52 
institutions at this point and that Treasury has yet to impose 
the necessary safeguards, like a system fully developed and 
implemented. It is a heightened risk that the interests of the 
government and taxpayers may not be adequately protected.
    Wouldn't the board, whatever we call it, which is supposed 
to be a part of the legislation that we are talking about now 
or the plan that we are talking about, run the same risk? What 
is the guarantee that this would occur any more readily than 
what has happened under the TARP legislation?
    Mr. Dodaro. That is a good question, Senator, and what I 
would say the difference would be is a clear delineation in 
statute from the Congress as to what its expectations are of 
whatever executive branch or administrative entity is put in 
place.
    In this particular case, the oversight board that is 
mentioned under TARP is really an after-the-fact body for 
reporting and monitoring. It is not along the lines of what you 
were talking about. So the difference would be Congress 
specifying what needs to be done by this entity to safeguard 
the government's interest, and along the lines of the Chrysler 
loan guaranty program or the airline stabilization board. We 
have models that have worked and we are suggesting a 
replication of that approach, and that level of specificity 
would make all the world of difference, in my opinion, for this 
particular set of circumstances compared to the TARP program.
    Senator Dole. Thank you. Thank you, Mr. Chairman.
    Chairman Dodd. Thank you very much, Senator.
    Senator Menendez.
    Senator Menendez. Thank you, Mr. Chairman. Mr. Dodaro, 
thank you for your testimony.
    Some of my questions have been pursued by some of my 
colleagues, but there is one specifically. You know, I look at 
the TARP, your report on the TARP program, and I wonder, the 
two things that we were looking for in addition to obviously 
rescuing the financial institutions and trying to help Main 
Street was transparency and accountability, and they seemed to 
have been victims in this process of not being fulfilled in the 
TARP program. So I wonder, isn't that a lesson for those of us 
who are arguing for some greater conditionalities in that 
process? As we look at the automakers and the possibilities of 
helping them out, isn't conditionality a very key element of 
what we should be looking for moving forward?
    Mr. Dodaro. Absolutely. Absolutely, Senator. I think that 
makes all the difference. If you look at the title of our 
report, our title says ``Additional Actions Needed to Better 
Ensure Integrity, Accountability, and Transparency,'' and the 
conditionality is the underpinnings of that.
    Senator Menendez. Now, I have heard, of course, in your 
original testimony and some of your answers that, of course, 
being first in line. I think I have read some accounts, and we 
will hear their testimony when they come forward, but that the 
Federal Government needs to be paid back first and all other 
outstanding debt would be paid after the taxpayers get their 
money back. Some of the Big Three have expressed skepticism at 
achieving this. That was accomplished in the 1979 rescue, was 
it not?
    Mr. Dodaro. Yes, it was, Senator.
    Senator Menendez. If it was done then, have circumstances 
changed in such a way that it cannot be done now?
    Mr. Dodaro. Not to my knowledge.
    Senator Menendez. Let me ask you, among the conditions that 
we should be looking at, first in line and the oversight board 
at the appropriate time, should the Congress not be considering 
what, in fact, that oversight board should be demanding of the 
Big Three? For example, all of these companies have presented 
some restructuring plans, but ensuring that that restructuring 
takes place, ensuring that there are benchmarks and that there 
are timeframes for those benchmarks, should that not be a 
critical part of what we are seeking?
    Mr. Dodaro. Yes, definitely.
    Senator Menendez. Would we be looking at, for example, of 
course, having a review? You mentioned having the board be part 
of the actual final restructuring plan of these companies, that 
that is something that Chrysler's rescue plan did, is that 
correct?
    Mr. Dodaro. Let me ask Gary to respond.
    Senator Menendez. Sure.
    Mr. Kepplinger. Largely through the conditions, Senator, 
that were imposed upon the commitment and the extension of the 
loan guarantees, you were accomplishing that restructuring and 
those concessions had to be reflected in the financing plan. 
There was a dollar-for-dollar draw down in terms of the amount 
of loan guarantees that the board could provide to Chrysler had 
to be matched dollar for dollar with concessions from the 
stakeholder community. So you certainly can build that in.
    Mr. Dodaro. And the conditions that were set during the 
Chrysler period in 1979, that was for a $1.5 billion loan 
guaranty program at that point in time, and so my advice would 
be those would be the starting point for the conditions. Here, 
we are talking about multiple entities with a lot more money at 
stake, so Congress would be, at its discretion, add additional 
conditions if it so deemed appropriate.
    Senator Menendez. Now, at least maybe one, I don't know, 
maybe more, but one of these companies has suggested the 
possibility of having a merger with a foreign manufacturer. In 
that case, would it not be of interest to the United States to 
ensure that there are some conditions precedent at least on its 
financial interests in that respect to make sure that, in fact, 
what we are doing--that may create greater viability for the 
company at the end of the day, but what we want to ensure is 
that we are helping a domestic auto industry, not a foreign 
auto industry.
    Mr. Dodaro. Well, I think that, Senator, that goes back to 
my other suggestion about the Congress establishing clear goals 
and objectives to protect the national interest. So whatever 
the Congress would want to make sure that it provides clarity 
in the legislation. That issue certainly could be one of the 
ones that is considered for that purpose.
    Gary?
    Mr. Kepplinger. That was a specific condition that was 
included in the extension of the loan guarantees. To read from 
the statute, the board had to determine that there was no 
substantial likelihood that Chrysler Corporation will be 
absorbed by or merged with any foreign entity, and that is, of 
course, a judgment that you all will have to make.
    Senator Menendez. And one final question. Have you looked 
at this point in your--I know you got brought in rather late, 
but have you looked at the presumptions of the Big Three in 
terms of what their projections are as it relates to viability? 
Have you had that opportunity?
    Mr. Dodaro. No, we have not.
    Senator Menendez. OK. We will look forward to the next 
panel in that respect.
    Thank you, Mr. Chairman.
    Chairman Dodd. Senator Corker.
    Senator Corker. Mr. Chairman, if I could, I could burn up 5 
to 7 minutes now with this witness and I have some questions 
that would be pertinent. What I would like to ask your 
indulgence to do is to let me lop that over into this next 
session for our main course. I know three of those witnesses 
have driven a long ways to be here and I would rather use my 
time, if you will, with them. But if that is not acceptable, I 
will go ahead and use the time.
    Chairman Dodd. No, no, fine. We will do that. I know 
already I have talked with Senator Corker and he has asked for 
a little extended time to pursue a line of questioning and I 
certainly want to accommodate my colleague with that request. I 
will just underscore the point that at least three of our 
witnesses, maybe more, have driven a long way to be here and we 
thank you for that.
    Senator Shelby. Mr. Chairman, I wonder if they are going to 
drive back.
    [Laughter.]
    Chairman Dodd. I think that will depend on what we do here 
in the next few days.
    [Laughter.]
    Chairman Dodd. Let me see who is next here. I apologize. 
Senator Casey?
    Senator Casey. Mr. Chairman, thank you very much, and Mr. 
Dodaro, we appreciate your testimony today.
    I have to put something on the record because I have a bias 
here. You have got roots in Pennsylvania and I know you 
attended Lycoming, is that correct?
    Mr. Dodaro. That is correct.
    Senator Casey. One of our great colleges. So now that that 
is on the table, that will obviously be the predicate for my 
questions.
    [Laughter.]
    Senator Casey. No, I am grateful for the work. I wanted to 
ask you about basically two--probe two areas. One is I was 
happy in the report that you provided, the testimony today, 
that you highlighted goals for us on a number of fronts, not 
just how to analyze the problem and the legislation and the 
solution, in particular on the board, the aspects of putting 
together a strong oversight board. But especially I appreciated 
the taxpayer provisions, where you outline on pages four and 
five about concessions that everybody has got to help here.
    And I won't go through the detail of what you set forth: 
The controls over management; where you talk about approving 
aid recipients' financial and operating plans and any new major 
contracts; Number three, that the government should require 
adequate collateral; and four, the government should receive 
compensation through fees and equity participation from these 
entities. I think it is important that we have principles that 
guide all aspects of this, but especially those that pertain to 
taxpayer protections.
    I guess the main area I wanted to question you about, 
though, is your process. I was the Auditor General in 
Pennsylvania. We issued audits and investigations, and I know 
they take some time to do it the right way, but I know that you 
are able to move, I think, a lot faster than some auditing 
entities even of comparable size. I guess I was going to ask 
you if it is possible to do a review that would help us even in 
the near term when you have begun to take a look carefully at 
each of the proposals that the automakers are presenting to us 
today and have presented the last couple of days.
    I was thinking about a report that could outline the 
adequacy of the plans, maybe a review of how realistic 
assumptions are that are built into the underpinning of these 
reports, what additional information is needed for this 
government, this Congress, to make determinations about 
legislation even for next week, and how to modify the plans to 
meet the criteria that you have established in this report.
    I guess the question is, A, could such a report be done, 
and B, is it possible even to construct something that would be 
substantial and thorough enough literally in the next 6 days or 
so, or 5 days, before we vote?
    Mr. Dodaro. Senator, I first of all appreciate your 
recognition that we are nimble and a fast-moving agency. In 
this case, I don't know what we could do within that period of 
time that would add a great deal of credibility. First of all, 
we don't have the authority here in any of these companies to 
go in and dig through their records that would be needed during 
that period of time. We are also under our mandate to provide 
reports on the TARP program every 60 days, so we have every 
able-bodied person following that money, as well. I would like 
to say that we could, but I just don't see how it would be 
credible and meet all of our standards.
    Senator Casey. Is there a way that you could peel off or we 
could peel off an aspect of this for you to study in that time 
period? In other words, if you couldn't provide an assessment, 
an overall assessment of all three plans, are there specific 
areas that we could ask you to probe?
    Mr. Dodaro. I certainly would be willing to entertain that 
to provide whatever help we could to the Congress. The other 
thing we could do is to quickly provide a set of questions that 
you could ask the automakers based on our reading of the plans 
to provide some additional information for--that they could 
then provide that information. We certainly could provide that 
insight, which I think would be helpful and largely go toward 
accomplishing the purpose of what you are talking about.
    Senator Casey. And I think especially with regard to the 
oversight board, because one of the things that I have called 
for, and others have, as well, is that one of the ways that we 
achieve some measure of accountability, because the atmosphere 
in America today is, frankly, pretty negative about any kind of 
assistance for a variety of reasons which we don't need to go 
into. But maybe what we can do is peel off, and I know my time 
is up, but we will peel off some possible areas of inquiry and 
get those to you and see if it is possible to provide some 
feedback even within this limited window.
    Mr. Dodaro. Yes. And it would require, whatever aspect that 
we focus in on would require the voluntary cooperation of the 
entities to quickly provide us the information because we don't 
have statutory right of access to that information. We would 
want to make sure that we have all the facts for whatever we 
would look at.
    Senator Casey. Well, they seem to be in a cooperative mood. 
Thank you.
    Chairman Dodd. That is a very good suggestion, Senator 
Casey, and I appreciate the response from the GAO. I might ask 
in the very next panel that our witnesses from the industry 
might respond to Senator Casey's suggestion and the GAO's 
concern as to whether or not that might work. I think that 
could be a valuable contribution as we are trying in a very 
brief amount of time to do something here that could be 
helpful, so I thank you very much.
    Senator Tester.
    Senator Tester. Yes, thank you, Chairman Dodd, Ranking 
Member Shelby.
    Just a quick point. I know you had mentioned in your 
opening remarks, Chairman Dodd, that you had invited Chairman 
Bernanke and Secretary Paulson here. It is unfortunate they did 
not show up. I can tell you that the frustration with the $700 
billion bailout, because of lack of transparency and lack of 
accountability, actually is part of the bleed-over here that we 
are dealing with with the auto industry, and then the fact that 
the special Inspector General at the Treasury that we had a 
hearing here 2 weeks ago was being held by a member of this 
body is somewhat disturbing. In fact, it is more than just 
somewhat.
    Mr. Dodaro, I want to thank you for being here today. I 
have got a few quick questions. We can run through them very 
quickly.
    In your testimony, you stated that potential borrowers have 
a reasonable assurance of repayment of the loan. They need to 
have that. What should that repayment schedule be?
    Mr. Dodaro. That is a very good question, Senator, and I 
think that would be one area we would look to the board to 
establish based on looking at the financial condition and 
operating plan of the boards. I don't think that the schedule 
should be set by the borrower, which in this case you have your 
opening bid here as to when they would repay it. I think the 
schedule ought to be set by the lender, and that is one of the 
things the board should do.
    Senator Tester. That being said, you saw the repayment 
schedule that the auto manufacturers have put forth. At first 
blush, do you consider those repayment schedules realistic 
considering the economy we are in?
    Mr. Dodaro. A lot depends on the assumptions that they have 
in the plans, and----
    Senator Tester. How about from your perspective?
    Mr. Dodaro. Well, from my perspective, I would insist on 
collateral associated with the loans and make sure that the 
interest rate is set commensurate with the risk. And in this 
case, a lot of that depends on the performance of the economy 
and the companies over a period of time. So I would set it at a 
pretty high level.
    Senator Tester. OK. Could you give me an indication of what 
the impact to the PBGC, that is the pension program, would be 
if the Big Three went into bankruptcy?
    Mr. Dodaro. Right now, it looks like the pension issue is 
in hand----
    Senator Tester. OK.
    Mr. Dodaro. ----and that there are not any immediate 
issues. However, depending upon the concessions and the changes 
and other things that could happen, as well as the return on 
the investments that they have made in the pension plans, this 
could be an issue down the road. So it is something we will 
keep an eye on, but right now, it seems not to be an issue.
    Senator Tester. So a bankruptcy would not impact those 
pension programs?
    Mr. Dodaro. I can get you a detailed answer for the record 
there.
    Senator Tester. I would love that.
    Mr. Dodaro. We will do that.
    Senator Tester. Unfortunately, I mean, we could potentially 
be voting on this next week.
    Mr. Dodaro. We will have an answer tomorrow.
    Senator Tester. Oh, super. That would be great.
    On the next panel, a gentleman from Moody's will be here. I 
look forward to his testimony and asking him a few questions. 
But one of the points that he makes is that $34 billion in 
loans is not sufficient. Ultimately, it would be around $75 to 
$125 billion--those are his words, and he will reiterate them, 
I am sure, later--to keep these companies out of bankruptcy. 
You have reviewed the plans. Could you comment on that and tell 
me what GAO's perspective would be as far as the total dollar 
amount? Is the $34 billion adequate or would you be more 
inclined to go with Mr. Zandi's perspective?
    Mr. Dodaro. Senator, we have not looked enough in depth at 
that issue to really offer an informed opinion on that right 
now.
    Senator Tester. OK. You also mentioned in your testimony 
that creditors should not be asked to make concessions that 
will cost more than what they would expect to lose in a 
bankruptcy. Could you give me an example of what you are 
talking about?
    Mr. Dodaro. Well, this would be taking an equity share for 
credit or paying a portion back of the company, you know, 
taking so many cents on the dollar that are owed. What we are 
saying there is that the government shouldn't expect that the 
creditors are going to quickly agree to something that they 
think would be a worse deal than what they would get through 
bankruptcy. That is all we are saying. It is just the basic 
principle and expectation that the government should have when 
it would carry out its oversight activities.
    Senator Tester. I don't mean to put you on the spot again, 
but I have got 35 seconds so I am going to do it. One of my big 
concerns is that if we do this bailout today, even after the 
plans, there is a potential we could be back here in a year, 
maybe less. Could you give me any assurances that if we 
allocate $34 billion today that it will take care of the 
problem, assuming that the economic situation that we are in 
right now is where it is going to be for the next year or maybe 
even a little longer, and let us hope it doesn't go a year, but 
I think we need to take the worst-case scenario as we approach 
this kind of money.
    Mr. Dodaro. We have not done the in-depth work that would 
put me in a position to provide you that assurance, so I can't 
provide it.
    Senator Tester. OK. Well, I appreciate your honesty and I 
appreciate your being with the Committee today. Thank you.
    Mr. Dodaro. Thank you very much, Senator.
    Chairman Dodd. Thank you very much, Senator.
    Just to inform my colleagues, Senator Carper, Senator Bayh, 
and Senator Brown are the remaining colleagues with questions, 
and so I would ask my colleagues to go in that order.
    Senator Carper. Thank you, Mr. Chairman.
    Mr. Dodaro, we have heard any number of times in the past 
from your predecessor, David Walker, our Comptroller General, 
who has testified and is quite a good witness, as you know. 
This is the first time I have heard you testify. You are ably 
helped here by your counsel, but I think you have done just a 
superb job with relatively short notice and I want to thank you 
really from all of us.
    Mr. Dodaro. Thank you, Senator.
    Senator Carper. I am going to go back to a point raised 
earlier by Senator Bennett. I think he raised a good idea. In 
fact, a number of my colleagues have. But I am just going to 
run through our options of what we could do here, and one is to 
do nothing--not a good option, one that I don't endorse. Option 
two, go to Chapter 11, in my view, not a good option. Some kind 
of Chapter 11 that is prepackaged, maybe.
    The idea of using the TARP and calling on the Secretary of 
the Treasury and others to make those funds available, not a 
bad idea, but we are not getting a lot of movement in that 
direction from the administration. Asking the Federal Reserve 
to use their vast resources, their printing machine, even, to 
come here and provide the liquidity, the working capital that 
is needed, I am uneasy about that option, but that is certainly 
an option.
    The other option was one that I think that Senator Bennett 
was talking to and I just want to explore it again and ask you 
to react to it again. We have provided, as you know--when we 
initially did the TARP, passed the TARP legislation, my 
expectation was that Treasury would use the money and go out 
and buy mortgage-backed securities from financial institutions. 
They have, for the most part, not done that. They did use their 
authority to go in and inject capital into financial 
institutions and some of those financial institutions have used 
that money to pay dividends. Some of them used that money to 
acquire other financial institutions. Some of them used it to 
pay compensation, I presume.
    What about the idea of saying to those banks that have 
actually received the capital injection through the TARP, large 
banks, and nine of them that got $125 billion or so, and then 
the other thousands who received some similar kinds of 
payments, but in the aggregate up to $125 billion, and simply 
say to them, you received this capital injection. You have 
received this money. Rather than using it for some of the other 
purposes for which you are using it, we would like for you to 
use it to lend money to the Detroit Three--Ford, Chrysler, GM--
and the Federal Government would guarantee the loan, would 
guarantee the loans that are made.
    To the extent that the loans were made and the banks--their 
cost of capital investment, I think is about 5 percent. 
Preferred stock, they have to pay 5 percent of the shares of 
preferred stock, and after 5 years it goes up to 9 percent, but 
their cost of capital right now is about 5 percent. If they 
were even to charge like an extra 100 basis points beyond that, 
with what is pretty much a low-risk/no-risk situation, they 
could actually make some money on the deal. Let me just ask 
you, in sort of thinking outside the box, does that work?
    Mr. Dodaro. Well, right now, there have been agreements 
signed between the banks and the Secretary of Treasury, 
particularly the large banks where the money has already been 
dispersed as well as some of the other banks, that it would 
have to go back and renegotiate those agreements and terms. 
There also is money that has not yet been allocated out of the 
portion that has been set aside for the capital purchase 
program where agreements have not been reached yet. There is 
certainly more flexibility there up front. Unfortunately, those 
will be some of the smaller institutions that may not 
collectively have the type of resources that the automakers are 
seeking at this particular point in time. But I think it is an 
idea that should be explored. There would just have to be these 
renegotiations for the larger banks if that would be the case.
    Part of our recommendation in our report was to have 
Treasury find out what they have used the money for so far, and 
right now, there is not any reporting mechanism back there. So 
from a practical standpoint, and I don't know to what extent 
that even exists at this particular point in time, whether the 
money is still available for that purpose. But there is more 
money in the future.
    Senator Carper. All right. Thank you. In the briefing 
materials that were provided to us by the Committee, one of the 
items that was noted is when they were going through the 
different options that were available to us, one of the things 
that they talked about was a government-sponsored 
reorganization, which I think may be another way of saying a 
strong oversight board involved at the front end, almost doing 
a prepack Chapter 11. Is there some other entity than a 
government-sponsored reorganization that is different from what 
we have been talking about here? I would yield to your counsel, 
as well, if you want to jump in.
    Mr. Dodaro. Yes.
    Senator Carper. Is there any difference between a 
government-sponsored reorganization and what we have been 
talking about with an activist oversight board?
    Mr. Dodaro. Not that I see, and looking at the GM plan in 
particular, to me, that just suggested that we are heading 
essentially in the way of Chrysler. And remember that had the 
Chrysler loan guaranty board not been successful in working 
with Chrysler to bring it out of its financial difficulties at 
the time, bankruptcy was still an option.
    Senator Carper. All right. Thank you very much.
    Chairman Dodd. Thank you, Senator, very much.
    Senator Bayh.
    Senator Bayh. Thank you, gentlemen. One of the things that 
has become apparent to me and probably all of my colleagues 
this morning--and by the way, thank you for the substantial 
amount of work you have done in a very short period of time in 
a very intricate area--is how complex this all is. Is it fair 
to say, Mr. Dodaro, that even doing the best we can, and you 
have answered a lot of questions about what are the 
alternatives, how would this work, what would the results be, 
isn't it true that there is just an irreducible amount of 
uncertainty at the end of the day that we are going to have to 
come to grips with? You mentioned in the context of bankruptcy. 
I think the phrase you used, that there are significant 
uncertainties in all of this. There is no dead certain 
guarantee about how it is going to function at the end of the 
day. That is not possible, isn't that correct?
    Mr. Dodaro. Given the uncertain economic situations that we 
are in as a backdrop to all this, I think you are exactly 
right. The real question for the Congress is how you best 
manage the uncertainty----
    Senator Bayh. Well, therein lies my----
    Mr. Dodaro. ----to minimize the risk.
    Senator Bayh. Forgive my treading on your remarks, but I 
have only got 5 minutes here. I think you mentioned a key 
thing, and I will give you where I am coming from on this. You 
mentioned the economic backdrop, and I think in your testimony 
you used the phrase ``significant ripple effect'' if the 
companies are allowed to go down, and you mentioned it would be 
a drag on an already weakened economy. So a lot of this for me 
comes back to what is our appetite for risk taking at this 
moment in time? Is this a time for adding additional risk to 
the economy, or is this a time for a more cautious approach? 
And given the great deal of uncertainty already present in the 
economy, it suggests to me that this is a time for a more 
cautious approach, trying to minimize the amount of 
fragileness, uncertainty, instability in an economy that 
already has plenty of all of those things.
    So my question to you is, and you alluded to this in both 
your oral remarks and in your written testimony, isn't it true 
that if we were to allow these companies to go under, to go 
into bankruptcy, that there would be a lot of unanticipated 
consequences, some of them perhaps profound, and almost all of 
them certainly negative? Isn't that true?
    Mr. Dodaro. It is hard to determine what the outcome would 
be at this point. I think it could be potentially significant. 
I agree with that. And I think the real policy question, I also 
point out in my written statement, for the Congress to make in 
this case is what are the circumstances that it is willing to 
enter into from a Federal standpoint. And so that is really 
part of the policy.
    Senator Bayh. Well, you used the phrase, ``significant 
ripple effect,'' and I assume by that you meant not only the 
direct job loss to the manufacturers, but the losses among 
their suppliers, among their dealers, and, in fact, the 
multiplier effect in the broader community. And one of the 
points that I would like to make, and there are a lot of people 
even in a State like my own where we have a lot of automotive 
industry, why should we do this? And I think the point is that 
it goes way beyond just the automotive manufacturers 
themselves. It is the broader community that is going to suffer 
and the broader economy that might suffer because of this, and 
I assume that that is what you meant by the phrase 
``significant ripple effect.''
    Mr. Dodaro. Yes.
    Senator Bayh. Possibly thousands, tens of thousands, I 
mean, who knows, but a significant economic impact on a whole 
lot of middle-class folks who aren't seated anywhere at this 
table here today.
    Mr. Dodaro. There would definitely be repercussions.
    Senator Bayh. And according to you, significant. You used 
the phrase ``significant ripple effect.'' In an effort to try 
and address the residual uncertainties, you used the phrase, 
one of the potential downsides to all this is the precedent 
that could be set. Well, there are some other precedents on the 
other side and there has been a lot of discussion of the 
Chrysler situation, which I think most people would conclude 
had a happy outcome. The taxpayers were repaid ahead of 
schedule, actually made money. The jobs were saved. The economy 
was saved the adverse consequences. So isn't that a, if done 
correctly, isn't that a positive precedent that exists?
    Mr. Dodaro. That is exactly right, and that is why we are 
suggesting that the board model that was used under the 
Chrysler approach is the right model because we believe that 
was instrumental in the success that you mentioned.
    Senator Bayh. And we have some more recent perhaps not so 
positive precedents. The example of Lehman Brothers springs to 
mind, where some folks decided that there was not enough 
systemic risk involved to save Lehman Brothers. They decided to 
save Bear Stearns, but they said, well, Lehman, we can let go. 
It is not going to be so bad. And I think most people looking 
back on that would say, well, wait a minute. It turned out to 
be a lot worse than had been anticipated, and looking back, the 
cost of saving Lehman was probably a lot less than the 
consequences that we have paid to date. Isn't that another 
precedent that is out there in recent memory that might argue 
for action? Again, erring on the side of caution and stability 
as opposed to greater risk taking and instability.
    Mr. Dodaro. Well, it is certainly an example others have 
pointed to, as you suggest. We have not looked at it carefully, 
but it is an example people point to.
    Senator Bayh. And I see the example here on the board of 
AIG, and my colleague, John Tester, asked--and he raised this 
issue and I am sorry he left, but he said, can you guarantee me 
that people aren't going to be back? Well, AIG was back within 
a matter of weeks and I don't think we would have extended 
capital to any of these entities if the prerequisite had been, 
look, a lock-certain guarantee we will never hear from you 
again, because there is no such thing, isn't that also correct?
    Mr. Dodaro. There is always a possibility that 
circumstances are going to change.
    Senator Bayh. My last point, and again, I admire your work 
and a lot of this comes back to, again, there is just an 
irreducible level of the unknown. And so the question is, where 
does the balance lie, in the area of greater risk taking or 
greater stability? But Senator Schumer asked, and I have 
extended my time, so my last question will be, in this Chrysler 
precedent, which we all have agreed was a positive precedent 
that if we could replicate would be the way to go, and we have 
got to bring all the different stakeholders to the table and 
they have got to all participate, and I think labor very 
courageously said that they were willing to go back to the 
table to talk about this.
    It seems to me that the toughest player out there are going 
to be the creditors. How do you get them to come to the table? 
How do you get them to take the steps that are going to be 
necessary?
    So my question to you, both of you, is in the Chrysler 
precedent, if some of them are just balking, is there any--
outside of bankruptcy--any ability to have what is termed a 
cram-down, basically to say if some of the creditors are 
balking, holding up the whole thing, what do you do about that? 
Is there any mechanism for dealing with that outside of 
bankruptcy, to basically require them to participate so that 
you don't have everybody getting flushed down the tubes because 
there are just a few intransigent folks?
    Mr. Kepplinger. Fortunately, I can recall only one episode 
where that happened, and it was a relatively small bank in 
Rockford, Illinois, that was part of a credit facility. And the 
cram-down, as you say, Senator Bayh, was simply the money was 
found to buy them out. Now, that is not a particularly useful 
incentive----
    Senator Bayh. At 100 percent? At a dollar-for-dollar basis?
    Mr. Kepplinger. They were relatively small, and the problem 
was taken care of with what often speaks very effectively, was 
money. And that was agreeable to the other participants in this 
facility because they had made the business judgment that it 
was better for them to make concessions and retain their debt 
than it was to go into a bankruptcy.
    So I can't remember who on the panel referred to carrot, 
but there needs to be that carrot. There need to be those 
business judgments. And as Gene suggested before, the board has 
to have enough specific requirements and conditions that they 
have leverage to negotiate with, but that they also have enough 
flexibility to deal with the vagaries, and as Gene also pointed 
out, the differences between the current financial situations 
of the players.
    Senator Bayh. My time has expired, but I think the carrot, 
absolutely. I was also interested, is there a stick here 
possibly that could be balanced against the carrot to lead to a 
decent outcome? I mean, it is sort of----
    Mr. Kepplinger. It is bankruptcy.
    Senator Bayh. ----the financial equivalent of eminent 
domain.
    Mr. Kepplinger. In one sense, it is bankruptcy.
    Senator Bayh. Mm-hmm.
    Mr. Dodaro. One of the other points I would like to 
elaborate on your question about the uncertainty, one of the 
features that the board would have is the fact that if there 
are changing circumstances, they will know about it early 
enough to consider other options. So the idea that there would 
be more of an early warning system built in so that Congress 
wouldn't be put in a position of having to make quick decisions 
without all the information.
    Chairman Dodd. Senator Bayh, thank you. Very good. Very 
good exchange, too. Very helpful.
    Senator Brown.
    Senator Brown. Thank you, Mr. Chairman. Thank you, Mr. 
Dodaro. Thank you, Mr. Chairman, for calling this hearing. I 
apologize for my late arrival. I was on the early morning 
flight and the flight was canceled for mechanical reasons. I 
guess if I had thought ahead, I would have hitched a ride with 
one of the witnesses driving from Cleveland, so I appreciate 
that.
    [Laughter.]
    Senator Brown. As the Chairman said in his opening 
statement, we are asking extraordinary things of our witnesses 
today, something that we didn't ask of bankers when they came 
in front of this Committee, or more precisely did not come in 
front of this Committee. We didn't ask that the CEOs of the 
banks drive to town in a Wells Fargo armored truck. We didn't 
ask the CEOs of the banks, each of which was asking for, or 
each of which was given $25 billion, we didn't ask for them to 
appear before us. We didn't ask them to come up with a plan on 
how they were going to spend the money. Neither Congress nor 
the Bush administration did that. We are asking lots of these 
witnesses, as we should, to protect taxpayers' investment. I 
think it is important to keep that in mind and I appreciate the 
Chairman in his statement pointing out that we are asking 
extraordinary help with asking extraordinarily little 
accountability from the banks.
    All of us know the damage of these companies' failures, 
these companies going into bankruptcy, the damage it would be 
to all parts of the country, especially my part of the country, 
but everywhere. I think if we look at this as we have in some 
sense with talking about Chrysler and what happened 30 years 
ago, if we fail to act, some future Professor Bernanke is going 
to--people are going to marvel at the opportunity we missed. We 
are adding another three million people to the unemployment 
lines on top of the 1.5 million people who have lost their jobs 
just in this calendar year alone. And I think our 
responsibility is great and I am confident that this Committee 
and the Senate and the House and the White House will step up 
and do the right thing and take the responsibility that we 
should as we move forward in the next few days.
    I want to go back to a couple of points. Most of the 
questions have certainly been asked by now that I think are 
relevant. A couple of points that were brought up by Senator 
Tester, when he asked you about the effects of if the 
government doesn't provide this assistance, if we fail to move 
forward on these proposals, you mentioned that PBGC would be 
able to withstand it, that there wouldn't be great change. I 
want to explore that.
    I talked yesterday with the Governor of Ohio, who is facing 
huge budget problems as the Governors of almost all States, 
especially States like mine. He talked about the borrowing from 
the unemployment fund. And this is a recession that we have 
been in now a year, I guess, officially, but because the 
recovery was so mild and weak almost a decade ago, the State 
unemployment funds and the other safety nets, if you will, that 
States provide never were built up because of the mild growth 
or the relatively weak growth we had coming out of the last 
recession. So we are in a position today in all kinds of States 
in this country, from everywhere in the country, we are in a 
position where we simply do not have much ability to withstand 
these more difficult times.
    So talk through, if you would, what this means? With PBGC, 
there is not just--maybe Ford, Chrysler, and GM are fully 
funded with their pension plans. A whole lot of the suppliers 
aren't, I have got to be sure. What is this going to mean to 
PBGC? What is this going to mean if we do nothing or go Chapter 
11? What is it going to mean for food stamps and unemployment 
funds and Medicaid to the Federal and State governments? What 
is this more precisely going to mean then?
    Mr. Dodaro. Well, there is no question, to the extent to 
which unemployment rises, it puts additional strain on all the 
social safety net programs that you mentioned, Senator, not the 
least of which is the health care costs and the Medicaid 
programs that the States are running, which is already growing 
at a rapid figure aside from these other figures.
    Now, the specifics on the PBGC is that, you know, 
basically, the PBGC Corporation has basically said that things 
are OK right now for the Big Three. But, you know, if there are 
some issues that emerge down the road, this could become much 
more problematic. And as I mentioned to Senator Tester, I would 
like to go back. This is a highly technical area, and I want to 
make sure I give this Committee the right answer, and by 
tomorrow I will provide a more detailed answer on the pension 
area in terms of what the current status is. But I would note 
that these companies are so large that, if something would 
happen down the road, they would almost double the number of 
people who would be receiving guarantees under PBGC, if that 
would ever get to that point down the road. So there is a 
significant issue potentially in the future, but I will get you 
a definitive answer tomorrow.
    Senator Brown. A steel maker not far from where I live in 
norther Ohio just announced the layoff of several hundred. It 
is very directly related to the auto industry. I spoke this 
week earlier with an auto dealer in southwest Ohio who has 800 
employees. He is not about to go out of business, but he going 
to get squeezed. I do not know anything about his pension plan, 
but I do know that PBGC has been just buffeted time after time 
after time after time with job loss in the last 5 years, and it 
is only going to get worse.
    Let me just in my last--I know I am about out of time. I 
want to make a comment about the Chrysler situation just for a 
moment. I know there are many similarities to 30 years ago with 
Chrysler. There is the oil spike. There is the difficult credit 
market. There is a recession. Your suggestion that the 
differences are--of the similarities and differences I want to 
just expand on and respond just for a second.
    For example, some of the differences from 1979, the UAW had 
not made the concessions anywhere near in 1979 what they have 
made today. So even though it is only a billion and a half then 
compared to now, the UAW concessions have been much greater. 
The 2007 contract, there was nothing comparable to that in 
1979. There was not the job loss leading up to 1979 for 
Chrysler that there has been, the cutting of costs, the 
downsizing, whatever, that there has been for all of the Big 
Three leading up to this situation. So we just need to be 
cautious about making that comparison. There are good reasons 
to make it, and there are some not so good reasons, and we need 
to be cautious because of the different situation that way.
    I think the good reasons are that the Government figured 
out how to do it, the taxpayers got their money back, and as 
several people up here have said, it did work, and we need to 
remember that.
    Mr. Dodaro. I agree with you, Senator, and I think the 
circumstances, certainly economically, with the status of the 
auto industry at that time were very different. And we do not 
want to imply or infer that we are comparing those situations.
    But the one thing that is the same is there is the same 
need to protect the taxpayers' interest, and that is what we 
are saying can be replicated.
    Senator Brown. Of course. Thank you.
    Thank you, Mr. Chairman.
    Chairman Dodd. Senator Brown, thank you very much.
    You have been a tremendous witness this morning. Frankly, 
we could have probably used less of your time, but, obviously, 
you have offered some very valuable testimony and historical 
perspective about the 1979 decision and some good ideas on how 
to move forward. So we are very grateful to the GAO. All of us 
up here who over the years have dealt with the GAO have a high 
regard for the work being done.
    As you point out, and I should have made reference to it in 
introducing you, as part of the emergency economic 
stabilization bill, of course, we insisted legislatively that 
the GAO be deeply involved, not after the fact but during the 
development of this program. And so your observations about the 
lack of the kind of oversight that should have been conducted 
is obviously important to all of us here. So we thank you 
immensely.
    Let me just say I appreciate Senator Carper's point talking 
about Senator Bennett's point. I thought there was some 
viability with that option as well, but you point out it may be 
impossible or very difficult to go back and rewrite some of 
these agreements that have been struck. But it is certainly 
worth exploring in my view as an alternative idea of what we 
need to do. We may have some additional questions for you, and 
particularly Senator Casey raised, I thought, some very good 
questions, and your agreement to get back to us. And, 
obviously, the industry itself will have to be helpful in that 
regard. As you point out, you do not have the authority to get 
some information, but it certainly would be helpful to this 
Committee to respond to Senator Casey, and I am asking in 
advance in their testimony that the members of the automobile 
industry comply where they can for that kind of information.
    So we will leave the record open for some additional 
questions we may have, but we thank you immensely for your 
testimony. And we thank your staff. The GAO staff is very 
helpful.
    Mr. Dodaro. Yes, they have been terrific. Thank you, Mr. 
Chairman.
    Chairman Dodd. Thank you very much.
    Let me invite now our second--and I am going to combine the 
panels. I know there was some hesitancy, but just given the 
pressures of my colleagues as well as other obligations they 
have and the witnesses themselves, the testimony tomorrow 
before the House, I am combining the second and third panels 
into one panel. We have already exhausted a couple of hours 
with the first panel, and I want to move along. So let me 
introduce our second panel, and I appreciate in several 
instances their being back here.
    Our first witness on this panel is Mr. G. Richard Wagoner, 
Jr., President and CEO of General Motors Corporation, also 
serves on GM's Board of Directors, previously served as 
President and Chief Operations Officer and Chief Financial 
Officer at GM. And, Mr. Wagoner, we welcome you back to the 
Committee.
    We will then hear from Ron Gettelfinger, United Auto 
Workers President. Prior to becoming the President of the UAW, 
Mr. Gettelfinger served as the UAW Vice President, and, again, 
we are pleased, Ron, that you are here this afternoon. We thank 
you for coming.
    The next witness is Alan Mulally, President and CEO of the 
Ford Motor Company and a member of the company's Board of 
Directors. Prior to joining Ford in 2006, Mr. Mulally worked 
for the Boeing Company with whom he became Executive Vice 
President of the Boeing Company and President and Chief 
Executive Officer of Boeing Commercial Airlines.
    We are then going to hear from Mr. Robert Nardelli, 
Chairman and CEO of Chrysler LLC and a member of the Board of 
Managers. Prior to working for Chrysler, Mr. Nardelli served as 
Chairman, President, and CEO of the Home Depot.
    I understand that our CEOs all drove down here and had 
comfortable rides, and I gather your automobiles are parked 
outside, even some of the models yet to be introduced. The Volt 
I think is here. Is that true, Mr. Wagoner?
    Mr. Wagoner. Yes, sir, that is true.
    Chairman Dodd. Well, for those who want to see what some of 
these newer models may look like--and I hesitate to say this 
because I do not want to show any bias or preference, but I 
drive an Escape. I would tell you Mr. Mulally is giving me a 
``thumbs up'' to me here along the way--although I am looking 
at the Tahoe with two children, so I want you to know I need a 
little more room here, the hybrid.
    Anyway, I also want to welcome Mr. James Fleming here. Jim 
is a good friend of mine, let me say up front. We are from 
Connecticut together, and Jim is the President of the 
Connecticut Automotive Retailers Association. He served in the 
State of Connecticut for many years as a member of the 
Connecticut House and Senate, including Senate Republican 
Majority Leader of our State Legislature. Mr. Fleming has also 
served in the executive branch of the Connecticut State 
Government as the commissioner of several departments and has 
long experience in our State, and I thank you very much, Jim, 
for coming down and representing the dealer issues before this 
Committee.
    Next we will hear from Keith Wandell, who is President and 
Chief Operating Officer of Johnson Controls, Inc., where he 
held various positions ranging from plant manager to Vice 
President of the Power Solutions Division.
    And our final witness is Dr. Mark Zandi, Chief Economist 
and Co-Founder of Moody's Economy.com, where he directs the 
company's research consulting services. Dr. Zandi's research 
focuses on macroeconomic, financial, and regional economics, 
and he has recently been studying the determinants of mortgage 
foreclosure and personal bankruptcy, and we see you quoted 
quite frequently, Dr. Zandi, so we thank you again. In fact, 
you have been before the Committee so we welcome you back to 
it.
    I will begin, I guess, in the order we have introduced you, 
and I apologize for the number of you at one table here, but I 
thought just for the sake of efficiencies, we would move 
forward, and there are a lot of similarities, obviously. When 
we start talking about these issues, obviously everyone 
represented at this table is directly affected by it, so there 
is no outlier here that has no relevancy to the testimony that 
we are going to hear from you.
    So, with that, Mr. Wagoner, we thank you.

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

    Mr. Wagoner. Thank you very much, Mr. Chairman and to 
Members of the Committee. I wanted to start by extending my 
sincere appreciation for the opportunity for us to come back. 
It is obviously a very important matter for all of our 
constituents. I know it is a time when you are frequently 
working with your own constituents, and for you to give up the 
time to come back I think is something that we want to extend 
our thanks.
    I also wanted to thank the Speaker and the Senate Majority 
Leader for their very specific direction on what was being 
requested in the plan. It helped us to think more broadly, and 
we appreciate that direction.
    As we put our plan together--it happens to be, somewhat 
ironically, GM's centennial year this year--we thought about 
our past and what that should mean for our future, and we 
obviously have a lot of things that we are proud of. There have 
been a lot of great accomplishments on the company's behalf. 
And there are also mistakes during our history.
    What we were trying to do as we put this plan together, 
which we submitted earlier this week, was to learn from both of 
those--learn from our contributions, our successes, and learn 
from our mistakes--to make sure we did not repeat the mistakes 
and that we built on the contributions. And so as we thought 
about things like developing a comprehensive plan, we said we 
have done best in our history when we focused on technology 
leadership and technological excellence, when we have kept our 
focus on being cost competitive every day, when we have kept 
close alignment between the goals of the company and the goals 
of the country. And so the plan that we are submitting to you 
is one that I think does those and many other things, and it is 
a plan that I and my General Motors team believe very strongly 
in.
    The plan shows why GM needs temporary Government funding, 
how that funding will be used, how we intend to repay 
taxpayers, and why funding is beneficial to the U.S. 
Government.
    In some ways, the plan accelerates the restructuring that 
has been underway for the past several years, but in many ways, 
it radically expands it, and I think it is fair to say it 
creates a blueprint for a new General Motors.
    The key elements: First of all, it is based on what we 
think is a realistic although quite a bit more conservative 
view of the market than we have traditionally used. And it is 
also comprehensive. It considers the need to address operating 
issues as well as to address our financial structure.
    Key highlights include a renewed and expanded commitment to 
new technologies, especially advanced propulsion, and green 
jobs; increased production of fuel-efficient vehicles; a 
reduction in the number of brands, models, and retail outlets 
so we can focus our resources; further manufacturing and 
structural cost reductions; working with our UAW counterparts 
to ensure full labor competitiveness with foreign manufacturers 
here in the U.S.; significant restructuring of our balance 
sheet; and sacrifices by all parties involved, including 
continued suspension of our common stock dividend and changes 
in executive and board compensation, including reducing our 
board's compensation and mine to $1 a year; and cessation of 
our corporate aircraft operations.
    These and other tough but necessary actions will position 
our company for long-term success, and this success is 
achievable if we can weather the global financial crisis and 
the lowest level of U.S. auto sales on a per capita basis in 
over 50 years.
    Toward that end, our plan respectfully requests $12 billion 
in short-term loans and a $6 billion line of credit. We are 
seeking an immediate loan of $4 billion and potentially a 
second draw of up to $4 billion in January, reflecting the 
current very weak state of automotive production and demand.
    The intent is to begin repayment as soon as 2011 and fully 
repay by 2012 under our baseline insurance forecast scenario. 
Warrants would allow taxpayers to benefit if GM's share price 
increases.
    We also proposes of a Federal Oversight Board that would 
facilitate the restructuring negotiations and protect 
taxpayers.
    GM has been an important part of American culture for a 
hundred years, and most of that time as the world's leading 
automaker. We are here today because we made mistakes, which we 
are learning from, because some forces beyond our control have 
pushed us to the brink, and, most importantly, because saving 
General Motors--and all this company represents--is a job worth 
doing.
    Thank you very much, and I look forward to your questions.
    Chairman Dodd. Thank you very much, Mr. Wagoner.
    Mr. Gettelfinger, welcome.

STATEMENT OF RON GETTELFINGER, PRESIDENT, INTERNATIONAL UNION, 
UNITED AUTOMOBILE, AEROSPACE AND AGRICULTURAL IMPLEMENT WORKERS 
                           OF AMERICA

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

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

    Mr. Mulally. Thank you. Mr. Chairman, Senator Shelby, and 
Members of the Committee, since the last hearing I have thought 
a great deal about the concerns that you expressed. I want you 
to know I heard your message loud and clear.
    On Tuesday, you received Ford's detailed and comprehensive 
business plan, and I appreciate the opportunity to return here 
today to share Ford's vision and progress on becoming a 
profitable, growing company.
    You were clear that the business model needs to change. I 
could not agree more, and that is exactly why I came to Ford 2 
years ago to join Bill Ford in implementing his vision to 
transform our company and build a greener future using advanced 
technology.
    Let me share with you what we have done to change from how 
it used to be doing business to how we do business now.
    It used to be that we had too many brands. Now we have a 
laser focus on our most important brand--the Ford ``Blue 
Oval.'' In the last 2 years, we have sold Aston Martin, Jaguar, 
and Land Rover, and we reduced our investment in Mazda. And 
this week we announced we are considering a sale of Volvo.
    It used to be that our approach to our customers was, ``If 
you build it, they will come.'' We produced more vehicles than 
our customers wanted and then slashed prices, hurting the 
residual values of those vehicles and hurting our customers. 
Now we are aggressively matching production to meet the true 
customer demand.
    It used to be that we focused heavily on trucks and SUVs. 
Now we are shifting to a balanced product portfolio with even 
more focus on small cars and the advanced technologies that 
will drive higher fuel economy in all of our vehicles.
    It used to be that our labor costs made us uncompetitive. 
Now we have a ground-breaking agreement with the UAW to reduce 
our labor costs, and we appreciate the UAW's continuing 
willingness to help close the competitive gap.
    It used to be that we had too many suppliers and dealers. 
Now we are putting in place the right structure to maximize the 
efficiency and the profitability of all of our partners.
    It used to be that we operated regionally--European cars 
for Europe, Asian cars for Asia, American cars for the U.S. 
market. Now we are leveraging our global assets, innovation, 
technology, and scale to deliver world-class products for every 
market.
    It used to be that our goal was simply to compete. Now we 
are absolutely committed to exceeding our customers' 
expectations for quality, fuel efficiency, safety, and 
affordability.
    This is the Ford story. We are more balanced. We are more 
efficient. We are more global. And we are really focused. In 
short, we are on the right plan to becoming a profitable, 
growing company.
    We have moved our business model in a completely new 
direction in line with the most successful companies and 
competitors around the world. And as a result of our progress, 
we made a profit in the first quarter of this year, 2008. 
Unfortunately, we all are facing a severe economic downturn 
that has slowed our momentum. Despite this downturn, Ford does 
not anticipate a near-term liquidity crisis. In fact, we expect 
our automobile business to be profitable in 2011. But we do 
support a Government bridge loan because it is critically 
important to the United States automobile industry.
    Specifically, Ford requests access to $9 billion in bridge 
financing, something we hope we will not need to use. Instead, 
we continue to drive change in our company. This line of credit 
will serve as a critical safeguard if events require it. And if 
we did need to access this loan, we would use the money to 
continue our aggressive transformation and restructuring. Ford 
is an American company and an American icon. We are woven into 
the fabric of every community that relies on our cars and 
trucks and the jobs our company supports. The entire Ford team, 
from our employees to shareholders, suppliers to dealers, is 
absolutely committed to implementing our new business model and 
becoming a lean, profitable company that builds the best cars 
and trucks on the road for our customers.
    There is a lot more work to do, but we are passionate about 
the future of Ford. In fact, we invite you to visit us in 
Dearborn to kick the tires, look under the hood, and talk to 
our employees. We hope you will join us and see for yourself 
the progress we are making to develop the vehicles of the 
future.
    Thank you very much.
    Chairman Dodd. Thank you very much, Mr. Mulally.
    Mr. Nardelli.

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

    Mr. Nardelli. Mr. Chairman, members of the panel, I 
appreciate the opportunity to present to you again today, and I 
am here representing the 1 million people who depend upon 
Chrysler for their livelihoods.
    Before I answer your questions regarding our loan request, 
let me be very clear and state why we are here: Chrysler is 
requesting a $7 billion loan to bridge the current financial 
crisis. And in exchange, Chrysler is committed to: continue our 
restructuring, including negotiating cost-saving concessions 
from all constituents; invest in fuel-efficient cars and trucks 
that people want to buy and begin repayment of the Government 
loan in 2012. I also want to reinforce the need for Chrysler 
Financial to receive immediate assistance from TARP, as their 
continued vitality is a critical assumption in our plan.
    Chrysler requires this loan to get back to the 
transformation that began 1 year ago, gaining our independence. 
As a newly independent company in 2007, Chrysler was on track 
for financial profitability. We eliminated more than 1.2 
million units, or 30 percent of our capacity. We reduced our 
fixed costs by $2.4 billion. We separated more than 32,000 
employees, including, unfortunately, just 5,000 last Wednesday 
before Thanksgiving. And at the same time, we have invested 
more than half a billion dollars in product improvements in our 
first 60 days. We improved our J.D. Power quality scores, and 
we reduced our warranty claims by 29 percent. As a result, 
through the first half of 2008, Chrysler met or exceeded its 
operating plan and ended the first half of the year with $9.4 
billion in unrestricted cash.
    We are here because of the financial crisis that started in 
2007 and accelerated at the end of the second quarter of 2008. 
As consumer confidence fell and credit markets remained frozen, 
the lowest U.S. auto sales in more than 20 years has put 
tremendous pressure on our cash position. The U.S. industry 
sales fell from 17 million a year in 2007, to a monthly 
annualized rate of 10.5 million last month. That is 6.5 million 
units of decline.
    So what is the impact on Chrysler from that result. With a 
10-percent market share, it would translate to Chrysler to a 
loss of 650,000 vehicles, or roughly $16 billion in lost 
revenue opportunity this year alone. With such a huge hit to 
our sales and revenue base, Chrysler requires the loan to 
continue the restructuring and fund our product renaissance.
    Chrysler has a sound plan for financial viability that 
includes the seeking of shared sacrifice from all constituents. 
We have identified approximately $4 billion of potential cost 
savings and improvements that have been included in our plan, 
and we are committed to negotiate with all constituents to 
achieve those savings. Our plan also includes producing high-
quality, fuel-efficient cars and trucks that people want to 
buy, while supporting our country's energy security and 
environmental sustainability goals.
    For the 2009 model year, 73 percent of our products will 
offer improved fuel efficiency compared with our 2008 models. 
We plan on launching additional small, fuel-efficient vehicles. 
ENVI is our breakthrough family of all-electric vehicles and 
range-extended electric vehicles, similar to the one I drove 
here today.
    Chrysler's long-range product plan is robust, it is 
realistic, and it is green. The plan features 24 major launches 
from 2009 through 2012. It includes a hybrid Ram truck, our 
first electric-drive vehicle in 2010, with three additional 
models by 2013.
    A key feature of Chrysler's future is our capability as an 
electric vehicle company. Through our GEM, which is our 
neighborhood electric vehicle division, Chrysler is the largest 
producer of electric-drive vehicles in the U.S. today. Combined 
with the new products from our ENVI group, we expect to have 
500,000 Chrysler electric-drive vehicles on the road by 2013.
    Chrysler will continue to aggressively pursue new business 
models that include alliances, partnerships, and 
consolidations. This model is currently successful in helping 
Chrysler increase the effective utilization of our 
manufacturing capacity. For example, in North America today, 
Chrysler manufactures all of Volkswagen's minivans, and 
beginning in 2012, we will produce all of Nissan's full-size 
trucks.
    With Government collaboration, our industry can accelerate 
how America drives cutting-edge technology. An Automotive 
Energy Security Alliance would: coordinate public and private 
spending which is already devoted to advanced technologies; 
produce basic technology available to all manufacturing; drive 
private investments to meet our national energy and 
environmental goals. Such an alliance would help ensure that as 
a country, we do not trade our current dependence on foreign 
oil for dependence on foreign technology.
    In closing, I recognize that this is a significant amount 
of public money. However, we believe this is the least costly 
alternative considering the depth of the economic crisis and 
the options that we face.
    Thank you very much.
    Chairman Dodd. Thank you very much, Mr. Nardelli.
    James, welcome. Welcome to the Committee. Is that 
microphone on?

     STATEMENT OF JAMES T. FLEMING, PRESIDENT, CONNECTICUT 
                AUTOMOTIVE RETAILERS ASSOCIATION

    Mr. Fleming. Thank you, Mr. Chairman, Senator Shelby, 
Members of the Committee. As President of the Connecticut 
Automotive Retailers Association, I represent 300 dealers in 
Connecticut and their 14,000 employees, all of whom have good 
jobs with great wages and benefits. Our dealers are small 
businesspeople and entrepreneurs, and some of them are sitting 
behind me here today to let you know how important this 
legislation is to them and to our dealers.
    We appreciate the fact that the dealers' perspective is 
being asked for because we have something to say, and I want to 
talk a little bit about the ripple effect that we have heard a 
little bit about this morning here. To our people to these 
small businesspeople, it is a tsunami. It is not a ripple. And 
I want to just relate what a dealer told me before I came down 
here to Washington to testify.
    He indicated to me that last month he had 30 people that 
came into his dealership. Those 30 people would normally have 
qualified to get financing to purchase a car, but because of 
how squeamish the banks are just with talk of bankruptcy, he 
could not get these people financed. That is how serious it is.
    Now, what does that mean to the State of Connecticut? I got 
an e-mail just before I came up here to talk about the impact 
that is having on the State's budget. Every one of the Senators 
here, if you go back and talk to your State budget officers 
that are trying to deal with deficit situations, will find out 
what a big part automobile sales represent in that budget. In 
Connecticut, it represents a loss of $65 million in our budget 
just in new-car sales tax. That is what has been going on in 
our State budget.
    Members, this is not a bailout bill for Detroit or for Wall 
Street. This is about investing in the future of our small 
towns and businesses. The economies and the budgets of State 
governments, as I said, ultimately are going to be affected by 
what you do here. If you go back to your constituents, as I 
have done as a State Senator in my past life, and they ask you 
what did you vote for, what you are voting for here, what you 
are supporting here is keeping people employed in those small 
businesses in your district. That is what this is about.
    If you say no, or if you do nothing, which is essentially 
no, and allow bankruptcy to occur, the impact on the dealers 
and the people that they employ in your home States will be 
dramatic. People will not buy cars from a bankrupt entity. They 
are afraid to buy cars as it is right now. This is the second 
largest purchase that they will ever make in their life. This 
is not the same as a structured bankruptcy for an airline. This 
is a big expenditure on the part of people back in your 
districts.
    If you say yes to this financing package, it gives us some 
time to try to adjust to what is going on in the economy.
    We have lost 25 dealerships in Connecticut in the last 
year. We have lost 700 jobs in Connecticut in the last year. 
Those people are not going to be able to contribute to the 
economy.
    Another issue I would like to raise, and I hope, gentlemen 
and Senator Dole, that you will ask me in detail about this. 
When a dealer goes out of business, there is no golden 
parachute for that dealer. I know a dealer who last month lost 
his Chevy dealership. He had mortgaged his home. He had lost 
all of his personal wealth that he put into that business to 
try to keep it alive. He does not want a piece of this money. 
He wants the manufacturers to survive so he can continue to 
compete at that local level, and to compete with these 
gentlemen that are here, because dealers are different than the 
manufacturers in Detroit. If you want to hold them accountable, 
do it. Hold them accountable. It is the public's money. But if 
you do not pass this bill, the effect on your constituents and 
on people that I represent will be dramatic. So I urge you to 
take that action and do it fast, because just as we have been 
sitting here today, I know dealers who have had to lay people 
off.
    So with that said, Mr. Chairman, I know I have a few 
seconds left here. I would just ask you to consider the human 
side of what is going on, and when you have an opportunity, go 
back to your district. Go into those dealerships and see what 
these guys are doing. It is tough work. They are writing the 
paychecks out. They do not have massive staffs. They have about 
maybe 30 people in a dealership. In Connecticut, somebody is 
making about $55,000 a year on average in a dealership. That is 
good pay. That will go away if we wait too long and you act 
negatively on what is before you.
    Thank you, Mr. Chairman.
    Chairman Dodd. Well, thank you, Mr. Fleming. And I would 
point out, and my colleagues have done this as well, but about 
a week or so ago, I had a long meeting and a good meeting with 
the dealers in my own State, and good conversations with them 
about the implications of this as well. So it is a worthwhile 
visit to make to hear their perspective on this, and I know my 
colleagues probably have done the same. But I want to thank Mr. 
Fleming for organizing that in my State and giving me a chance 
to hear from my dealers as well.
    Mr. Wandell.

 STATEMENT OF KEITH WANDELL, PRESIDENT, JOHNSON CONTROLS, INC.

    Mr. Wandell. Chairman Dodd, Senator Shelby, and Members of 
the Committee, thank you for the opportunity to provide 
testimony on the state of the domestic automotive industry. My 
name is Keith Wandell, and I am President and Chief Operating 
Officer of Johnson Controls, Incorporated. We are a global 
multi-industry company with sales of $38 billion in 2008, and 
approximately 37 percent of our sales involve the supply of 
systems and services to improve the energy efficiency of 
nonresidential and residential buildings worldwide. We are also 
the largest supplier of automotive batteries to the automotive 
aftermarket, as well as the original equipment manufacturers in 
the world.
    In addition, our company is the seventh largest automotive 
supplier in the world. We are the third largest supplier in 
North America behind Magna International, which is a Canadian 
company, and Delphi, a U.S. company which we all know has been 
in bankruptcy since 2005. Our global sales of seats and other 
interior products to the automotive industry totaled--and I 
apologize, there was a typo in our document. It is $18 billion; 
$6.7 billion of that were to the North American market 
specifically. We supply every automaker with a presence in the 
U.S., with just under half of our sales to the Detroit Three 
and the balance to the transplants. Johnson Controls has 43,000 
employees in the U.S.; 22,000 of those are in the States 
represented by the Members of this Committee.
    While Johnson Controls is a key supplier to the global 
automotive industry, we are somewhat atypical of most 
automotive suppliers because we are much larger than most, we 
are more diversified by our products, our geography, and our 
markets. Being a supplier of interior systems, we are probably 
less capital intensive than many other automotive suppliers. We 
are profitable, and we have a strong balance sheet. We do, 
however, share the same issues and concerns about the domestic 
automotive industry as those suppliers which are solely 
dedicated to the automotive industry.
    A Detroit Three failure would have dire economic 
ramifications for the vast interconnected supply chain of 
companies that provide parts and components which enable the 
U.S. automakers to assemble vehicles. Our main concern is that 
once cascading supply chain interruptions begin, many suppliers 
will fail due to the interdependence of that supply chain. And 
many of the companies which would be impacted are small, women- 
and minority-owned businesses.
    During 2008, Johnson Controls purchased $1.7 billion of 
goods and services from minority- and female-owned businesses. 
The Detroit Three had a combined purchase of approximately $12 
billion from these same businesses. Should any one of the U.S. 
automakers suddenly fail, the vast majority of these women- and 
minority-owned businesses will fail and will fail quickly.
    Let me share an example with you. Recently, earlier this 
year, a minority supplier to Johnson Controls, the supplier 
that really supplied a vast part of the auto industry, Plastech 
Engineered Products, failed and went into bankruptcy. Plastech 
had $800 million of revenue. They shipped 6,200 different part 
numbers to 52 vehicle assembly plants in North America, 
supplying 121 vehicle lines and 12 customers: General Motors, 
Ford, Chrysler, Volkswagen, Mercedes, Honda, Toyota, Nissan, 
Hyundai-Kia, AM General, Mazda, and Mitsubishi. Had Johnson 
Controls and the first-tier lending group not acquired 
Plastech's assets out of bankruptcy, had we not assembled an 
operating team to manage the process, and had we not provided 
the bridge financing necessary to avoid liquidation, all 52 of 
those assembly plants would have been affected to one degree or 
another for varying durations. That is one small microcosm of 
how interconnected the supply chain is.
    A year ago approximately 20 percent of our--Johnson 
Controls--automotive suppliers, part suppliers that provide 
parts to us that allow us to provide complete seat assemblies 
and cockpits, et cetera, to the Detroit Three--were financially 
distressed according to third-party independent third sources. 
Since the rapid deterioration of industry volumes, that number 
has grown to beyond 35 percent, so over 35 percent of our 
suppliers are financially distressed and on the verge of 
bankruptcy. And this number continues to grow. This supply base 
has over 100,000 employees.
    Should one of the Detroit Three fail, a significant number 
of supplier failures would occur and would become unmanageable. 
And I know that Mr. Nardelli and Mr. Wagoner and Mr. Mulally in 
their organizations today, there is an inordinate amount of 
time being spent by their supply chain people in trying to 
manage the number of bankruptcies and financially distressed 
suppliers that there are in this industry, just like we are.
    And I can assure you that even though Toyota, Nissan, 
Honda, Mercedes, and every other foreign car maker who 
assembles plants in America are not here today, they too are 
deeply concerned about the viability of the U.S. supply base.
    I think that all of us here agree that major changes are 
needed in the North American automotive industry. There are 
major changes that are needed in the supply chain as well. But 
we hope everyone here understands how important it is that 
these changes occur in an orderly fashion, which is unlikely if 
we allow even one of these companies to fail. There will be an 
implosion of the supply base that will affect all the car 
companies.
    It is extremely important that we have a sound, healthy, 
and sustainable U.S.-owned automotive industry that is 
competitive globally. And I do not believe that Americans--in 
spite of the CNN poll that came out this morning that said 60 
percent of the Americans are not in favor of some sort of 
financial aid, I do not believe that Americans want to yield an 
industry that impacts millions of jobs and invests billions of 
dollars in technology and will help secure our energy 
independence through new, innovative, and environmentally 
friendly transportation. The supply base provides 70 percent of 
the value-added components that go into a vehicle and spend 
over 40 percent of the total R&D dollars in the automotive 
industry.
    The plans that have been submitted address many of the 
issues that have been burdensome to the health of the industry, 
and I think given the opportunity, the Detroit Three in their 
own way and each one are on their own way to resolving a lot of 
these issues. And I think given, you know, an opportunity to 
address these challenges, I think we will be on our way to 
bringing to the market consumer-desired, fuel-efficient, 
environmentally friendly vehicles that the consumers are 
desiring.
    I was also asked to comment on the potential impact of a 
Detroit Three failure on our company. Earlier I said that we 
are diversified, profitable, and we have a strong balance 
sheet. Unlike many suppliers, we would weather the storm 
largely due to our strong non-automotive businesses. A Detroit 
Three failure would have a short- to mid-term impact probably 
on our cash-flow or access to capital maybe and possibly our 
cost of borrowing. One of the bigger impacts would be the 
curtailment of our investments in new technologies in all of 
our businesses, including the hybrid vehicle technology that we 
are working with all the Big Three on.
    So, in conclusion, we believe that the industry has a long 
and proud heritage; it has played a significant role in the 
development of this country's strong economic position in the 
world. And speaking for our company, and I am sure all of the 
auto suppliers, we would respectfully urge the Members of this 
Committee, and the Congress as a whole, to provide the 
financial support that the automakers need at this critical 
time.
    Thank you very much for your attention.
    Chairman Dodd. Thank you very much.
    Dr. Zandi, thank you.

          STATEMENT OF MARK ZANDI, CHIEF ECONOMIST AND
                CO-FOUNDER, MOODY'S ECONOMY.COM

    Mr. Zandi. Thank you, Mr. Chairman, Senator Shelby, and the 
rest of the Committee, for the opportunity to speak here today. 
My remarks represent my personal views, not those of the 
Moody's Corporation, which is my employer. I will make four 
points in my remarks.
    Point one, the Federal Government should provide financial 
help to the domestic automakers. Without help, the automakers 
will quickly be in bankruptcy, resulting in liquidations and 
hundreds of thousands of layoffs at a time when the broader 
economy is suffering its worst recession since the Great 
Depression. If the automakers file for background anytime in 
the next few weeks, or even months, then this would be very 
damaging to the sliding economy. The Big Three employ fewer 
than 250,000 people in the United States, but given their broad 
links into the rest of the economy, as we have seen, closer to 
2.5 million jobs would be immediately at risk. Hundreds of 
thousands would lose their jobs when the economy is already set 
to lose several million. The hit to already record-low 
consumer, business, and investor confidence would be 
devastating.
    Point two, under the most likely outlook for the economy 
and auto industry, the $34 billion in loans requested by the 
Big Three will not be sufficient for them to avoid bankruptcy 
at some point in the next 2 years. They would ultimately need, 
in my view, somewhere between $75 billion to $125 billion to 
avoid this fate. This cost estimate is based in part on the 
expectation that light vehicle sales will average close to 11 
million units in 2009 and 13.5 million units in 2010. For 
context, vehicle sales averaged almost 17 million units 
annually between 1999 and 2006. This extraordinarily weak 
vehicle sales outlook is due to three factors: first, the 
current sharp decline in employment--we will lose 2 million 
jobs this year, at least that many in 2009--the severe credit 
crunch that is undermining the availability of vehicle loans 
and leases, and the significant amount of what I call pent-up 
vehicle demand created earlier in the decade as the automakers 
used increasingly aggressive financial incentives to 
artificially support demand. Seventeen million units is not 
supportable by underlying demand. The cost of keeping the Big 
Three out of bankruptcy also significantly depends on their 
ability to arrest the decline in their market share. Their 
share has been steadily falling, reflecting many factors, but 
most critically, higher gasoline prices. The very recent 
decline in gas prices notwithstanding, vehicle buyers will not 
quickly return to buying the Big Three's less fuel-efficient 
vehicles. Whether their market share remains close to its 
current 50 percent or declines nearer to 40 percent in the next 
2 years will determine whether the cost of avoiding bankruptcy 
will be $75 billion or $125 billion.
    Point three, the Big Three's restructuring plans, if fully 
executed, could result in a viable long-term domestic auto 
industry. However, given the very difficult changes this will 
require of the Big Three and their stakeholders, there is a 
considerable risk the plans will not be executed effectively. 
Each automaker has outlined laudable steps to return to long-
term viability. They envisage deep cost-cutting producing more 
fuel-efficient cars, rationalizing their brands and retail 
outlets, and refocusing their marketing efforts. And they have 
already made significant strides in restructuring their 
operations and reducing costs. The industry's labor costs have 
actually declined during this decade. Moreover, given the 
considerable UAW wage and benefit concessions in 2007, further 
substantial cost savings would soon occur. But despite this 
clear progress, it would be extraordinarily challenging for the 
Big Three to convince all of their stakeholders, including 
management and the UAW, their creditors, suppliers, and 
dealers, to quickly make the very substantial concessions 
necessary to make their plans work.
    Point four, I recommend that Congress provide the $34 
billion in aid that the Big Three requested in exchange for 
warrants and restrictions on executive comp and dividend 
payments. This is necessary given the potential for the 
automakers' imminent disorderly bankruptcy at an extraordinary 
fragile time for the economy. The aid should be disbursed in 
two tranches. The first payout should be sufficient to allow 
the automakers to comfortably avoid bankruptcy when the economy 
is most vulnerable over the next 3 to 6 months. The second 
payout should only occur if the automakers are hitting 
benchmarks in the restructuring plans, which could be 
determined by the oversight board. Policymakers should be 
convinced that they are not throwing good money after bad.
    Congress should at the same time make it clear that if the 
restructuring plans are unsuccessful, no more Government loans 
will be forthcoming. Instead, Congress will ensure there is an 
orderly bankruptcy process by providing financing in bankruptcy 
and guaranteeing warranties on new vehicles sold.
    There is a reasonable concern that if the Big Three file 
for a pre-arranged bankruptcy--even a Government-supported 
bankruptcy--people would stop buying their cars. But getting a 
loan from the Government, even one as large as $34 billion, 
will not convince anyone that they will be around for very long 
either. There is also a worry that bankruptcy would further 
damage the fragile financial system, but debt holders have had 
a long time to adjust to this possibility.
    A concerted, comprehensive, and consistent Government 
response to the economic crises is vitally needed. The economy 
needs a sizable economic recovery package and a substantive 
foreclosure mitigation plan, but the Government's resources are 
not unlimited and must be used wisely. The Federal budget 
deficit will easily top $1 trillion this fiscal year and again 
in fiscal year 2010.
    The automakers have come forth with a reasonable plan to 
restructure their businesses, but $34 billion in a plan may 
very well not be enough for them to become viable companies 
again. Policymakers must prepare for this eventuality.
    Thank you.
    Chairman Dodd. Well, thank you very much, Dr. Zandi. Let me 
thank all of you for your testimony, and we have got a large 
participation of members here, and I am going to try and move 
right along with my questions and get as quick answers as we 
can from you on these matters, and I will ask my colleagues to 
do as well. There is an awful lot to talk about here.
    Let me begin. You all were sitting, I noticed all of you 
sitting here when the General Accounting Office was testifying 
and describing, in effect, the 1979 Chrysler situation, which I 
am sure Mr. Nardelli and the other CEOs and Ron Gettelfinger 
are very familiar with. The others may be as well. Just 
quickly, if you would--and I will the CEOs, if you would--were 
we to craft something like that, whether it is a trustee or an 
oversight board that was described by the General Accounting 
Office, would you be willing to accept such a structure? We 
will begin with Mr. Wagoner.
    Mr. Wagoner. Yes, sir.
    Mr. Mulally. Yes.
    Chairman Dodd. Mr. Nardelli.
    Mr. Nardelli. Yes, sir, and we included that in our 
statement.
    Chairman Dodd. Anything you would add to what has been said 
by him that you would suggest in terms of the time constraints 
we are dealing with? If we were to take virtually the same 
model in 1979 on an oversight board--which I think worked 
fairly well. I think it sort of covered what our colleagues 
raised earlier. It was decisionmaking rather than just 
oversight. Would you add anything to that at all?
    Mr. Wagoner. I would just reinforce the point about moving 
fast on this would enable all of us to understand the 
direction. There are nuances in this area, so for us, faster 
would be better.
    Chairman Dodd. Now, I read all of the reports you submitted 
on Tuesday. Did all of you read each other's reports?
    Mr. Nardelli. Yes, sir.
    Chairman Dodd. You are familiar with each other's? Ford is 
familiar with Chrysler and GM and so forth? You have had a 
chance to look those over as well?
    Mr. Wagoner. Yes, sir.
    Chairman Dodd. Well, let me ask you again, Mr. Zandi. I 
appreciate your points for all of the reasons you have laid 
out, but you also have, of course, a pretty--a concern, I am 
sure, of all of my colleagues. They also read about your 
prediction that this number was going to increase, that we are 
talking $75 billion to $125 billion. What else could be done in 
your view to mitigate that problem?
    One of my concerns--and someone raised this, and it may 
have been Mr. Fleming at our meeting in Connecticut with the 
dealers where we spent 3 hours last week--is that ultimate none 
of this works until consumers buy cars. We do a lot of these 
actions at the top and so forth, but the final test will be 
whether or not people show up in showrooms and buy cars.
    Is there anything we could be doing from the bottom-up 
approach on this thing? We are doing a lot of top-down. We have 
certainly seen it with the financial institutions, the 
injection of capital and the like. But many of us up here are 
concerned that we have done very little bottom-up to shore up 
consumer confidence; mitigation of foreclosure, you mentioned 
that as well. But, obviously, support for consumers out there 
who would, frankly, like, as Mr. Fleming pointed out, the 30 
people who showed up who, under normal circumstances, would 
have qualified with FICO scores to purchase a car but were 
turned away because of the 780 or whatever the number is now 
that you must reach in order to qualify for a loan.
    Are there things that we could be doing up here, aside from 
what we are talking about, to mitigate that number?
    Mr. Zandi. Well, one obvious thing is I do think the 
captive finance companies are a problem. They are a drain on 
the finances, particularly of GM. And, moreover, because of 
their financial problems, it is making it difficult for 
borrowers to get loans and leases. Leasing has completely dried 
up.
    So I think one clear thing that could be done is to 
facilitate their move to bank holding companies so that they 
could become eligible for the TARP money and hopefully re-
establish some viability in the credit markets.
    Chairman Dodd. And that would help, in your view?
    Mr. Zandi. I think that would be very significant help. I 
think one of the reasons why people cannot buy cars at this 
moment in time is because they cannot get financing, 
particularly leasing. I mean, there is no leasing.
    Chairman Dodd. I heard that over and over again from my 
dealers back in--and the CEOs agree with this as well?
    Mr. Nardelli. Yes, sir. I mean, one of the major points I 
made in my opening comments was the fact that Chrysler 
Financial really does need access to liquidity and capacity.
    Chairman Dodd. You asked for the TARP money, and I was 
going to raise this in a question with you. That sentence 
jumped out at me in your testimony.
    Mr. Nardelli. Sir, we have had a request in----
    Chairman Dodd. But you know they have said no.
    Mr. Nardelli. Yes, sir.
    Chairman Dodd. So what happens? Even if we do what we are 
doing up here, are you telling me Chrysler fails anyway?
    Mr. Nardelli. Sir, if we do not--to your question exactly -
that is why I made the point in this oral testimony in the last 
time we were here, that it is a tandem request, that our 
captive financials--and if I read correctly, both in General 
Motors and Ford--it is an integral part of the overall auto 
industry success. We literally lost 20 percent of our volume 
overnight due to capacity constraints in the lease business. 
You know, our private equity group worked very hard to get a 
new conduit, but there were many new constraints put on that 
$24 billion of conduit.
    For example, if we did go into bankruptcy, they would be 
restricted from providing any wholesale support to our dealers, 
which immediately, as was said, would put unbelievable 
hardship--in other words, the dealers would have to go out and 
try to get wholesale financing.
    Chairman Dodd. I know. But I was making the point to you 
earlier. Obviously, there are a lot of things we may try and do 
up here. So this is in addition to the $34 billion.
    Mr. Nardelli. Those requests are being handled outside this 
request.
    Chairman Dodd. But it is in addition to the $34 billion.
    Mr. Nardelli. Yes, and those requests have been made to 
TARP. They have been made to--our ILC request
    Chairman Dodd. You have gotten the same answer we have 
gotten?
    Mr. Nardelli. Well, sir, the request for the ILC has been 
in for 3 years.
    Chairman Dodd. Well, to the TARP.
    Mr. Nardelli. And to the TARP, we have gotten no response.
    Chairman Dodd. They have not said yes or no to you?
    Mr. Nardelli. Yes, sir. No, sir, they have not confirmed 
either way.
    Chairman Dodd. Let me just jump to a couple of quick 
questions, if I can, and then there is so much to raise with 
you. Let me say this, Mr. Nardelli, because, you know, as I 
understand it, Cerberus paid $7 billion to buy Chrysler. You 
will excuse me if the numbers do not sort of jump out at me 
that it is exactly the number you are looking for. And the 
question I raised to myself, are we merely just providing money 
because of a ``business decision'' that was made, where today 
that $7 billion, I presume the value was a lot less than that. 
I mean, I am more intrigued in a sense if there is a For Sale 
sign out here with Chrysler, looking for a merger or an 
acquisition, that that occur, and then talking about 
restructuring, then pumping $7 billion in to pick up the cost 
of the acquisition, if you understand my question.
    Mr. Nardelli. I understand exactly, and let me just say for 
the record that Cerberus--I could not ask for a better partner/
owner. They are absolutely committed and have been committed to 
returning Chrysler to viability and profitability.
    Chairman Dodd. But you did not ask them anything beyond 
that. You said a one-time infusion, $7 billion, nothing more. 
Now, GM and Ford, Ford talks about a line of credit for 10 
years, I think. GM talks about tranches of 4 or 6 and 6 down 
the road, depending upon the economy. Chrysler said, ``Just 
give me the 7, that is all.''
    Mr. Nardelli. That is it. If I can go back to your first 
question, in addition to the original capitalization, we also 
drew down about $2 billion middle of this year, so there was 
another cash infusion from our privately held owners. But 
because they are a private equity does not mean that there are 
not the same investors that many of these banks have. We have 
some of the largest pension funds are contributors to this, and 
they are going to through the same economic evaluation that the 
banks are going through, the other lenders, in making these 
decisions. So that is point number one.
    Point number two, if you look at my submission that we 
made, we are, in fact, taking a much more conservative approach 
in our plan than was--so our exit rate for this year will be 
about 13.5 million units. In 2009, we assume the industry to be 
at about 11.1 million. So we have intentionally taken a very 
conservative approach, and that volume does not grow over the 
period to about 13.5 until 2012.
    So we have tried to take a conservative approach, Mr. 
Chairman, to avoid having to come back and ask you again for 
support.
    Chairman Dodd. All right. Let me jump quickly to Ford. GM 
and Chrysler both place the taxpayers in a primary position. 
You are asking for a line of credit of around--what is it, $10 
to $13 billion over 10 years?
    Mr. Mulally. Nine.
    Chairman Dodd. And yet there is no indication in your plan 
here that the taxpayer would come in first as a result of 
extending that line of credit. Why?
    Mr. Mulally. No, I understand, and also to understand the 
importance of protecting the taxpayer. And what we put in our 
submission to you was that in our current covenants with the 
banks today, we would be in violation of those covenants, which 
they could put us in default. So what we said in our 
transmission is that we would like to work with you on that 
because there has just to be a way to work with the banks and 
you to address that issue. We understand the importance.
    Chairman Dodd. Let me jump quickly to one other point I 
want to make, if I can, and that is the issue of the closing of 
some of the SUV plants that we were talking about. The Big 
Three obviously acknowledged some strategic errors in their 
business models, failing to realize the demand for smaller 
fuel-efficient cars and the like. I appreciate your 
acknowledgment of that.
    This Committee will have this coming year in the 111th 
Congress the responsibility of a Highway Trust Fund issue, the 
highway bill, and this Committee's jurisdiction is over mass 
transit issues. Many of us here, including those who come from 
rural States, are deeply interested in what can happen in terms 
of mass transit.
    It just struck me when I looked--and, again, I do not claim 
deep, deep knowledge about this, but looking at the wheel base 
and so forth of an SUV, what could also be constructed in 
minibuses and the like, we have got tremendous demands from 
some of our local communities, and we have American-made 
requirements here. It seems to me we might be thinking about 
accessing a market that is emerging for minibuses, mass transit 
systems, railway cars and the like. I know in my own State we 
have had to go out of country to buy some of these things. We 
no longer produce them. Many have talked about what your 
industries did in the early 1940s in transitioning to the 
production of tanks and airplanes to meet the national security 
needs of our country.
    Are any of you giving any thought at all to this emerging 
demand of mass transit vehicles, minibuses, commuters? Today we 
have got a 30-percent increase in demand for minibuses to deal 
with this car-sharing approach to get people into urban areas 
outside. What is being done at all about thinking about that 
aspect of your industry?
    Mr. Nardelli. Sir, if you look at, again, my oral testimony 
and one of the charts we presented, if you look at the bottom 
half of the page, we do have a light-duty commercial van that 
is being investigated and contemplated as part of our 
aggressive product renaissance in 2009-10 and beyond. It is on 
the lower half of the page.
    So we are looking at that, and we are trying to be 
responsive. I am proud to say that I drove a hybrid here from 
Detroit, and the technology performed extremely well.
    Chairman Dodd. I presume it was a Chrysler.
    Mr. Nardelli. Yes, sir.
    [Laughter.]
    Chairman Dodd. Just wanted to check for the record.
    Mr. Nardelli. Yes, sir.
    Chairman Dodd. Well, you all made buses. You used to make 
your supply chain. You used to also do the rail cars. Right? 
You all made buses at one point, didn't you?
    Mr. Wagoner. Yes, we made buses. We were in the rail 
business as well.
    Chairman Dodd. Any thoughts about getting back into that 
kind of work?
    Mr. Wagoner. We continue to build a fairly large van, of 
which the applications are largely commercial. I am making note 
of your comment about increasing demand likely out of the trust 
fund, because we have plenty of capacity and that van is a very 
competitive one and can be adapted to those kinds of uses. And 
we also have some ventures that we work in Europe where the 
product there is a similar kind of van that gets better fuel 
economy. We have looked from time to time at whether there will 
be a market for that in the U.S. for tooling up to build it in 
the U.S. So as that develops, we would be very interested.
    Chairman Dodd. Mr. Wagoner, let me, by the way, in reading 
the plans--and I am not giving an editorial comment here, but I 
was impressed with the detail of the GM plan and how you laid 
things out. But let me read something that was reported today 
and ask you to respond to it.
    It said, ``If GM does reduce its dealerships to 4,700 by 
2012, as promised yesterday, it will still have almost 4 times 
as many as Toyota. It suggested going from eight brands to five 
by unloading Hummer, Saab, and Saturn, but it still plans to 
accept 40 of today's 48 models. Disappointingly, but not 
surprisingly, the GM plan contains no hint at a change in 
management. In contrast to Ford and Chrysler, which are headed 
by newcomers, GM's top cadre has presided over hears of 
decline. GM's board might find that acceptable, but if 
taxpayers are going to invest in GM, they are entitled to ask 
whether this is the right team to revitalize the company.''
    I would like to give you a chance to respond to that.
    Mr. Wagoner. On the last point, I am doing this job because 
I am committed to the future of General Motors, to the people 
of General Motors. I do not have a golden parachute. I do not 
have any protections. I serve at the pleasure of the board. And 
I think the most important thing for us to do is to put forth a 
plan that we think puts us on the right footing for the future, 
and I think the leadership team we have today is the right one. 
But as I said, I serve at the pleasure of the board and will 
always----
    Chairman Dodd. How about these other points here, what did 
I say, 40 or 48 models, dealerships--I mean, Mr. Fleming told 
me that in Connecticut we have lost--I forget how many you told 
me last week. We are losing dealerships anyway, and I wonder if 
these numbers reflect just the attrition that is occurring as a 
result of the economic crisis.
    Mr. Wagoner. Well, this year we have lost about 300 
dealers. It was an extraordinarily difficult year due to the 
radical reduction within the year of the production. So, 
obviously, the plan we have now basically would do about 
1,800--1,750, 1,800 over the next 4 years. So that is a 
significantly faster pace.
    I would point out one difference. Because of our history, 
we have a huge number of dealers in rural communities, in small 
towns. Those dealers do a great job. We have much higher market 
share in those communities. They do not, frankly, require a lot 
of support from the company, and so we let those dealers decide 
individually do they want to stay in business or not. Some are 
over time, due to the economics of the business, ramping down, 
but many choose to stay in. So we actually think that part is a 
competitive advantage. And a lot of the consolidation that we 
talk about in our plan is in the metro areas where the over-
dealering is an economic disadvantage for the dealers that 
remain. So we will move more aggressive in those parts of the 
country.
    Chairman Dodd. I appreciate that. I have a lot more 
questions, but let me turn to Senator Shelby.
    Senator Shelby. Thank you, Chairman Dodd.
    A lot of people believe sincerely that the restructuring 
plans that each of your companies has provided are not a 
serious set of plans, that they contain few concrete details on 
how your companies will return to profitability, that they 
contain surely a lot of scattered facts, but lack a systematic 
presentation on how your companies would use the money to 
return to profitability and pay back the taxpayers.
    If you made this presentation to get a bank loan, I suspect 
that any sensible banker would summarily dismiss your request. 
And for the Committee here with our responsibility, and to 
improve our understanding of how each of your companies plan to 
return to profitability--in other words, how are you going to 
compete and return to profitability--would each of you agree to 
provide this Committee with full pro forma financial statements 
prepared in a manner that shows how your restructuring plans 
will impact your businesses over the next--not 3 months--3 
years? Would you all be willing to do that, Mr. Nardelli?
    Mr. Nardelli. Yes, sir. In the 100-page document, as 
Chairman Dodd suggested that we submit it, there is a complete 
tab that gives a complete pro forma P&L, income in cash, by 
quarter for 2009 and by year for 2010, 2011, and 2012.
    So in response to your question, the answer is yes. In 
response to the question that we got from the General 
Accounting Office as far as whether we would be willing to make 
data available, the answer is yes. And we have embedded in that 
pro forma--in those financials, the targeted $4 billion, when 
that would have to take effect. We are looking at, for example, 
in----
    Senator Shelby. What you would do with it.
    Mr. Nardelli. Yes, sir. We have spelled out exactly what 
our obligations are relative to supplier payments, payroll, et 
cetera. And we have also put in 2012 in the cash pro forma the 
first $1 billion repayment back to the taxpayers.
    Senator Shelby. Ford, will they do the same thing.
    Mr. Mulally. Of course.
    Senator Shelby. GM?
    Mr. Wagoner. Senator Shelby, we have that data. We would be 
glad to share it. Some of it is confidential, so we would share 
it directly with your staffs or yourself. Be glad to do it.
    Senator Shelby. We have been talking from time to time 
about the 1979 Chrysler bailout. You were not there then.
    Mr. Nardelli. No, sir.
    Senator Shelby. But the last time Congress bailed out an 
automaker--as I said, it was in 1979--that legislation 
conditioned Government assistance to Chrysler providing a 
restructuring plan that met very specific requirements, 
including minimum concessions from its creditors, suppliers, 
workers, and dealers. A lot of us do not believe your plan 
comes up close to providing the same level of detail.
    How does your restructuring plan that you provided to the 
Committee compare with the financial reports you provide to 
prospective investors? Is it the same or is it different? And 
if it is different, why is it different?
    Mr. Nardelli. No, sir, it is not different in our case. 
When----
    Senator Shelby. OK. You are speaking about Chrysler.
    Mr. Nardelli. Yes, sir. It is not different in Chrysler's 
case. We had to present, again, exactly the same pro formas 
when we became organized back in August of 2007 to all of our 
institutional lenders, certainly the largest ones. And, in 
fact, every month our CFO has a full disclosure, a full report 
to all our investors. Even though we are private, they are just 
as demanding as shareholders and have the same expectations.
    Senator Shelby. Do you basically -and I will address this 
to all three. Do you usually provide prospective investors with 
detailed pro forma financial reports showing how any financing 
would be used in the business and how the money would be paid 
back? Mr. Wagoner.
    Mr. Wagoner. Yes, we would, if we were doing, for example, 
a public financing and equity raise, we would lay out that sort 
of thing. We would be glad to do it here as well.
    Senator Shelby. Wouldn't this be as public as you could 
get, the taxpayers?
    Mr. Wagoner. We would be glad to provide anything you would 
like, sir.
    Senator Shelby. What about Ford?
    Mr. Mulally. The way you have described it is exactly the 
way we have approached our business plan in the past, and 
everything that we have presented to you is what we have also 
presented to the banks when we went for additional credit to 
finance the transformation of Ford.
    Senator Shelby. Dr. Zandi, you stated in your testimony, 
your written testimony, that the Big Three automakers would 
need between $75 and $150 billion to avoid bankruptcy. At $150 
billion, the bailout would be more than 1 percent of the GDP of 
this country. Would you discuss why your estimate is so much 
higher than the $34 billion estimated by the Big Three? I think 
you are on the right track, though.
    Mr. Zandi. The estimate is $75 billion to $125 billion, but 
$25 billion among friends----
    Senator Shelby. OK.
    Mr. Zandi. It is a function of many variables. There are 
three key variables. The first is expectations for total 
vehicle sales. I expect in 2009 11 million vehicle sales. I 
think Chrysler is very close to that. The other two are higher 
than that in their baseline expectations.
    The second variable is market share, what share of the 
total market they should expect to capture, and that is----
    Chairman Dodd. Doctor, before you continue along on that, 
the numbers we are looking at, Ford's and Chrysler's actually 
are the same as GM's in those predictions, about 11, right?
    Mr. Nardelli. For 2009 we have 11.1 as our projected----
    Chairman Dodd. Right. And the other one is 11--is that the 
same, or is it 12?
    Mr. Zandi. I thought it was higher.
    Mr. Mulally. GM is at 12, I think.
    Mr. Wagoner. Our base case is 12. Our downside case is at 
10.5.
    Chairman Dodd. GM is at 12, Chrysler is at 11.1, and Ford 
is at 11.
    Mr. Zandi. OK. Fair enough. And then the third variable is 
price, you know, how much can you get for a car. And that will 
affect your market share. So just three of the variables, and 
by my calculation, using my expectations for the economy and 
what it means for sales, market share, for pricing, I am 
skeptical, doubtful that it is going to end at $34 billion.
    Mr. Nardelli. Mr. Chairman, if I might.
    Senator Shelby. Yes, go ahead.
    Mr. Nardelli. Our share projection in our recovery plan to 
you is that our share is flat through the planning period. And 
quite honestly, while not as robust as my colleagues, our share 
has been about 10 percent of the industry for the last decade. 
We have had pretty much relatively flat share, again, for the 
past decade, and we are not assuming any share of growth in our 
plan or any positive pricing.
    Senator Shelby. Mr. Fleming, you testified--and one of your 
phrases was kind of troubling to me, and I believe I have got 
it right. You said, ``A bailout here would give us''--the 
automobile industry here--``some time to try to adjust.'' That 
would probably be true, some time to try to adjust. In other 
words, give you breathing room. But I think we have to have 
more than that here to try to balance the taxpayers' interest 
here with everything.
    Mr. Gettelfinger also said--and I thought you were 
tentative in this: ``Of course, if any plan works, there have 
got to be management concessions''--I am not a management 
expert, but I can tell you, if you are not making money, there 
is a problem. Is it in management? Is it in labor? You know, is 
it a combination of both? Is it lack of innovation in your 
products? I do not know this, but I know there is a deep 
structural problem here. But you said we may need--may need--to 
do so-and-so. I think that is ambiguous and kind of tentative. 
And I believe any plan to work, any plan, you are going to have 
to have restructuring of management, and you are going to have 
to get rid of a lot of people to save a lot of jobs. You are 
going to have to do the same thing at the UAW, and the question 
is--I hope that, you know, you realize you are in this 
together, and if you are not, if you are not going to give the 
concessions and the management is not going to give the 
concessions and suppliers are not going to give concessions, we 
are wasting our time and taxpayers' money big time. That is my 
thought of it.
    I want to ask you--this is just an aside, because there has 
been a lot of big talk about it. You flew up here before. I 
understand that. And you drove up here. Did you drive or did 
you have a driver? Did you drive a little and ride a little? 
And, second, I guess, are you going to drive back? And if so, 
if some of us wanted to ride to Detroit, could we ride with 
you?
    Chairman Dodd. Where did you stay? Where did you eat?
    [Laughter.]
    Senator Shelby. The Chairman wants to make light of this, 
but I can tell you this: Are you planning to drive back? 
According to press releases, you drove up here.
    Mr. Nardelli. Yes, sir, and I did have a colleague, and we 
rotated. We left Tuesday night and drove until midnight and 
then got up at 5:30 the next morning, and then drove the rest 
of the way in. And we did rotate, and I do plan to drive back.
    Senator Shelby. What about you?
    Mr. Mulally. We carpooled. I drove and I am driving back.
    Senator Shelby. You did not carpool with him, did you?
    Mr. Mulally. No. Carpooled with our Ford people.
    Senator Shelby. OK. What about you?
    Mr. Wagoner. I drove with a colleague. We split it up about 
50/50. We drove down yesterday, and I am going to drive back 
myself Friday or Saturday.
    Senator Shelby. Mr. Zandi, one last question. In part of 
your testimony, you said that ``there is no better way to 
ensure that the Big Three are around than if they are 
significantly restructured in Chapter 11 bankruptcy.'' Would 
you please explain here--we know it would be painful; we 
understand all this--why restructuring under Chapter 11 in your 
view is preferable to restructuring outside of bankruptcy, if 
it is?
    Mr. Zandi. Let me clarify. I think that the best option----
    Senator Shelby. I was just quoting your testimony.
    Mr. Zandi. I will clarify my testimony.
    Senator Shelby. Yes, sir. Go ahead.
    Mr. Zandi. I think the best option is to have a 
restructuring outside of bankruptcy. I think if you can get all 
those stakeholders together and they can all agree, that is 
preferable to bankruptcy, everyone's coming together----
    Senator Shelby. Do you believe that is going to happen?
    Mr. Zandi. I am very doubtful that it will happen. So what 
I am suggesting is that you give them the opportunity, because 
if you do not, I think failure at this point, bankruptcy at 
this point in time would be cataclysmic for the economy. I 
really believe that. So I think you need to help them now. Give 
them an opportunity--and, also, they have done some good 
things. They have restructured. Their labor costs have fallen. 
They have made concessions. I think they deserve the 
opportunity to execute.
    But I would make it very clear that if they do not, the 
next step is indeed a bankruptcy, so that you can prepare, as 
Congress you can be ready, because you will have to do 
something in bankruptcy, too. You will have to do two key 
things. First, you are going to have to provide financing in 
bankruptcy because if they go into bankruptcy without your 
help----
    Senator Shelby. There are provisions for financing----
    Mr. Zandi. They won't get it. They won't get it in this 
environment. They will go into liquidation. And, second, you 
will probably have to guarantee any warranties on the cars that 
they sell. Otherwise, they are right, no one will buy their 
cars.
    Senator Shelby. So you are putting the taxpayers on the 
hook a long time, aren't you, basically?
    Mr. Zandi. No matter what?
    Senator Shelby. No matter what.
    Mr. Zandi. No matter what.
    Senator Shelby. And how long do you believe it would be 
before--if they got the $34 billion, how long would it be 
before they are back here, in your judgment?
    Mr. Zandi. I think it will be----
    Senator Shelby. Six months?
    Mr. Zandi. No. It will be fall, late----
    Senator Shelby. But they will certainly be back, won't 
they?
    Mr. Zandi. I think that is a high probability, yes.
    Senator Shelby. And $34 billion is probably just the 
beginning. Is that correct?
    Mr. Zandi. I think that is a high probability.
    Senator Shelby. Thank you, Senator Dodd.
    Chairman Dodd. All right. Senator Menendez, you are 
actually next.
    Senator Menendez. Thank you, Mr. Chairman.
    You know, Dr. Zandi, when our witnesses from the Big Three 
were here last time, I went through with them a series of 
questions about the $25 billion and was not satisfied with how 
we came to the $25 billion, and I appreciated putting the 
pencil to the paper and now seeing that it is somewhere around 
$34 billion.
    Then I listened to your testimony, and, you know, you have 
a series of statements in your written testimony that says, 
among other things, that this is anywhere between $75 and $125 
billion in actuality. And you say that based upon views that 
vehicles sales will eventually return to their underlying 
annual pace of 16 million units, but only when the job market 
stabilizes, credit flows more freely, the pent-up demand is 
worked off, and it could well be two decades or more before 
sales return to the 17-million-unit sales pace that prevailed 
during the first half of the decade.
    Then you went on to say that the cost of keeping the Big 
Three out of bankruptcy also significantly depends on the 
ability to slow the decline in their share of total vehicle 
sales, a share that has been steadily falling since the mid-
1990s, from nearly three-quarters of the market to less than 
half. And then, finally, you talked about even more intense 
pressure from foreign car makers in the context of this 
marketplace and the stepped-up effort.
    That is the essence of your testimony as it relates to 
coming to that $75 to $125 billion. Is that fair?
    Mr. Zandi. Yes, that is fair.
    Senator Menendez. Well, let me turn then to the CEOs of the 
three companies. Do you dispute Dr. Zandi's figures? Because we 
have got to get a sense, put our arms around the magnitude of 
this, in order to try to be helpful. I understand the present 
magnitude in terms of the immediacy. But the question is: Are 
his figures off? And if his figures are off, why are they off?
    Mr. Wagoner. I can tell you what we did, Senator. We 
developed--as was requested in the letter we received--
different scenarios of volumes, and our 18 billion need was 
based on a scenario which has industry levels of 10.5 million 
units next year, then it goes 11.5, 12, and 12.8 million units. 
We consider that to be a pretty conservative scenario. So that 
raises the question what could--and we also have market share 
going down gradually as recognition of reducing some of our 
brands, but not a lot.
    So where could our needs be higher? I think there are 
probably three areas that I would focus on. If the industry was 
significantly smaller, that would affect us, but it does not 
sound like that is a difference.
    We talked about the finance company, the importance of 
those being--in our case, GMAC being granted bank holding 
company status. If that does not happen and we do not get any 
finance flow, then that could negatively impact us. We have 
assumed as part of this plan--and that filing, by the way, is 
in the Federal Reserve now--that that will eventually be 
granted, hopefully in due course.
    The third thing is something that concerns me that we have 
seen in the last 45 days, which is we have made the assumption 
that people are willing to look at our cars, as they have, as a 
fair opportunity versus competitors. It is clear that the 
overhang of discussion around bankruptcy is affecting certain 
fires, and if that persists and persists a longer time, it 
could negatively affect our volume.
    Senator Menendez. So you do not dismiss the fact that the 
figure can be significantly higher than $34 billion.
    Mr. Wagoner. I have not done any calculations, but I would 
be glad to do it with alternative scenarios.
    Senator Menendez. Mr. Mulally.
    Mr. Mulally. Yes, I am happy to comment on it. We started 
by looking at history through all the economic cycles, 
especially around 1980, and looking at the peak to trough on 
the contraction of the economy and then the recovery coming 
out. And the scenarios that you asked us for really we believe 
bracketed what we think that economic scenario would look like. 
And it is pretty much in agreement with what the Federal 
Reserve just announced a few days ago about the contraction 
next year being in the 1 to 1.5 percent.
    So we have the economy contracting all the way through 2009 
and not starting to recover until 2010. And I really, our 
economists, everybody we are talking to really believes that 
with the actions that we are taking today on the fiscal and the 
monetary policy and the stimulus that you are thinking about, 
that that is a very, very conservative recovery.
    The other scenario you asked for, which was a kind of worst 
case, would be an economy contraction that we have never seen 
before since the Depression.
    So I think that middle scenario that you asked for is a 
very conservative, realistic scenario, and that is what we 
based on request for a potential need of the $9 billion. So we 
think that is a good number.
    Senator Menendez. Well, let me just say there is--I 
understand that answer. There is a gulf between $34 billion, 
which grew from $25 billion, which is what we were told was 
necessary for viability, to $75 to $125 billion. And my concern 
is getting our arms around this in a way that we know the 
totality of the situation and can meet with--I mean, none of 
you could operate--well, if you operate a company like this, 
you are not going to succeed. If we operated as fiduciaries to 
the taxpayers like, we cannot succeed. It is what has happened 
at the TARP program where we are throwing money out there 
without having a sense of the strategy of understanding what is 
necessary in this case to assure viability.
    Let me ask two final questions. Are you all committed 
truly--and you will have to be committed because, as far as I 
am concerned, there are going to have to be conditions placed--
to the type of fundamental transformational change that is 
necessary for you to survive? Are you truly committed--you 
know, Mr. Wagoner, Saturn was your previous commitment to that, 
and then you largely walked away. You know, so that is a past 
example. You know, are you truly committed to that? And, last, 
can you tell us, of those groups that are out there that 
already see taxpayer bailout funds, how many of them are 
holding a good part of your commercial debt?
    The final comment I will make, I just want to say, 
President Gettelfinger, you know, leadership is really tested 
in difficult times, and I appreciate what you have been willing 
to do to come forward. And it is never easy for a union leader 
to come forth and make very serious concessions and even talk 
about getting to the table more. But it cannot be done simply 
by the union. There have to be all the elements here to achieve 
the goal--the suppliers, the creditors, and others. Otherwise, 
the union cannot solve this problem on their own, and I know 
some would like to break the back of the union here as part of 
their goal. But this is not going to be achieved just simply 
through that.
    Could you just answer those questions?
    Mr. Nardelli. Senator, if I could start, please. Again, in 
our base plan that we submitted, where we are asking for $7 
billion, which is the same amount we asked for last time, we 
are opening 2009 at 11.1 million SAAR, and that grows to 13.7 
in 2012. Our downside scenario--and we end that period at $12.5 
billion in cash, which includes $1 billion starting the 
repayment to the taxpayers for this bridge loan.
    In our most conservative approach, we start at 10.1 next 
year, and it grows to 12.7. And we do have a deterioration in 
cash of about $2 billion given the volume reduction.
    As I indicated, our assumptions on share is flat. We have 
had a relatively flat share over the last decade. We have built 
negative price into our plan.
    The one thing that has not been mentioned here that I would 
like to make sure we are clear on and transparent is we have 
baked in here some of the 136 funds that we have requested, 
assuming that they will be approved concurrent with our 
expenditure, submission of the invoices, and then to repay. But 
we have not started to show that infusion of funds for advanced 
technology until 2010.
    So, again, while it has been submitted, 12/31 this year is 
my understanding is the first toll gate for submissions that 
could be approved for redistribution. We have elected to take a 
very conservative approach in that plan.
    And, Senator Shelby, I would say in your comments to Ron 
Gettelfinger, there is certainly nothing, I think the term 
``wishy-washy'' about 32,000 people have already lost their 
jobs, and 5,000 walked out Wednesday before Thanksgiving, which 
represented a 25-percent reduction in our salary workforce. So 
we take this very seriously. We understand our fiduciary 
responsibility. I can tell you I understand the weight of this 
meeting and tomorrow.
    Mr. Wagoner. Senator, I can assure you that our plan is 
far-reaching, extensive. It is a different way of thinking, and 
the GM team is behind and committed to achieving it.
    You asked about do those institutions, would they be 
affected by a bankruptcy, and the answer is, yes, some are 
creditors to us. But it is my understanding that there are a 
significant amount of credit default swaps written against our 
securities, which would also be triggered in the event of a 
bankruptcy.
    Mr. Mulally. Yes, I would just like to add that we know it 
can be done because we have been doing it, and clearly, 
focusing on a brand and a brand promise for the customers, 
having small, medium, and larger vehicles, being best in class 
and quality and fuel efficiency and safety, and consolidating 
the production to really meet the true demand and getting those 
costs out. As a result of all those actions, we got back to 
profitability in the first quarter of this year before this 
tremendous downturn.
    So we know it can be done, and what we are talking about 
now is getting through this terrible recession. But I 
absolutely believe that we are going to continue to take these 
actions and create a viable, growing Ford for us all.
    Chairman Dodd. Thank you very much, Senator.
    Senator Crapo.
    Senator Crapo. Thank you very much, Mr. Chairman.
    I want to focus my questions on primarily the CEOs of our 
Big Three, and I want to return to the question of a Chapter 11 
reorganization. One of the reasons that this issue just keeps 
coming back up is there are many experts, as I am sure you are 
aware, who are saying that we need to have the authorities and 
the ability to basically require the kinds of changes in 
relationships and the kinds of restructuring changes that are 
necessary that a Chapter 11 proceeding would--a reorganization 
proceeding would provide.
    I have read all your testimony and your materials, and I 
understand the arguments that have been made there and here 
today about the fact that a bankruptcy proceeding would have 
very serious negative problems with it.
    The question I have is: Do we have the ability to achieve 
those needed, forced if necessary, changes in relationships 
with people as broad-reaching as employees, suppliers, dealers, 
retirees, creditors, the various legacy cost issues, do we have 
the ability in what you have presented to us today, if Congress 
were to agree with it, to be sure that we could achieve those 
types of major restructurings?
    Mr. Nardelli. Senator, let me just offer a thought. Again, 
bankruptcy was something I was hoping never to become an expert 
in, in my 38 years, and certainly not today. But your point is 
correct, that as I try to understand it, we cannot just make 
unilateral rejections, for example, with the union, certainly 
with the banks that have secured lending. I think certainly 
this Committee would understand that more than anybody. If that 
was breached, who would go out and lend money unsecured and not 
have recovery?
    I would say that one of the things that was discussed with 
the Government Accounting Office, I would suggest that we put a 
date--March 31st as a benchmark data that says give us the 
funding, allow us to survive, and then by March 31st, have the 
toll gate to see where we are against those negotiations. At 
least I am speaking for Chrysler.
    Senator Crapo. Mr. Wagoner.
    Mr. Wagoner. Our proposal comprehends the idea of this 
Federal oversight board. I realized there was some concern with 
the naming of that, but obviously highly empowered board. We 
would submit the plan with a timeframe. The board would play an 
active role as the funding would be doled out only gradually, 
and then if by a date certain--and March 31st I think would be 
a good one to work with--we cannot get the parties together, 
then additional funding would not be advanced, and we could 
provide collateral against the loans----
    Senator Crapo. Would your idea with regard to this board 
include the board having the authority to impose restructuring 
conditions on various parties?
    Mr. Wagoner. I am not sure that is legally possible, but 
that would obviously facilitate it.
    Senator Crapo. Well, we could make it legally possible 
with----
    Mr. Wagoner. I think that would help a lot. That would 
really help.
    Senator Crapo. All right. Mr. Mulally.
    Mr. Mulally. Yes, we believe we have sufficient liquidity 
at the current time, but we absolutely support the oversight 
board concept.
    Senator Crapo. And when you talk about the oversight board, 
are you also talking about a board with the authority to 
literally impose restructuring conditions as a Chapter 11 court 
could?
    Mr. Mulally. I do not know all of--I would probably need to 
think about that a little bit. It sounds right, but I just do 
not know all of the implications of that.
    Senator Crapo. Mr. Nardelli, could you respond to that 
question about the oversight board?
    Mr. Nardelli. Sir, as you said, Congress has the authority 
to do a lot of things, so if that is what Congress determines, 
then obviously all of the constituents would be held under 
that. I am not burdened of being a lawyer, and so I do not know 
the technical answer to it. But certainly if that is a 
prerequisite and if that is the understanding, Chrysler would 
certainly obviously try to comply.
    Senator Crapo. In that context, an argument that each of 
you have made--and many others--is that people will not buy 
cars if any one or all of the Big Three are in a bankruptcy 
proceeding. They will not buy a car from a company in 
bankruptcy. But if we were, in essence, to create an oversight 
board that was basically a Federal restructuring trustee, would 
that impact the confidence level in your ability to meet your 
assumptions about people being willing to come back and 
purchase cars?
    Mr. Wagoner. I think it is a fair question. My sense, 
Senator, is that right now the concern is very high, and so I 
think in the case that we put forth, we will be in need of 
funding soon. And so I think if people saw that funding coming, 
even with these conditions in front of it, and we would have to 
present a plan that we could convince people that we could 
execute it. But I think it would help vis-a-vis where we are 
today. Obviously, it would be best once it is all cleared.
    Senator Crapo. My time is running out. Let me ask just one 
more question. Frankly, I am just seeking a restatement, but my 
understanding is that I did not hear any objection from any of 
the three of you to the establishment of an oversight board, or 
whatever we call it, a Federal oversight entity that has the 
literal authority to impose restructuring conditions and to 
enforce those as a matter of law as these dollars are utilized. 
Am I correct?
    Mr. Mulally. Correct.
    Senator Crapo. Thank you.
    Chairman Dodd. Thank you very much, Senator Crapo.
    Senator Reed.
    Senator Reed. I just want to follow up quickly Senator 
Crapo's question. Everyone seems conceptually to accept an 
oversight board. The question in my mind would be: Is there a 
possibility of emergency funding getting you to, whatever it 
takes, 30 days, the point at which you can go before the board 
with the concessions in hand so that the funding of the 
majority of these funds you are requesting would be made not on 
your assertions, which I think are very sincere, but on actual 
concessions, actual restructurings in place? Is that feasible, 
Mr. Wagoner? Then your colleagues.
    Mr. Wagoner. I think we would do our best. Thirty days for 
these kinds of things might be a little tight. That is why we 
had said--we initially talked February 28 or March 31st, 
depending on the complexity of them. But I can assure you we 
would move as fast as we can. And, you know, I think it is to 
the advantage of the industry to have a short timeframe because 
it will force everyone, let's sit down, let's see where we can 
go, and get a yes or no on it.
    Senator Reed. But in that context, the initial draw of 
funds would be much less than you are requesting. Is that 
correct?
    Mr. Wagoner. Well, our initial draw of funds is based on 
what we estimate we would need up to. That is $4 billion. So 
under that case, we believe we need that amount to meet our 
obligations through the end of January.
    Senator Reed. So that gets you through to what date?
    Mr. Wagoner. That gets us through the end of January.
    Senator Reed. End of January.
    Mr. Wagoner. Yes, sir.
    Senator Reed. Mr. Mulally.
    Mr. Mulally. Yes, sir, we believe we have a viable plan 
today, and our intention is to not draw on the loan.
    Senator Reed. So you could go with all the restructuring at 
some point in the future to this board and then be qualified at 
any time to draw the money. Is that----
    Mr. Mulally. Our basic position is that we want to support 
the industry for the reasons we have talked about, and with the 
actions we have taken, we are hoping not to access this money. 
But, clearly, we are part of the bigger plan.
    Senator Reed. Mr. Nardelli, your response.
    Mr. Nardelli. Yes, sir. Senator, what we would need is $4 
billion in our plan, of the $7 billion we have requested, to 
get us through March 31st to allow time to go through these 
mutually agreed upon concessionary discussions with all the 
constituents, certainly myself, employees, dealers, suppliers. 
I think Ron, as was stated, has already come forward, and 
certainly the institutional lenders.
    Senator Reed. Thank you, and thank you to the UAW that has 
already made significant concessions. I think that shows more 
than just--a profound commitment to make this deal work, so 
thank you.
    Mr. Zandi, you have set a price on the overall efforts to 
assist the companies of about $75 to $125 billion. You have 
also suggested that if they are forced into bankruptcy, it 
would be--whatever word you described.
    Mr. Zandi. I used ``cataclysmic.''
    Senator Reed. Catastrophic. Have you put a price tag on 
that in terms of unemployment compensation, pension benefits.
    Mr. Zandi. Measurably more than that.
    Senator Reed. Measurably more than that.
    Mr. Zandi. Yes.
    Senator Reed. So we are not talking it is a close call.
    Mr. Zandi. Not a close call.
    Senator Reed. Not a close call. Several hundreds of 
billions of dollars.
    Mr. Zandi. Yes. It is not even in the same universe.
    Senator Reed. Thank you very much. There is another aspect 
that I think that is important which has been alluded to: the 
interconnection between the financing companies and the 
manufacturing companies. There is a possibility that we could 
create a board that governs the manufacturers, but then the 
Federal Reserve would govern the finance companies or the new 
financial holding companies, which would introduce an 
additional level of complexity.
    There is also the possibility that requirements that would 
be imposed on the financing companies by Federal regulators 
could be directly in opposition to the best interests of the 
manufacturers.
    Is there an argument that whatever we do should be done on 
a unified basis rather than having the Federal Reserve operate 
on one end and an oversight board or oversight management 
person on the other?
    Mr. Zandi. That is a reasonable concern. I hadn't thought 
of that, but that might be something to worry about, that the 
Federal Reserve could be, as a regulator of the bank holding 
company, working at cross purposes with the board that you have 
established to resolve the issues with respect to the auto 
companies.
    Senator Reed. And I think there is another issue which goes 
right to your arrangement, which your private equity holds 100 
percent of Chrysler Financial, 51 percent of GMAC, and 51 
percent or your company. And just the ability to move money 
around might be very frustrating to an oversight board that is 
trying to return, because of investment in the manufacturer, 
the best possible return for taxpayers. Do you foresee that as 
a problem? And, in fact, how would you sort of preemptively 
avoid that problem?
    Mr. Nardelli. Well, first of all, sir, let me just 
reconfirm, they are inextricably linked, the finance company, 
our success is embedded in theirs and vice versa. If I ship 
product and I do not get paid from the finance company as a 
result of shipping to a dealer, I have a tremendous cash 
strain, maybe $300 to $400 million a day. Point one.
    Point two, the way it is structured today, these are both 
wholly owned, so there are independent boards, and there is 
governance. So there is not an arbitrary manner by which funds 
are transferred back and forth. Each have their own separate 
boards. Each have a set of governance. Certainly if it becomes 
approved by an ILC access to 13(3), get TARP funding, you just 
will not be able to move money back and forth.
    Senator Reed. Just a final point. You price the cars.
    Mr. Nardelli. Yes sir.
    Senator Reed. They price the credit.
    Mr. Nardelli. Yes, sir.
    Senator Reed. And I think there is the opportunity, at 
least in those two different pricing modes, for one company to 
make a significant profit and the other company to break even. 
That is at least possible.
    Mr. Nardelli. I think the pricing of the credit is really 
driven by the markets today, just like our pricing is driven--
we can set a price. The consumer dictates the price. And the 
same is true in the credit market, sir. When you go back to the 
industry, when it was 17-plus million, you quickly see where 
the credit was and the ability to make credit accessible to a 
much lower FICO score that allow consumers to really step into 
these vehicles along with the lease program. Twenty percent of 
our volume I think across the board was lease programs.
    Senator Reed. Thank you.
    Chairman Dodd. Great questions. Thank you, Senator Reed.
    Senator Dole.
    Senator Dole. Mr. Chairman, recently our colleague George 
Voinovich sent a letter to Democratic leadership, and I want to 
quote from that letter. He said, ``While I applaud your 
insistence that the potential borrowers prove their case, 
however, I am concerned about the method that you have 
constructed in doing so. Specifically, I question your decision 
that congressional leadership and committees of jurisdiction 
are best positioned to make determinations about a 
multinational corporation's future financial prospects. Who 
exactly will be making these decisions? Do you intend to rely 
on the expertise of executive branch officials or outside 
experts? Or do you feel that Congress is qualified to draw such 
conclusions?''
    That being said, I would like to ask each of the chief 
executive officers, have any outside non-political business 
groups, groups with business acumen, been able to render an 
opinion as to the viability and quality of your respective 
restructuring plans? I would also be interested in how you 
view--if you have any specific comments on the Levin-Stabenow-
Bond-Voinovich proposal.
    Mr. Wagoner. Before we submitted our plan, we asked one 
financial analyst to sign a confidentiality agreement and 
review it. But I am sure now that it is out, we will be getting 
more comments from analysts. So we will be getting input on the 
plan from those sorts of people. In fact, we are probably 
getting it even as we speak.
    As far as your second question about the source of the 
funding in the prior bill that was under contemplation, our 
view and comment all along has been we really do leave it to 
the Congress to decide what is the best way to provide the 
funding. And in that sense, you know, we are really open to 
whatever ideas the Congress and the administration determine 
are best.
    Mr. Mulally. Senator, absolutely. When we went to the banks 
about a year and a half ago to put together our transformation 
plan that we have been talking about, they absolutely thought 
that plan was going to create a viable, profitably growing Ford 
for us. And then as we made that progress this last year, we 
got back to profitability in the first quarter, they were very 
pleased with the progress and very supportive of our plan going 
forward.
    So I think that is really the final test right there, and 
they loaned us the money.
    Mr. Nardelli. Senator, I would just add, exactly, we did 
get outside independent verification primarily on the cash-flow 
analysis and the cash-flow charts. We also presented it to our 
board and asked for review and approval before we submitted it 
on Tuesday.
    Senator Dole. Thank you.
    Thank you, Mr. Chairman.
    Chairman Dodd. Thank you very much. Senator Schumer.
    Senator Schumer. Thank you, Mr. Chairman, and thank you to 
the witnesses.
    Just to sort of sum up, I think, where we are at, we 
realize just letting you fail would be cataclysmic, as Dr. 
Zandi says, far worse than the costs that you have outlined.
    Second, bankruptcy, I think it is pretty clear, is not a 
viable option because no one is going to buy a car from a 
bankrupt company, and it takes so long and it is so complicated 
that it does not work. And I would--this is my own 2 cents. I 
think one of these pre-packed bankruptcies has similar problems 
because you cannot bring the others in. So we have to do 
something. That is on the side of making sure you are viable, 
which I think I want to do and I think most of us want to do.
    On the other hand, our real problem is this: I think that 
there is a general view that we want to see the conditions 
before we give you the money, and you folks sort of want the 
money and say let the conditions work out. Mr. Nardelli said 
let us see how things are on March 1st. And in all due respect, 
folks, I do not think there is the faith that those next 3 
months will work out given the past history.
    And so what I think some of us are searching for us here is 
a way that we can make sure you continue, make sure you are 
viable on into the future. My third point is make sure that the 
burden is spread evenly. I think the workers, Mr. Gettelfinger, 
have taken more of the hit, and I have not heard much about the 
bond holders, the lenders who are getting paid 12 percent, and 
people like that. And the only way this is going to work is if 
everybody gives. If everybody gives.
    And so the question I have is: Why isn't the best solution 
for us to pass something on Monday--and, again, I do not care 
where the money comes from, frankly. OK? That is a dispute that 
others have. I would take it out of the TARP, if need be, 
temporarily out of the 136 funds. That to me is not the issue. 
The issue is how are these real conditions that are created and 
imposed by someone who is overlooking you outside. So I do not 
like the words ``oversight board,'' like Mr. Dodaro.
    Second, who is going to do this negotiating? You may not 
have leverage, frankly, over the dealers or over the bond 
holders or over the others, except to threaten to go out of 
business? Which is not very good leverage. You are saying, 
well, I will cut my nose to spite my face. Why isn't the best 
solution the one I was sort of positing before, that we pass 
legislation that gives, you know, a specific amount of money, 
not a small sum, to a designee of the President in a certain 
sense. He has control. It could be the Treasury Secretary. That 
person quickly calls in all the players and says we have some 
carrots for you. We not only have money, but we have the 
ability. We give him the ability maybe to impose for a period 
of time a guarantee of the warranties and maybe even some help 
with the funding, because the funding is part and parcel. But, 
in return, every one of you around the table, you executives, 
the workers--which have already given quite a bit based on 
yesterday's statement--the bond holders, the dealers, everyone 
gives.
    That seems to me to be the best model given that we do not 
have much time, that there is not much taste for giving the 
money and then seeing if the conditions are met down the road, 
and that the alternatives of either letting you go under a 
bankruptcy are the worst. And you have said you agree with the 
Chrysler model when Senator Dodd posited the question to each 
of the three of you. Would you agree with this kind of model? 
What do you think of the--what are the pros and cons? Would you 
agree to the kind of thing that I am mentioning here? Go ahead, 
Mr. Wagoner.
    Mr. Wagoner. Senator, yes, it would be very helpful for us, 
whether it is a board or an individual, to have someone to work 
with on this to submit our proposals, and then for that person 
to say, OK, don't agree with that, you have got to change this. 
And if that person was to have strong powers to execute it, 
that would be fine with us.
    Senator Schumer. Good. Yes. You see a board, when you have 
3 or 4 months like Chrysler, a board may work. You don't have 
much time.
    Mr. Wagoner. Yes, sir.
    Senator Schumer. And we may not even have time until the 
next administration.
    Mr. Wagoner. That is correct. Yes, sir.
    Senator Schumer. What do you think, Mr.--well, let me ask 
Mr. Gettelfinger. What do you think of that idea?
    Mr. Gettelfinger. Well, I think it would work. I mean, it 
is difficult, but I think there is something we are missing 
here, quite frankly -unfair trade agreements, supporting our 
competition to come in, not doing anything about health care in 
this country. And I will just use as an example South Korea. 
Here we are talking about a country that can ship whatever that 
number of automobiles is, 669,000, and every manufacturer in 
this country can ship back less than 5,000. How do we compete 
with that?
    Senator Schumer. Right.
    Mr. Gettelfinger. How do we compete when we subsidize the 
competition, or how do we deal with currency intervention, or 
what do we do about not having an industrial policy? Those are 
the things that I think we are missing in this picture. We keep 
saying, are we going to be competitive? Can we compete? Who are 
we competing against becomes the question, and how low do you 
go. We use the term ``race to the bottom,'' and it appears to 
me that we are missing that as part of this discussion.
    Senator Schumer. Right.
    Mr. Gettelfinger. Thank you.
    Senator Schumer. Although those are longer-term than the 
kinds of things--we are having sort of an urgency here.
    Mr. Gettelfinger. I agree, but indirectly, Senator, they 
are tied. They are interlinked.
    Senator Schumer. What do you think of the idea, Mr. 
Mulally?
    Mr. Mulally. We would be open to your suggestion.
    Senator Schumer. Mr. Nardelli?
    Mr. Nardelli. Yes, Senator. Basically, it is the same, and 
you are just asking to compress the schedule.
    Senator Schumer. Yes, exactly. Yes. And one person as 
opposed to a board.
    Mr. Nardelli. Fine, sir.
    Senator Schumer. Mr. Fleming?
    Mr. Fleming. The dealers absolutely would want to 
participate in that with the manufacturers and the regulators. 
But if I can, Senator, the one concern that we have is that 
there can be some unintended consequences, as well, for dealers 
depending on what those details are, and so as long as we are 
at the table as a partner----
    Senator Schumer. You would be at the table, but you would 
have to give something.
    Mr. Fleming. We are giving a lot now, Senator----
    Senator Schumer. OK.
    Mr. Fleming. ----let me tell you.
    Senator Schumer. Yes, everyone is--look, if we do nothing, 
everyone is giving a lot, too.
    Mr. Wandell?
    Mr. Wandell. Yes, I think absolutely, and I think, just 
speaking for our company and I am sure for most of the supply 
base, I think most of the suppliers are more than willing to 
line up and, I think, have for a long time, and I think what 
the suppliers are looking for is a healthy industry where they 
can be more competitive.
    Senator Schumer. Right. Dr. Zandi?
    Mr. Zandi. I think it is a reasonably good idea, given you 
have a short period of time to make some very tough decisions. 
One person makes sense if you are confident in that person.
    Senator Schumer. Thank you, Mr. Chairman.
    Chairman Dodd. Thank you, Senator Schumer.
    Just before I turn to Senator Corker, I think that idea has 
been raised and I like the idea of a trustee. I think a 
trustee--I think we use the word ``trustee'' and I think it 
takes on a different connotation than a broad idea, but I think 
it has a lot of merit, as well, particularly in the short term 
here. We are talking--the timeframe we have, as you point out, 
with the Chrysler, I think they went back, and I wasn't in the 
Senate in those days, but it was months in working that out. We 
don't have months, to put it quite candidly. We don't have 
weeks. In fact, Mr. Gettelfinger, when you raised the issue, 
said in the near term. Before I turn to Senator Corker, how 
near term do you think bankruptcy is?
    Mr. Gettelfinger. I do not believe at this point in time, 
on the data that I have seen, that General Motors will make it 
out of the end of the year.
    Chairman Dodd. So this month? You think they would be 
bankrupt in the month of December?
    Mr. Gettelfinger. Unless something changes dramatically, 
and I would hope that it does. But again, we are--in looking at 
the companies, Chrysler is in trouble. I had mentioned that at 
the last hearing. I believe I was asked to rate the companies--
--
    Chairman Dodd. Yes, you did.
    Mr. Gettelfinger. ----where they stood. And that is the way 
I rated them. However, there is still additional data coming 
in. We do need the market to turn in our favor a bit. But 
honestly, we are down to the wire.
    Chairman Dodd. Yes.
    Mr. Gettelfinger. We would not, Senator, have called the 
meeting we called yesterday and took the action that we took as 
a union if we didn't believe that was real. We brought in an 
outside analyst to help us make that determination. So I think 
that time is of the essence, and in our testimony we said that 
we needed to do something this month and that was the reason.
    Chairman Dodd. And so your conclusion is by the end of this 
year, by the end of this month, we could lose General Motors as 
a corporation?
    Mr. Gettelfinger. I believe that we could lose General 
Motors by the end of this month.
    Chairman Dodd. Thank you.
    Senator Corker.
    Senator Corker. Mr. Chairman, thank you, and gentlemen, 
thank you all for being here. Just to follow on that thought, 
Mr. Chairman, there is nothing like a crisis or a worry about 
being alive that does more to heighten the senses and create 
focus, and I hope that whatever happens here, that does not go 
away without proper things occurring. And I think that Senator 
Schumer is alluding to that. I think Senator Crapo was alluding 
to that.
    We talked a great deal about Chapter 11 reorganization. I 
don't want to waste my time hearing the talking points against 
that. I have certainly met with analysts that represent 
stockholders and bondholders and others. I have certainly 
talked to each of you and your representatives, the UAW. So I 
am not going to go down that line of questioning today, even 
though I still believe that there are many things that will be 
very, very difficult to work out without Chapter 11 
reorganizations.
    You know, I could follow one narrative which, you know, I 
know this is somewhat loose, but in essence, what many of you 
have said, there are so many problems to work out that you 
would be in Chapter 11 forever. Now, I know that there are 
disruptions with the supply chain and I know they are thinly 
capitalized, so I am going to take a little different tack, and 
again, I thank you all for being here.
    But I want to start by just sort of laying out how things 
are. I spent 2 days meeting with analysts in your industry and 
I notice the new word that they are using is not the ``Big 
Three,'' but the ``Detroit Three.'' And much of it has to do 
with the market cap of these organizations. I think GM's market 
cap today is about $3.4 billion. I think--excuse me. Ford's is 
$3.4 billion. GM's is $1.8 billion. And I will throw a little 
change on the table and say Chrysler is worth a half-a-billion 
and that is probably exaggerating. So we are talking about $6 
billion.
    And just to compare this to companies around the world, 
Toyota is worth $138 billion. I mean, even little BMW, which is 
just kind of a niche company, has a market cap, a value, if you 
will, of about $14 billion. So I just want to put that in 
context of these large loan asks, if you will, that are 
underway.
    And then from that, I know that each of you have added up 
your particular ask to about $38 billion, and then there are 
some of you that are asking for TARP money, I understand, as 
part of your finance company operations. I just want to set 
those aside. I know that Chrysler have said they have asked for 
$8.5 billion through Section 136, which passed last year, which 
put $25 billion on the table for efficiencies, for investing in 
new technologies, and I would like for Ford and GM each to tell 
us how much you have asked for under that vehicle, too.
    Mr. Wagoner. Yes. We filed a little while ago $3.7 billion, 
and later, at the end of this week, our second batch of 
projects will go in and if all approved, those would be, as I 
recall, about $4.5 billion.
    Senator Corker. So about $8 billion?
    Mr. Wagoner. About eight, although they obviously have to 
be approved, Senator.
    Senator Corker. OK. I understand that. And Ford?
    Mr. Mulally. We think that it will be around $5 billion 
cumulative.
    Senator Corker. OK, so that is $21.5 billion, so about $60 
billion in requests, Mr. Chairman, are already in. I do want to 
highlight that certainly this is vastly different than $25 
billion.
    I did talk to Secretary Bodman yesterday, who oversees this 
program in Energy, and he said he had sent a letter to everyone 
rejecting their proposals. Just for a moment, how important is 
this 136 funding that has been rejected? Would you rate it high 
or low? Is this very important to the capital structures? I 
don't want a long narrative, just--you haven't seen the letter 
yet? OK. I can give you a copy after the meeting. But all 
applicants were turned down. But how important is that to the 
overall capital structure of these companies?
    Mr. Wagoner. Well, it is included in our cash-flows. As you 
know, it is not advance money, though. It is spread out as the 
money as spent, and so as I recall, the amount that we would 
receive next year in our cash-flows is about $2 billion.
    Senator Corker. OK. Important, not important?
    Mr. Mulally. I think it is important, and we have in ours 
through 2011 that $5 billion. But I think it also is important 
because of what it is focused on, and that is the basic 
enabling technology to really make a step forward in fuel 
efficiency.
    Senator Corker. OK.
    Mr. Nardelli. Senator, of the $8.6 billion you referenced, 
we have put six into this plan. That is why I wanted to be very 
clear with Senator Menendez that in addition to the 34, there 
is 25 of this money. We put in about 70 percent of our request. 
We were told the guidelines would be somewhere around 80. I 
haven't received the letter, but I have heard of the letter and 
one of it was that there was not an audit report, but they 
subsequently found that.
    Senator Corker. So these are important parts of your 
capital structure which is now, we are talking roughly in 
formal applications--I consider this today a formal 
application--of about $60 billion.
    The interesting thing to me all along has been that all 
three of you have come in together. I have read the plans and 
re-read the plans and I would sort of qualify them this way. 
Ford's plan is kind of life is wonderful. You have already done 
a lot of the things that need to be done, and fortunately, 
whether you were lucky or smart back in 2006, you borrowed 
money at lower rates and were able to fund yourself. I think it 
was probably because you all were forward thinking and 
congratulate you for that.
    Chrysler doesn't really want to be a stand-alone business. 
I mean, that is well documented. The fact is that, basically, 
what your plan is about is you want to hang around long enough 
so that you can date somebody and hopefully get married soon, 
before you run out of money.
    So I have to tell you, I have a little trouble when I look 
at that plan. I know that you haven't invested in product 
development. I know you don't have the technologies to really 
compete as a stand-alone. I know that your dealership levels 
all across the State might be really valuable to a foreign 
company coming in, but I have to tell you that it troubles me a 
little bit knowing that basically all we are really doing is 
providing a little capital for you all to hang around long 
enough to get married.
    And I consider you to be a very honest broker, Mr. 
Nardelli. I really appreciate the conversations we have had, 
and so I want to ask you this question. I talked with a board 
member last night at Cerberus, and I know that they own 80 
percent of your company and I know there has been a lot of 
narrative, and I don't know whether this is true or not, that 
in essence, what they really wanted out of the purchase from 
Daimler-Benz was the finance companies and the auto stuff was 
sort of a bonus, OK. And I talked to the board member last 
night and said, look, you guys are in asking us for public 
money today. Cerberus owns 80 percent of this company and has 
cash, lots of cash, that they are unwilling to put into this 
company. You mentioned about what a great partner they were. I 
don't know.
    I have to tell you, I have some trouble. These other guys 
have a different problem because they cannot access cash. They 
don't have a father sitting up here with cash that can inject 
into their companies. They have to go out on the public 
markets. You are in a different situation. You are a portfolio 
company in a private investment firm that has lots of money and 
they are unwilling to invest that money in your company.
    And I want to add one other thing to it. We wouldn't be 
here if it weren't for GM, and we are going to talk about them 
in just 1 second. We all know this. It is almost like you 
lucked up. I mean, you guys were getting ready to be bankrupt 
and all of a sudden GM is in trouble and they have sort of the 
clout, if you will, and Ford joins in, to come up here and ask 
for public monies and this is like a flyer for you guys. All of 
a sudden, this is life again, OK. We might get $7 billion even 
though our portfolio parent won't inject any more cash in us.
    And I have a little trouble with that, and I wonder if you 
might just make me feel better about that.
    Mr. Nardelli. Well, I am going to make myself feel better. 
The fact is, we got a divorce last August and so--
    Senator Corker. Well, they still own 80 percent of your 
company, though, right?
    Mr. Nardelli. No, sir. Daimler owns 20.
    Senator Corker. They still--no. Cerberus owns 80 percent, 
is that correct?
    Mr. Nardelli. That is correct.
    Senator Corker. OK.
    Mr. Nardelli. But I wanted to say, last August, we got a 
divorce from Daimler, and so some of your criticism is spot on, 
the fact that the company was somewhat hollowed out, the fact 
that it was functionalized. The fact is that all functions 
reported back to Stuttgart. The fact is that there were 
European designs trying to be sold in the U.S. market. We 
canceled some of those products upon my arrival. We immediately 
terminated four nameplates. We immediately started on our 
restructuring plan and we have taken out 1.2 million. I can 
assure you, Senator, that I don't wake up every morning 
thinking about how to sell the company. We are busting our 
guts, and the people that are left there are busting their guts 
to make this thing work.
    Senator Corker. But there is no future for the company as a 
stand-alone, is that correct?
    Mr. Nardelli. I don't agree with that, sir, or I wouldn't 
have been here, and I appreciate your comment as being a stand-
up guy. For 38 years, I have made my reputation on delivering 
on my----
    Senator Corker. Speak to the investment company that owns 
you that has cash and has a portfolio of companies that I 
assume are earning money that they could borrow against if they 
didn't. What is it that keeps them from making you whole?
    Mr. Nardelli. If you think about--again, the misconception 
of a private equity company is that there are a few guys with a 
lot of money who invest in various companies.
    Senator Corker. No, I know this is a lot of guys with a lot 
of money, so----
    Mr. Nardelli. No, sir. This is the same investors that he 
has as shareholders and that Rick has as shareholders. These 
are pension funds. These are----
    Senator Corker. So they are not willing to give you the 
lifeline. What the board member said to me--and I want to move 
on because I am going to run out of time--what the board member 
said to me is that there is no way they would make additional 
investments in the automobile industry at this time. And so 
here we are as a public entity being asked to do that, and I 
just want to say--and I will come back to you in a minute, if I 
can. I am going to run out of time here----
    Chairman Dodd. Bob, would you just, because I want to pick 
up on this point that you just raised, which I think is a 
valuable one--Mr. Nardelli, I am reading your report here----
    Mr. Nardelli. Yes.
    Chairman Dodd. ----and on point three, major business 
assumptions, let me read it to you. ``Chrysler remains focused 
upon developing partnerships, strategic alliances, or 
consolidation as a fundamental element of its restructuring to 
expand its product portfolio, generate incremental revenue, and 
create additional operational synergies related to 
manufacturing, purchasing, and distribution.'' That hardly 
sounds like a go-alone deal. I apologize, but I just----
    Mr. Nardelli. May I respond to that, sir? It is----
    Senator Corker. Look, there is not a human being alive in 
the automobile world that thinks that Chrysler is doing 
anything other than finding somebody to marry and that this 
cash is here long enough for you to do that, and I want to move 
on. I certainly will never be convinced of anything different 
and I don't think there is an analyst on Wall Street, not that 
we should be paying particular attention to them----
    [Laughter.]
    Senator Corker. ----that believes that. But let me just 
move on, if I can.
    Mr. Nardelli. May I just for the record disagree, sir?
    Senator Corker. All right. I understand you disagree, but I 
would go back to your plan and your plan says that you want to 
consolidate. So let me move on, then, to----
    Mr. Nardelli. Sir, may I respond to that just 1 second? 
Those comments are, as in my opening comment, that alliance, 
for example, where we produce all of Volkswagen's minivans for 
North America; two, that alliance with Nissan, they have 
entrusted us with their entire product line of trucks for 2011. 
Those are alliances and partnerships. It is sharing 
manufacturing facilities to avoid heavy capital expenditures on 
transmissions, on axles. So that is really trying to improve 
our viability----
    Senator Corker. Right.
    Mr. Nardelli. ----sustainability, not selling ourselves.
    Senator Corker. OK. I know that you and GM spent an 
inordinate amount of time trying to figure out a consolidation. 
That is a fact. I know that both of you were intricately 
involved in that. That is a fact. I know that a plan was 
presented that actually showed that there would be less public 
money necessary if the two of you consolidated. And I know that 
Chrysler has been very excited about that possibility but GM 
rejected that at the board.
    And again, these are the kinds of things that we need to 
force to happen. There is nobody that I know of that thinks 
that three companies with the market share that you have, the 
downward trend that exists, the unsustainable debt that it out 
there, there is nobody, no thinking person thinks that all 
three companies can survive, OK.
    So I go back and I just want to ask--I want to get into GM 
more deeply. I gave up a little time earlier, but I would like 
to ask Mr. Wagoner, I know that this plan exists and I know 
that you were very involved in putting it together. I know that 
the board turned it down. And I know that you have tremendous 
issues to deal with and maybe turned it down because you have 
got too many fish to fry right now. But what was the reason 
that you turned that down?
    Mr. Wagoner. We did consider an acquisition. I would say 
two things happened during the process. One, the market dropped 
dramatically so our own funding needs increased more than we 
thought, and so as we discussed that with the board, they said, 
boy, we had better make sure we have enough funding to take 
care of our own business. And as you know, any kind of merger-
acquisition activity is pretty human resources intensive.
    Second of all, at the beginning of these conversations, 
there was a lot of discussion about public funding, be it 
public market funding being available. And as the credit market 
conditions deteriorated, that opportunity changed. And so as a 
result of that, the whole issue of focusing on the very 
important issue of liquidity for GM was, I think, appropriately 
at the top of the issue for our board.
    Senator Corker. Let me ask you this. The plan at the time, 
and I realize things have changed, it did say that there would 
be lesser outside money necessary, a pretty large amount, if 
the two of you all merged, did it or did it not?
    Mr. Wagoner. Well, I--what I can tell you, Senator, is at 
the time that we made the decision not to proceed, we did not 
have the capital, cash--we were concerned we didn't have the 
cash to make it until the deal could be closed and the 
financial institutions could not assure us that they could 
provide that funding.
    Senator Corker. OK. Let me get into your plan just briefly, 
and again, thank you for your patience. I looked at your plan 
and I would agree with others that I think your plan was fairly 
thoughtful. I told your COO that yesterday. And I think it is a 
nice first step, OK. And you can tell that the senses have been 
heightened a little bit over the last couple weeks and it is 
obvious that you guys have put a lot of thought into survival.
    There are a couple of things. Your debt loads are 
unsustainable at any level of sales, OK. I know we had 17 
million sales recently. We are on about a ten million sale run 
now. Next year, you are projecting about 11 million. But at the 
debt levels you have and the liabilities you have, it doesn't 
matter if you were at 20 million. You can't survive, OK. So 
that has to change. The makeup of your capital structure has to 
change.
    So I noticed yesterday in your plan that you had about $28 
billion in unsecured debt. We checked yesterday and your 
unsecured debt is selling for 19 to 21 cents, the bonds. And so 
basically you had given about a 50-cent haircut to bond holders 
that we understand will be glad to be taken out at 30 cents on 
the dollar. So again, a not very aggressive step as it relates 
to what could happen, if you will, by March 31.
    The problem is the UAW is there and bond holders are not 
willing to take a haircut unless he takes what I would call a 
real haircut. Now, there has been a lot of lauding about the 
changes the UAW has made. To be candid, in this proposal, not 
so much, OK, and so let me sort of move into that.
    You have got VEBA liabilities of about $21 billion, 
Voluntary Employment Benefit Association payments. If you go 
into bankruptcy, those are toast. They are gone. And I think 
the UAW knows that.
    Most of the people that are looking at your structure say 
that VEBA, at least half of it has got to be equitized. In 
other words, instead of taking money, they have got to take 
equity, OK, and those are the kind of things that it seems to 
me that we would want to put in the legislation if we did 
anything other than Chapter 11 debt financing.
    And so I guess I would ask, it starts with Mr. 
Gettelfinger, because the bond holders are not going to take a 
haircut of 30 cents on the dollar unless he is willing to 
change his capital structure, and I would just like for him in 
front of all of us right now to give us a little sense of how 
heightened his senses are as it relates to this company 
surviving.
    Mr. Gettelfinger. Well, first of all, let me just back up 
to the changes that were made----
    Senator Corker. I have read all those and it was in your 
testimony.
    Mr. Gettelfinger. No, please----
    Senator Corker. I know we went through this last time. I 
understand about jobs bank, and I want to get into that. I 
understand about the--I am very understanding of the changes. I 
met with UAW representatives yesterday. We went through them 
again. So I understand about jobs. If there is something else 
other than jobs bank and if your numbers work out by 2012, I 
will say it is going to be tough to reach that because you are 
not hiring new employees. It is going to be tough to reach 
those levels. But if you would, just respond to VEBA.
    Mr. Gettelfinger. VEBA.
    Senator Corker. Yes, $21 billion----
    Mr. Gettelfinger. Oh-five changes roll through. It is a 
negative plan amendment, Senator, instead of a curtailment. And 
so the company does not get the full benefit of that until 20--
--
    Senator Corker. Twenty-ten.
    Mr. Gettelfinger. ----2009----
    Senator Corker. The company will not be here in 2010, OK, 
unless we do something, and I am asking you if by March 31, to 
get back on Senator Schumer's line of thinking, I am asking you 
if by March 31, you would agree to equitize, turn half of that 
obligation into equity so that this company has a balance sheet 
that will allow them to survive. I am asking that question.
    Mr. Gettelfinger. And what I would respond to that, 
Senator, is that we have brought in two professional groups to 
help us. We took action yesterday to delay or to defer the 
payments that are due on January the first of 2010.
    Senator Corker. But I am not going to get the payments if 
they go bankrupt, so again, I would like to ask--it is a 
serious question. Are you willing to take to your membership 
that type of proposal, which is the only way these guys--you 
have got to look at the fact they have X-debt today. They need 
to do away with at least two-thirds of their bond indebtedness. 
They have got to do away with at least half of their VEBA 
obligations in order to survive. And I am just asking if you 
are willing to do that, because otherwise, there is really no 
reason for us to be contemplating all these things.
    Mr. Gettelfinger. I understand that, Senator, but I also 
understand that I am here as a representative of people. Right 
here is a letter from a person that gets $322 a month in 
pension, $322 a month. We gave her a bonus. Do you know what 
she did with it, Senator? She gave 10 percent to charity, she 
kept $100 out for Christmas, and she put the other $300 in an 
emergency operating fund. That is the people we are talking 
about.
    And I cannot answer your question directly without expert 
advice, and I have suggested, sir, that we have brought in the 
Lazard Group to assist us. While it may not mean anything here, 
we took action yesterday to talk about a deferral of our 2010 
VEBA payments because we recognize the liability that is out 
there on the company's books. We also recognize the value of 
spreading that out, that payment. But that is a tremendous risk 
that we are willing to take. It may not mean a lot to many 
people, but to others, when we are talking about people that 
worked on their lines, that gave their entire life for that, 
and their pension is at risk, that is very critical----
    Senator Corker. Well, all of their benefits are at risk, 
OK----
    Mr. Gettelfinger. I understand that, Senator.
    Senator Corker. Let me ask you another question.
    Chairman Dodd. Bob, can I----
    Senator Corker. Yes.
    Chairman Dodd. I am going to come right back to you----
    Senator Corker. OK.
    Chairman Dodd. ----but I have got three other members, and 
I wanted to give you some more time because you deferred 
earlier, and I will come back to you on that, but let me turn 
to Senators Casey, Tester, and then back and forth here.
    Senator Casey. Thank you, Mr. Chairman.
    Chairman Dodd. Thank you, Bob.
    Senator Casey. First of all, I wanted to thank the 
witnesses who are here for your testimony and for the work that 
went into this testimony. For me, this debate is pretty simple, 
as complex as the financing, as complex as the challenges are. 
It is about jobs, and I come from Pennsylvania, which is not 
normally considered an auto State, but when you look at the 
numbers in our State on supplier jobs, direct and indirect, it 
is more than 80,000, more than 83,000 jobs in that sector. When 
you look at dealerships--and Mr. Fleming, we appreciate the 
testimony you provided--look at dealers in Pennsylvania, 50,000 
jobs.
    I was looking at unemployment data from September 2007 to 
September 2008 in Pennsylvania. September to September, up 
91,000 unemployment. Our State, and I know the country, as 
well, but I can speak for my State, cannot sustain any more 
hits. I am not saying that if we don't act, we are going to 
lose every single one of those jobs, but we can't afford to 
lose another 5,000 or 10,000 or 15,000 or 25,000 jobs.
    Our State, candidly, is a been there, done that State. We 
went through this in the steel industry way back in the 1970s, 
where hundreds of thousands of people in a couple of counties 
in Pennsylvania lost their job in three or 4 years, hundreds of 
thousands of people in one fell swoop. We can't allow that to 
happen again.
    I was just talking to some dealers this morning. We lost 56 
dealers in Pennsylvania last year. This year, it is above 60 
already. Just yesterday, there were three. This is happening in 
real time. This isn't some theory. Jobs are being lost right 
now. So in our State, we cannot afford to do anything, in my 
judgment, but to act and to do something here.
    I have to say also, with regard to the labor concessions, 
Mr. Gettelfinger, I wanted to review some of those because I am 
stunned by the kind of--when you hear the talking heads on 
television, when you read what some people say in this town and 
across the country about the mythology that is out there about 
how we got to this situation, and, frankly, the scapegoating of 
the men and women of organized labor, in particular auto 
workers.
    Point number one, in 2005, cuts in wages for active workers 
and health care benefits for retirees, point number one. I am 
reading from your testimony. Cuts for new workers, bringing the 
wage level down to $14 an hour. How many industries are doing 
that? Reducing the companies' liabilities for retiree health 
care by 50 percent. And I realize these have been in the record 
before, but it is very important. And wages and benefits, you 
said yourself that they are about 10 percent of the budget. You 
would think, listening to some of the people talk out there, 
some of the so-called experts, that wages and benefits were 70 
percent of the costs. So there is a lot of mythology, a lot of 
myth generally that has been put on the record.
    Since 2003, downsizing by the companies has reduced their 
workforce by 150,000 people. That doesn't get said very often. 
The labor cost gap with foreign transplant operations will be 
largely or completely eliminated, OK. So I think it is 
important to put this information on the record for this 
hearing.
    And then we have heard this garbage about $73 an hour. It 
is a total lie, and some people have perpetrated that 
deliberately in a calculated way to mislead the American people 
about what we are doing here. It is a lie and they know it is a 
lie.
    So with that as my predicate, and I know I am almost out of 
time, at least according to the original time agreements, I 
have a question for the three CEOs with regard to 
accountability. One thing that I think is very important here 
is that we not just talk about but demonstrate to taxpayers 
that we get it on the question of accountability and that you 
get it. And I know you have a lot built into your plans.
    I think it is very important that we take a look at this on 
a monthly basis. If I had my way with regard to this 
legislation, I would insist upon monthly reporting, monthly 
benchmarking or compliance with benchmarks, monthly compliance 
or the meeting of milestones. I think it is very important that 
we have provisions that talk about it from month to month.
    So I would ask all three of you, starting with Mr. Wagoner, 
two questions, really. One is with regard to monthly reporting 
and the distribution of public dollars based upon that monthly 
reporting, would you agree to that, and also would you be 
willing to make government assistance the most senior debt 
secured by the assets that we have talked about here today. 
Would you agree to both of those?
    Mr. Wagoner. Yes on the first one, and on the second, we do 
have some secured debt, but we have a lot of collateral that is 
not secured, and so for that piece, we could cover any near-
term funding. So yes to the second one, as well.
    Senator Casey. And Mr. Nardelli?
    Mr. Nardelli. Yes, sir. Certainly on the monthly, we have 
committed to that in our testimony. The majority of our equity 
is secured and therefore I certainly am not in a position to 
commit that that would automatically become unsecuritized or 
subordinate to the government. As what was talked about earlier 
about having or appointing someone, I think it was said that 
this Committee certainly has the power to make that happen. So 
I would ask certainly this panel and Congress, if that is their 
wishes and that is the criteria, then that is something 
certainly this panel has the authority to do.
    Senator Casey. Mr. Mulally?
    Mr. Mulally. If we needed to access the taxpayer money, 
then monthly is very understandable and we would comply. On 
your second question, our current covenants right now with the 
debt we have, we would be breaking those covenants and we could 
be put in default. But having said that, there just has to be a 
way and I would be committed to figuring out that way to get us 
all together to figure out a way to protect the taxpayer. I 
understand completely.
    Senator Casey. On the question of credit, each of you have 
credit financing entities that we all know about, but my 
question on that is one of the ways that I think would give 
taxpayers some assurance here that the dollars would get to 
where they are supposed to get to and rectify some of the 
problems is that we focus on getting direct help on financing. 
Would it be helpful to you to have direct infusions of capital 
into your credit entities so that you have, and I would assume 
that this would be helpful, that you would have, unlike the 
banks, who have been sitting on a lot of our taxpayer money--
without a lot of questions asked, by the way--you would be 
infusing an entity with dollars where you would have lending 
that would happen almost immediately because of the inability 
for most people to walk in and buy a car without access to 
credit. I would just ask each of the three of you to tell me 
briefly.
    Mr. Nardelli. Sir, it is not helpful, vital. Just this past 
Saturday, we have 240 dealers that have thrown their keys in 
because they have not been able to get access to financing. We 
have another 250 that have been put on credit hold. That has 
impacted us another 63,000 units on an annualized basis.
    Senator Casey. Mr. Mulally?
    Mr. Mulally. Yes. I think a couple of other things to get 
at your real question that are helping and could help even more 
is with respect to the Federal Reserve, they have put in place 
now a near-term asset-backed commercial paper facility which we 
are already accessing which helps free up the credit, which is 
terrific. They are also working with Treasury on a medium-term 
asset-backed commercial paper facility.
    Another thing that would really help on the credit being 
made available for the customers is if we can get our 
application for an industrial loan approved by the FDIC, which 
again would help on freeing up the credit for our customers.
    Senator Casey. Thank you.
    Mr. Fleming. Senator, could I just----
    Senator Casey. Sure.
    Mr. Fleming. From the dealers' perspective, credit is a 
very, very important issue and it is different across the 
country. Areas where there were more difficulties with the 
subprime loans, the local and regional banks don't even have 
access to credit to help the dealers out. One of the concepts 
that we have discussed on a local level in Connecticut is 
trying to free that capital up that right now Treasury is 
buying in some of these local and regional banks.
    The hold-up is that these small commercial banks and 
community banks and regional banks don't have the expertise for 
financing automotive paper and credit. Some of these 
organizations that are represented here, the captive credits 
have that expertise. If you can free the--if the credit is 
freed up at that local level and you can provide some central 
ability for the expertise, the backroom operation, if you will, 
that could free a tremendous amount of credit up at the local 
level, and that is money that is already out there that is 
sitting in those banks right now.
    Senator Casey. Thank you, and we want to hear more about 
that.
    Mr. Wagoner, and then I am done.
    Mr. Wagoner. Certainly, additional capital in the finance 
companies would be helpful. Our approach has been to file for a 
bank holding company, and as part of that we will need to raise 
some capital there, as well, assuming we get it approved.
    Senator Casey. Thank you.
    Chairman Dodd. Thank you very much, Senator Casey.
    Senator Tester.
    Senator Tester. Thank you, Mr. Chairman, and I also want to 
echo, thank you for being here again. Those of you that haven't 
testified before, thanks for being here.
    Just a couple of things, actually for my benefit. Senator 
Bayh brought up an issue about nothing is for certain. Trust 
me, as a farmer, I know nothing is for certain. The best-laid 
plans can go upside down in a hurry. But I do want to know what 
the landscape is and I do want you guys to be as honest as 
possible. If the chances you are going to be back here in a 
year are high, be honest and tell me. I think your industry is 
important. I think the manufacturing industry is important.
    So just go down the line and just tell me. If things stay 
the way they are now, are you going to be back here in a year? 
Just go right down the line, the Big Three, the Detroit Three 
or whatever you call it.
    Mr. Nardelli. Sir, if we are fortunate enough to get the 
funding, as I said, we have built in some 136 money. We have 
identified $4 billion of cost out starting March 31. We have 
made the point about the importance of the finance company. I 
believe, I believe, sir, that we will get through 2009 because 
we have laid in a very conservative plan.
    Senator Tester. And if the economy stays static, will you 
get through 2010?
    Mr. Nardelli. Yes, sir. We----
    Senator Tester. That is good enough. Next?
    Mr. Mulally. Yes. As we discussed, we believe we have 
sufficient liquidity today, but clearly, your point is very 
important. If the economy and the industry degrade 
significantly, we would be asking for that bridge loan, too, to 
keep going.
    Senator Tester. Got you. Yes?
    Mr. Wagoner. Our downside plan and our submission was based 
on 10.5 million units next year, which is about where the 
industry has been running the next couple of months, so that is 
why we added the additional $6 billion credit facility. If the 
10.5 continued for a couple more years, then we would need to 
either cut more costs or get more funding because our baseline 
plan assumes it goes up by about a million units a year.
    Senator Tester. Thank you. I would just say this. You guys 
have been put under far more scrutiny, far more scrutiny than 
the people up here on the board for far less money. And I am 
not happy about the transparency or the accountability, as I 
said before, of what the administration has done in regard to 
throwing hundreds of billions of dollars out the door. And the 
fact when I listen to you guys testify that you can't even get 
credit, and that is what this was for, is nothing short of 
ridiculous and I would love to have those birds in here again 
because they need to be talked to, or at least get some 
questions answered.
    One of the things that they have done with----
    [Interruption from gallery.]
    Senator Tester. I hope this doesn't count against my time.
    [Interruption from gallery.]
    Senator Tester. I would like to tell you that one of the 
problems I have got with the use of the TARP funds is for bank 
consolidation, and I would hope that--well, for example, 
Capital One is just acquiring Chevy Chase Bank. They are a 
recipient of TARP funds. We have a similar situation that could 
be here, and Senator Corker has talked about it, and that is 
the potential consolidation. You talked about it in your plan, 
Mr. Nardelli. I just need assurance that no dollars given to 
you would be used for a merger, either domestic or foreign.
    Mr. Nardelli. Sir, I can assure you that if that is 
incorporated into the guidelines, then it will not be. I would 
come back and--for example, one of the things in my proposal 
was if you take the $25 billion out of 136 and the three of us 
were to create an independent technology center, I would submit 
to you that it would be more efficient and more effective, as 
evidenced in the hybrid technology that we jointly developed, 
that Rick and I did in, as a matter of fact, a vehicle that I 
drove down here.
    Senator Tester. I understand. It is just that I don't want 
to make the same mistake again. We should have asked tougher 
questions with the previous----
    Mr. Nardelli. Yes, sir----
    Senator Tester. and I don't want to--and we will get onto 
this with some other folks, too, as we go forward.
    You know, Mr. Wandell, you have not been asked any 
questions, and I feel an obligation that at least you get 
involved in this. How is your business doing at this point in 
time with the economic turndown?
    Mr. Wandell. Well, as I mentioned, luckily, we are 
diversified into several businesses and we are global, so in 
general, we are doing well. But----
    Senator Tester. OK. That is basically what I needed to 
know, because you are going to be asked to be part of the 
equation to reduce some of your costs, too, to be able to make 
these folks whole. You see that as an absolute, no problem, 
possibility?
    Mr. Wandell. Yes. That is the way we come to work every 
day. Every year, we are asked for price-downs from our 
customers and that is part of the equation.
    Senator Tester. The 136 dollars to be used to increase your 
CAF? standards, as I read it, and I just want you to confirm 
this, as I read your business plan, those were critical to make 
this $34 billion work across the board. I don't want to put 
words in your mouth, but yes?
    Mr. Nardelli. Yes.
    Mr. Mulally. Yes, they are included.
    Mr. Wagoner. Yes.
    Senator Tester. OK. The issue of dealerships, and I don't 
want to get into this very deep because we can spend all day on 
this, but we are talking about potentially closing some 
dealerships. At least that is what I read. Have you identified 
what the metrics are going to be to close dealerships?
    Mr. Nardelli. The program we started last August when we 
became privately held was to go out to every region and 
identify the dealers that are in that region and work in 
harmony with them to facilitate a consolidation that would make 
the remaining dealers more profitable and we would put all 
three brands under one roof.
    Senator Tester. OK. Is that fairly typical of the way the 
other two would answer the question?
    Mr. Mulally. Yes, and I would just add a little bit more 
clarity. We have a tremendous set of dealers throughout the 
United States----
    Senator Tester. I know you do.
    Mr. Mulally. ----and we are very, very strong in, of 
course, all the small and medium-sized communities. The area 
that we are working together with the dealers, and they are 
very encouraged by this, too, are in the big metropolitan 
areas, because the most important thing we do is to get their 
throughput and their profitability up and we are on plan for 
that.
    Senator Tester. What about the rural areas?
    Mr. Mulally. They are in very good shape. They are doing a 
great job.
    Senator Tester. You have got dealerships in towns of less 
than 3,500 people. Are you going to keep them?
    Mr. Mulally. You bet. They are the fabric of the community.
    Senator Tester. The same with GM?
    Mr. Wagoner. Yes. What we do, the individual dealers make 
the calls there. That number has been slimming down gradually 
over time just because of the economics of the car business, 
but it is their call.
    Senator Tester. I come out of the State legislature, and I 
will tell you a big complaint we had from the Auto Dealers 
Association is that the manufacturers were trying to 
consolidate, consolidate, consolidate the dealerships. I heard 
it over and over and over again. We had to deal with that at 
the State level, State laws. You are saying that attitude 
doesn't exist anymore?
    Mr. Wagoner. If we have a situation, let us say, where you 
have three dealers in a community and none of them can be 
profitable, we try to work with them. But, I mean, they have to 
make the calls.
    Senator Tester. OK. A last question, and I have got a bunch 
more but time is of the essence so just bear with me just for a 
second. The 136 money, $8 billion, $8 billion, and $5 billion, 
where is that 136 money going to be spent? I know it is going 
to be spent to increase CAF? standards. Is it going to be spent 
in the U.S.?
    Mr. Nardelli. One of the requirements is that it is based 
here in the U.S. and we are spending it primarily on our 
electric vehicles.
    Senator Tester. OK.
    Mr. Mulally. Yes, and all enabling technology, power train, 
weight, aerodynamics.
    Senator Tester. And GM?
    Mr. Wagoner. Yes, and I would just add, and obviously a big 
piece of our initial money is to fund batteries--
    Senator Tester. One of the things I talked about earlier, 
and I will stay with you, Mr. Wagoner, real quick, in the 
earlier question was, is this money, if we put up $25 or $34 
billion now, if it is going to be spent in the U.S. I heard a 
rumor that you were going to expand a facility, or at least 
announced the expansion of a facility in Mexico, a 
manufacturing facility. Can you tell me if there is any 
credence to that?
    Mr. Wagoner. We have--all the announcements we have about 
Mexico, I am not aware of anything additional. I mean, we have 
got three assembly plants there. We don't plan any more.
    Senator Tester. How about expansions of the existing ones 
that are there?
    Mr. Wagoner. No, sir, I am not aware of anything.
    Senator Tester. OK. I will just tell you--
    Mr. Wagoner. I will get back to you----
    Senator Tester. ----whether it is millions of dollars that 
you have in Mexico or whether it is this, if we allocate this 
money and 2 weeks from now you guys announce an expansion of a 
manufacturing plant in Michigan, I am going to be unhappy.
    Chairman Dodd. Not Michigan----
    Senator Tester. Mexico. What did I say?
    [Laughter.]
    Senator Tester. I said Michigan, didn't I?
    [Laughter.]
    Senator Tester. Exactly, in Southern Montana. In Mexico, 
right. By the way, thank you for the correction.
    [Laughter.]
    Mr. Wagoner. Let me check, and if there is anything that 
comes up, I will get back to you, but I don't think there is--
--
    Senator Tester. I mean, the part of my justification to 
keep you folks solvent and in business and employ folks at good 
wages with good benefits is, number one, we need a 
manufacturing base in this country. We can't afford to lose it.
    But number two, I don't want to give American taxpayer 
dollars to somebody who is going to invest it in some other 
country than this country. That has been a problem.
    Mr. Wagoner. Senator, let me just be clear. No funding that 
comes out of this would go to fund a facility overseas.
    Senator Tester. We had the conversation before on that, and 
I will tell you that it is really tough for people to 
differentiate if you guys get a $34 billion loan, bailout, 
whatever you want to call it, that within a few months if there 
is an expansion announced and it is not in Michigan, or some 
other place in the United States--Ohio, Montana--it is going to 
be very, very tough to justify.
    Thank you for being here. I appreciate your time. You have 
done far more as far as justifying your case than any of these 
folks up here. Thank you.
    Chairman Dodd. Thank you. Let me just raise the question, 
and I will go ahead to my colleagues, as well, but I can just 
tell you, to the CEOs, at least talking to my dealers in 
Connecticut, and Mr. Fleming is here, one of the problems is on 
this rebate issue, where they are providing rebates to 
customers who can come in and qualify for a loan but the 
dealers are not getting compensated from the manufacturer very 
quickly from the rebates, so their margins are very small, 
putting tremendous economic pressure on these dealers. I don't 
know if that is just unique to my State. I suspect it is not.
    And I will wait for a turn to come around, but I raise that 
issue because it is one that really the dealers are not happy 
with the manufacturers about some of these issues. I wouldn't 
want the time to go by and assume somehow this is all kumbaya 
between the manufacturers and the dealers. It is not.
    Senator Carper.
    Senator Carper. Thank you, Mr. Chairman.
    Every now and then in our business, we face the voters and 
one of the questions that is sometimes on their mind is what 
have you done for me lately? And I think you all are going 
through a little bit of that here today in terms of what have 
you done for us lately in terms of productivity? What have you 
done for us lately in terms of bringing down the labor costs? 
What have you done for us lately in terms of improving quality? 
What have you done for us lately in terms of improving the fuel 
efficiency of the vehicles that you build?
    Actually, I think any fair-minded person would say on every 
one of those fronts, you have done a lot. You have done a lot. 
That doesn't mean it is time to stop, but I think I am a fair-
minded person. I think most of us are. But I want to commend 
you for what you have done and commend you for what I believe 
you are willing to do next to merit the support that we are 
talking about providing.
    Mark Zandi over here at this end of the table is a smart 
guy, and whenever we were trying to put together a stimulus 
package, he was good enough to provide something that I call 
the ``bang for the buck chart'' and what are the things that we 
could do when we are looking into a recession, moving into a 
recession, to try to turn that around. Does it make sense, do 
we get more bang for the buck for Food Stamps? Do we get more 
bang for the buck for extending unemployment benefits? Do we 
get more bang for the buck by providing these stimulus checks, 
these tax rebate checks that go out? And he is always very, 
very helpful.
    If you had to--this is an unusual thing to ask, but 
thinking about that ``bang for the buck chart,'' would the 
money that we are talking about providing here, whether it is 
$34 billion or $25 billion, sort of where would that be on the 
``bang for the buck chart,'' Dr. Zandi?
    Mr. Zandi. It would have a high bang for the buck. I mean, 
just to give you kind of a range, the infrastructure spending 
has the highest, $1.80. Certain kind of tax cuts, $1.10, close 
to a dollar. This is more like direct government spending, so 
it would be $1.50 to $1.80, somewhere in that range, I would 
think. On the fly, that would be sort of the bang for the buck, 
I would think.
    Senator Carper. All right. Well, that is what I am looking 
for.
    You make four points, and I have gone back and re-read 
these several times. You make four points in your testimony, 
and I want us to revisit them again and I want to especially 
dwell on the fourth point, if we could. Would you just sum them 
up really quick, starting with the first one, I think your 
first point about--just take it and just summarize very briefly 
in your own words.
    Mr. Zandi. Sure. Point one is that the Federal Government 
should provide aid. Without it, they would go into liquidation, 
there would be mass layoffs, and at this point in our economy's 
economic situation, that would be extremely damaging. So I 
don't think you have a choice.
    Point two is that the cost of ensuring that the auto makers 
don't go into bankruptcy at some point in the next couple of 
years is going to end up being measurably higher than $34 
billion. I give you a range of $75 to $125 billion, but I think 
the odds are high that it is going to be measurably more than--
--
    Senator Carper. I saw that number and I wondered, does the 
higher number, your higher number, $75 or $125 billion, does 
that include the so-called Section 136 money which we have 
already offered----
    Mr. Zandi. Yes.
    Senator Carper. ----for retooling the plants so the folks 
can make more energy-efficient vehicles?
    Mr. Zandi. Sure.
    Senator Carper. OK.
    Mr. Zandi. I mean, Chrysler is basically saying, I don't 
need to come to you today for as much money because I am going 
to use that money. So yes, that would be part of it, yes.
    Senator Carper. Was it Chrysler that said that or Ford that 
said that?
    Mr. Zandi. I think all three of----
    Mr. Nardelli. All three of us.
    Mr. Wagoner. All three of us said it.
    Senator Carper. Fair enough.
    Mr. Zandi. All right. So yes, I think that is----
    Senator Carper. All right.
    Mr. Zandi. And when I say $75 to $125 billion, I am talking 
the total commitment taxpayers are going to have to make to 
these organizations to ensure that they do not go into 
bankruptcy over the next 2 years. That is TARP money, that is 
Section 136 money----
    Senator Carper. Go on to point number three, if you will.
    Mr. Zandi. Yes. Point number three is that if they can 
stick to the script that they have laid out, they will become 
viable companies on the other end of this with that help. But 
sticking to the script outside of bankruptcy is going to be 
very, very difficult to do because you have so many 
stakeholders, creditors, UAW, suppliers, dealers. All have 
different interests. It is going to be very difficult for them 
to stick to the script, and therefore in theory, it looks 
great. In practice, I think it is going to be tough. And I 
would plan it on the likelihood that they are not going to 
stick to the script.
    And that gets to point four, what I would do. I would give 
them $34 billion. I would----
    Senator Carper. All at once?
    Mr. Zandi. No. I would say, you need, according to the 
plan, I think roughly GM needs $10 billion to make it through 
to March 31. Chrysler needs $7 billion. Ford doesn't need 
anything. I would give them $17 billion and that should ensure 
that we don't go into bankruptcy liquidation through March 31.
    I would establish a mechanism, a board or I think Senator 
Schumer's idea is probably a better one in the context of the 
time limitations, someone that says, are you meeting--we are 
going to have very clear benchmarks. Are you meeting the 
benchmarks? We get to March 31. We say, this is a good 
investment, we are going to give you the next tranche, or it is 
not a good investment and we are going to be throwing good 
money after bad.
    And use the time between now and then to get ready, to 
prepare for a bankruptcy. Really think through, what does it 
mean for the financial system? What does it mean for the PBGC? 
What do I need to do as a government to provide dip financing? 
What do I need to do to guarantee the warranties? You know, all 
those things. You have got 3 months and you should have it 
figured out, what is next.
    But I think I would also make it very clear to everyone 
that this is it, because when you say this is it and you stick 
to this is it, then that makes a much greater chance that I am 
wrong on point three, and that is the most important thing.
    Senator Carper. Yes. I think your point about sticking to 
the script is an important, real important point.
    In your testimony, and when you talked about point number 
four, you talked about the Federal Government providing the 
support in two tranches you talked about the first one maybe 
being $17 billion--in exchange for warrants and restrictions on 
a variety of things, including executive compensation, dividend 
payments, and that sort of thing.
    In the situation with Chrysler--GM and Ford, I can see 
where the warrants work out. We did Chrysler warrants 29 years 
ago, I think it was 29 years ago.
    Mr. Nardelli. We have done $300 million additional----
    Senator Carper. But that was when Chrysler was publicly 
held, and my question of you, Dr. Zandi, is how do we do 
warrants with Chrysler in this situation or something akin to 
warrants so that we have a reasonable return for the taxpayers 
in light of our willingness to take on this risk?
    Mr. Zandi. You know, I think it is a great question for Mr. 
Nardelli. How would they compensate the government for this?
    Senator Carper. Mr. Nardelli?
    Mr. Nardelli. Well, I know that Cerberus has already 
committed to forego all of their carry-forward interest. They 
are more than willing to make sure that all of the upside 
benefit goes back to the taxpayers. And so I think when you 
bring everybody to the table, Cerberus is more than willing to 
provide the security and the commitment that the taxpayers do 
recover from their investment in this company, sir.
    Senator Carper. All right. Let me just say, Mr. Chairman, 
this is a smart group of people, as you know, and I think the 
folks on the auto side and the labor side, they don't get 
enough credit for what they have already done. They have 
actually, I think, positioned these companies and this 
industry, domestic industry here, within a couple of years, and 
Ford is a little bit ahead of the game and we commend them for 
that, but they have actually positioned themselves to make a go 
of it. And part of the key is providing, as Dr. Zandi suggests, 
enough money to keep the wolf from the door here for the next 
couple of months while the necessary further concessions are 
made by not just labor, not just management, not just the 
shareholders, not just the bondholders, but the whole kit and 
caboodle.
    And the idea--I am going to come back to it, but a point I 
think we touched on earlier, where would this, if it is $17 
billion here in this first tranche, where would it come from, 
and I would like for us to explore whether it might come from 
some of these financial institutions that have gotten, I think 
close to $250 billion of capital injection in return for making 
loans to these companies that might be guaranteed by the 
Federal Government.
    I want to thank you all, but I especially want to thank 
you, Dr. Zandi, for again bringing, I think, a lot of wisdom to 
this hearing. I think you have given us a lot to think, not 
just think about, but I think a lot to act on.
    Thank you, Mr. Chairman.
    Chairman Dodd. Thank you very much. Thank you very much, 
Senator.
    I just point out, and again I understand other obligations, 
but I had asked the Treasury to be here, the Federal Reserve to 
be here to talk about it. There are options for dealing with 
this. To ask 535 Members of Congress in the space of 72 hours 
to try and craft something here is challenging, to put it 
mildly. There are other means by which this could be dealt 
with. That chart says it all. But looking about--trying to get 
some help out of an authorized fund to assist at a moment like 
this, not to mention the 13(3) provisions within the Federal 
Reserve Bank that could help give us time to come back and do 
some things that may be necessary would be the way I would like 
to suggest to go, or the idea that you have suggested has some 
merit, as well, but it is----
    Senator Carper. Well, this oversight board that we have 
been talking about, not just an oversight like to kind of be a 
spectator, but----
    Chairman Dodd. We don't need legislation to create that. 
That could be done automatically by the very powers that exist 
today that could help out of this. I will get back to that in a 
minute.
    But also, I just want to make a quick point, your money, 
Dr. Zandi, doesn't have to come from public money. That money, 
that gap could be made up, in fact, by private capital coming 
into these institutions, as well, is that correct?
    Mr. Zandi. Sure.
    Chairman Dodd. OK.
    Mr. Zandi. If private capital came in----
    Chairman Dodd. If we start doing things properly here and 
things start to move in the right direction, you might see 
those resources.
    Senator Bennett?
    Senator Bennett. Thank you very much, Mr. Chairman, and 
thanks to all of you. This will come to an end. You can look 
forward to that with some confidence.
    A few reactions and then some questions. I don't think you 
need any more loans because loans carry interest with them and 
interest is part of your problem right now. Even if the loan 
has a government guarantee, it is something that has to be 
repaid and what you need is more capital that is patient 
capital that can wait out the scenario that Mr. Wandell has 
talked about, or I guess it was--whichever. Yes, you are the 
economist.
    Mr. Zandi. I am the economist.
    Senator Bennett. You are the economist on the end. OK. I 
have got it straight.
    Let us talk about capacity. The industry has too much, and 
based on what we heard in our last hearing, Mr. Chairman, that 
is not going to change. As the industry becomes more efficient 
and produces longer-lasting cars, people are not going to trade 
as often and the overcapacity problem is going to continue to 
be there.
    I will confess that I am adding to your problem. Mr. 
Mulally, my Ford Escape is 4 years old and has got at least 
another 4 years left in it. Mr. Wagoner, I have got a 1996 
Oldsmobile that is still running just fine, and as long as you 
are producing spare parts, it has only got 82,000 miles on it, 
and I am not going to trade it in. And therefore, I am adding 
to your problem because it used to be that people changed their 
cars every three or 4 years. You are making them well enough 
and lasting long enough that this is a problem. When I 
congratulated the dealer that sold me the Oldsmobile, he said, 
``I can't make any money if you keep driving that car.''
    What we are really talking about here is creating for the 
first time in America an industrial policy for a particular 
segment of the industry. This is America's version of MITI, if 
you will, where we look at the question of capacity in the 
industry as a whole. We look at the question of competitiveness 
around the world. We look at the question of how much public 
money is going to go into the industry. All of these are 
questions that the Japanese have addressed, and we have never 
had an industrial policy for a variety of good reasons, and 
whether we should or shouldn't is a discussion for another time 
and another place.
    But as we address all of these issues, it falls under that 
general rubric of should we have an industrial policy for the 
auto industry, and if we should, what should it be and what 
should be the Federal role. And to come up with the answer to 
those very complicated questions, as you say, Mr. Chairman, in 
72 hours is something the Congress, frankly, is not equipped to 
do.
    So I think there needs to be some very heavy discussions 
very quickly on that issue, not just how are we going to bail 
out this industry in this circumstance, but what is going to be 
the long-term goal and role of the American government in the 
21st century in a globalized economy competing with other 
countries that do have an industrial policy and should we 
rethink our decision not to have one, and if we do have one, 
who in the world is it going to be? What is going to be the 
American equivalent of MITI? And how do we address all these 
issues? It is a very, very tough question that this industry 
and this circumstance has thrown back in our face after we 
thought we were through with it when we discussed the Japanese 
back in the 1970s.
    Now, back to the question of overcapacity, everything I 
have seen with this says to me that a merger between General 
Motors and Chrysler is a good idea. It is not a shotgun 
wedding. It is not something you do dramatically and 
drastically because of the difficulty of the circumstance. It 
is a marriage that makes sense. All the work has been done so 
that it could be done and papers could be signed very quickly, 
and out of it, the synergies you get are there and the 
economies you get.
    Now, I know, Mr. Gettelfinger, you don't like it because it 
would mean losses of assembly line jobs. It is the middle 
management and top management that would get hit the first, 
because instead of two corporate structures, you would have 
only one. And the acres and acres of MBAs that are there in the 
middle management for both companies would be shrunk 
significantly.
    I understand, Mr. Wagoner, you said, well, we had other 
priorities. We were pressed by this. We couldn't think about 
it. I think you need to talk about it again. Can you react to 
that, not from the standpoint of this crisis, but from the 
standpoint of the business synergies that would occur if there 
were not a crisis and the two of you were looking at it 
strictly in terms of what it would do for you long-term.
    Mr. Wagoner. The analysis, as we have reported in other 
places, showed significant cost savings, some of those--
significant cost savings, and some of those were--a large 
portion initially were exactly the point you raised, Senator 
Bennett, the sort of squishing together of two headquarters. 
There was some significant job loss, but beyond that, it looked 
like there was material savings, platform savings as we 
combined product platforms together. And then over time, some 
possibilities of actually incremental sales. For example, 
Chrysler hasn't historically had a big overseas distribution 
network. General Motors does, so that would open up prospects.
    But as you correctly said, as it became clear that such an 
opportunity would not generate incremental funding from the 
market--initially, we had been told it would, but as the market 
conditions deteriorated, it wouldn't--then we had to move our 
focus to the near-term cash issues that we are facing.
    Senator Bennett. Mr. Nardelli?
    Mr. Nardelli. Senator, let me just add to that. When we 
were looking at that, the range of opportunities were somewhere 
between $8 to $10 billion annually. In the case that you have 
cited where we are running a factory with one shift and Rick is 
running one with one shift, I am not sure there is a 
significant labor reduction, in talking with Ron, the 
opportunity to move those direct workers from one factory 
across town to another.
    I think the thing Rick talked about is one of the biggest 
costs we face is developing a new platform, somewhere around $1 
billion to $1.3 billion, for example, if we were able to as an 
industry or two of the three in the industry here share common 
platforms with different top hats. I have mentioned before in 
my oral comments with the charts, if you just look at 
annualized savings on all of the NAFTA buy, you are talking 
about $3 to $4 billion in aggregation for suppliers. You are 
looking at increasing plant utilization from 70 to 90 percent. 
There are opportunities significantly in advanced technology, 
as Rick and I cooperated on the hybrid.
    So the point here, I think, is not whether there is 
significant synergies and opportunities. I think the issue has 
become one of survival in the immediacy. How do we keep our 
doors open between now and the end of the year, and in looking 
month by month? And I think if the challenge is how might we 
look at getting more synergies between two of us or the three 
of us so that the U.S. auto industry really does become not 
only a competitor among States, but a competitor among nations, 
I think that is a fair question and a fair challenge to put to 
us.
    Senator Bennett. The reason you don't do it is because--is 
not for business reasons. Let me tell you what I am hearing and 
you can correct me if I am wrong. The reason you don't do it is 
not because it is not a good business decision. Long-term, it 
is a very good business decision. Eight to ten billion dollars 
a year in savings is not trivial in the circumstance we are 
talking about here.
    The reason you don't do it is because it will not attract 
short-term financing. We are not talking about short-term 
financing. We are talking about government financing. 
Government capital is the most patient capital there is. What 
if we made as a condition of giving you patient capital, among 
all the other requirements that you have been talking about of 
stick to the script, what if we made as a condition of giving 
you patient capital the requirement that you do this, because 
saving $8 to $10 billion a year on behalf of the creditor 
sounds to me like a good idea.
    Now, if I am a creditor who has to get interest payments 
next month on my loan, it does not. But if I am a creditor who 
has to answer to the taxpayers of what is going to happen over 
several years, it does.
    So if we write in the proviso that you don't get a dime 
unless General Motors and Chrysler combine, how would you react 
to that? Mr. Gettelfinger, I would like to hear your response, 
too.
    Mr. Gettelfinger. Well, I think having an outside expert 
look at that, also. I think there may be a disagreement on the 
real advantages to it. I appreciate what the companies are 
saying. But, you know, when the transaction came about with 
Daimler, a couple of things happened. Number one was the 
financial arm was split off from the company, and indirectly, 
the equity stake that we had in that as workers drifted apart. 
There was additional liability that was shifted to the company, 
debt, if you will. And the synergies that we have talked about 
here, I think that that is debatable, just how effective they 
would be.
    But you are right on the mark, though, when you said the 
concern about what would happen, because it would be 
unbelievable, the number of people that would lose their jobs, 
and you are right as far as it would be the management people 
first, because they do, they have dual headquarters.
    But beyond that, you are talking about now taking a 
Chrysler product manufactured by General Motors. I would say 
that, to me, when General Motors, Chrysler, and I believe it 
was BMW come together and developed the two-mode hybrid, there 
was an alliance that helped those companies go. And I truly 
believe that that is the kind of alliance that Chrysler needs 
as opposed to a merger with General Motors.
    Senator Bennett. Mr. Wagoner?
    Mr. Wagoner. It would have been my presumption that given 
the near-term funding requirements that we have put forth, that 
this whole role of what we call the Federal oversight board, or 
industry trustee or whatever, if there was a desire to 
integrate, as you say, industrial policy as part of it, we 
would obviously be very willing to look at any of this stuff on 
their merits. Given where we are today, though, you know, our 
focus is the near-term liquidity.
    Senator Bennett. Yes, but you are talking to a potential 
lender of patient capital in large amounts. Forget what you 
have just said about the short-term and where you are today.
    Mr. Wagoner. OK.
    Senator Bennett. If I say to you, this is a condition, 
would you resist it? Mr. Gettelfinger would because he thinks 
the past history says it won't work.
    Mr. Wagoner. I would be very willing to look at it 
seriously. I would prefer to do it in a way that Mr. 
Gettelfinger felt comfortable proceeding, because a lot of them 
affect his workforce, and so I think we would want to work with 
him together on it, but we would certainly be willing to look 
at it and consider it very seriously.
    Senator Bennett. Mr. Nardelli?
    Mr. Nardelli. Senator Bennett, the first job that would go 
would be mine, but if, in fact, that is the criteria that means 
we get money to save Chrysler and the people that have worked 
there for 80-some years, I would do it.
    Senator Bennett. OK. Doctor, do you want to comment on that 
in terms of sticking to the script?
    Mr. Zandi. I don't have a strong opinion on this. The only 
thing I will say is, you know, I think this might be a good 
question for the trustee or for the board, and it is probably 
wise--I am always a little concerned about trying to engage in 
very specific industrial policy. I think that is a difficult 
thing for government to do well, so I would be very cautious in 
that respect. But I don't have a strong view on it one way or 
the other.
    Senator Bennett. Well, I agree, it is difficult for the 
government to do well, but we are doing it whether we like it 
or not.
    Mr. Zandi. Well, there are different flavors of that.
    Senator Bennett. Yes.
    Mr. Zandi. Right.
    Senator Bennett. But that is the situation we are in with 
respect to this.
    Thank you, Mr. Chairman.
    Chairman Dodd. Thank you, Senator. First, I appreciate the 
candor of our witnesses. It is a rather profound question that 
Senator Bennett has raised and your responses have--I have been 
sitting on the Committee for a long time. That was rather 
unique responses to the question. Mr. Nardelli, I must admire 
your answer. I am not sure it is the right policy or not, but I 
appreciate your answer to the question.
    And it is why I always get a little nervous about Congress, 
with 535 of us up here. We do a lot of things well. Some 
things, we don't do terribly well, and micromanaging a lot is 
what I get nervous about. That is why we sometimes gives 
broader authority on the assumption people will exercise that 
authority with some discretion and prudence, but I appreciate 
Senator Bennett raising it. A very provocative set of 
questions. Thank you.
    Senator Brown.
    Senator Brown. Thank you, Mr. Chairman.
    There was discussion earlier that suggested that the 
Department of Energy had rejected the auto companies' 135 
applications. My staff checked with DOE and that is not the 
case. As is very common in grant or loan applications, as you 
all know, DOE, I believe, has asked for more information. I 
just wanted to set the record straight there.
    I wanted to follow up on Senator Tester's question. Auto 
suppliers, of course, as auto companies, have a lot to worry 
about these days. One of these concerns is that the tax dollars 
will go into this program and their concern is that they not be 
used to offshore American supplier jobs. I know some products, 
as I think Mr. Wagoner said, like batteries for electric 
vehicles are not produced sufficient to your needs 
domestically, but I would like just yes or no on each of the 
three CEOs for you to commit or pledge to maintain or to 
increase your U.S. value-added content if you receive taxpayer 
support, both from your companies directly that you will 
increase or keep the same the value-added content, and on your 
suppliers that you use, if you would commit that if you get tax 
dollars.
    Mr. Wagoner, if you would start first, just yes or no.
    Mr. Wagoner. Senator, I have to look at the data. 
Certainly, our intention--we are finding the U.S. suppliers 
are, frankly, more competitive today in a lot of areas than 
they have been in years. So I feel like that that will be the 
direction, but I would like to look at data and respond to you, 
if I could.
    Senator Brown. Mr. Mulally?
    Mr. Mulally. The vast majority of all our research and 
development is led out of the United States. We have no plans 
to change that.
    Senator Brown. Not just research and development. I am 
talking more than research and development. I am talking about 
everything you do. The concern I hear from so many people, 
because they have watched what has happened with the banks, 
they have watched money go for all kinds of purposes, including 
buying other banks. Put that aside. But they want to make sure 
this money is meant for American jobs in the United States, 
whether it is suppliers, whether it is directly with Ford.
    Mr. Mulally. No, I understand and we operate, as you know, 
all around the world in the markets and our plan is to 
profitably grow our operations in the United States.
    Senator Brown. OK. Mr. Nardelli?
    Mr. Nardelli. Senator, in my testimony, again, 73 percent 
of our sales are in the United States. Sixty-one percent of our 
production is in the United States. Seventy-four percent of our 
employees are United States. And 78 percent of our material is 
purchased here. So we are, I like to say, the most 
quintessential American company you have got here.
    Senator Brown. But 100 percent of these dollars will come 
from U.S. taxpayers.
    Mr. Nardelli. I understand that, sir, and again, I couldn't 
agree with you more that we have to make sure as we work toward 
gaining independence on oil, we can't become dependent on 
foreign technology. So your point about battery technology and 
the future of this industry needs to be right here.
    Senator Brown. OK. People will be watching.
    Mr. Nardelli. Yes, sir.
    Senator Brown. Mr. Gettelfinger, I get the sense that some 
people think it is OK if domestic auto makers go bankrupt 
because all those jobs will be replaced by foreign transplant 
companies. Do you think the jobs lost in one of the Big Three 
and all the jobs to it will be replaced by a like number by 
Honda and Toyota and other transplants?
    Mr. Gettelfinger. I think there is an organization called 
the Level Field Institute and they measure cars, the value of 
cars to workers, and I am going off the top of my head, but I 
believe for every--if you use 2,500 vehicles as a benchmark, 
the domestic auto companies would employ 78 workers for every 
2,500 vehicles they sold, and if you combined the foreign 
nameplates, it would be 33. And the reason is because of the 
imports that they bring in now.
    So no, if we lose the auto companies, the jobs are gone. 
There will be some of them replaced. There would be an 
expansion of production, I am sure, in some places. But it is 
gone. And it is also significant to point out that while we 
sell about 50 percent of the automobiles, they buy 80 percent 
of the parts.
    Senator Brown. OK. Thank you.
    Mr. Wagoner, I don't think a lot of us fully appreciate 
what goes into changing a product in your business. As we have 
seen gas prices go to $4 and then come back down in the space 
of a few months, we get frustrated when your industry's 
response lags.
    If I could be parochial for a minute, what does it take to 
ramp up production, for example, for building the Chevy Cruze 
at Lordstown or a similar product change?
    Mr. Wagoner. It depends on how the plant has been tooled, 
but a good rule of thumb would be half-a-billion dollars or so 
just to get the car up and running.
    Senator Brown. In what kind of time period, typically?
    Mr. Wagoner. Usually, it takes from the go, I mean, if we 
have to develop the product, as well, that is a three-year 
cycle. If you can use a product that has been developed for 
other reasons and bring it in, then you can do it faster than 
that. But it is a long-cycle business.
    Senator Brown. If Congress approves this money next week, 
what happens in Lordstown with building your most fuel-
efficient vehicle?
    Mr. Wagoner. We are going to proceed ahead.
    Senator Brown. On what time table?
    Mr. Wagoner. Time table, the Cruze is scheduled to start in 
2010.
    Senator Brown. OK. Mr. Mulally, my last question. You, I 
assume, I know more about the airline industry likely than 
anybody in this room. We have heard that Detroit should 
reorganize, should do Chapter 11 and reorganize just like the 
airlines have done. Give us your thoughts on whether bankruptcy 
would work from your perspective and give us a quick tutorial, 
if you will, on the financing of bankruptcy. I mean, I know 
your company, Boeing, was close to those that went through 
bankruptcy. Tell us what you can tell us based on that 
experience.
    Mr. Mulally. Yes. I am very glad you pointed out that 
clarification, because I was with Boeing Commercial Airplanes, 
not the airlines, which I love the airlines and our 
relationship with them.
    I think that I absolutely agree with the testimony of my 
colleagues and also our other professional witnesses in that in 
the United States, the customers have great choices, great 
choices in automobiles. Part of that decision process is 
believing in the company that you are buying your car from, and 
you want to know that they are going to be there, they are 
going to be there for you, the residual values are going to be 
in place. This is a very, very important relationship and I 
think that any threat of a company going into bankruptcy 
really, really hurts sales.
    I agree with, I think, everything that has been said, that 
the sales would fall off so fast that you couldn't restructure 
enough to get back out. So I think, you know, continue to 
improve your business year over year is just absolutely the 
right thing to do.
    Senator Brown. Thank you. Thank you, Mr. Chairman.
    Chairman Dodd. Thank you, Senator Brown, very much.
    I am going to turn to Senator Corker in a minute, but let 
me ask something, if I can, of you, Mr. Fleming, in dealing 
with the dealers, auto dealers. And again, this may be more 
anecdotal than not, but the issue of franchise laws in our 
various States. Even if, in fact, we have here the industry 
making decisions about reducing the number of consolidating 
dealerships around, to what extent is that impeded by the 
inability of them to do so because of State laws on franchises? 
You might tell me the genesis of these laws, and as I 
understand, it is not a total prohibition. It just makes it 
rather difficult to do it, to put it mildly. And obviously, 
would you support an effort here that would allow us in a way 
to trump, in effect, State statutes in these areas if this is a 
major area of reducing cost, by consolidation of dealerships?
    Mr. Fleming. Senator, there is a very great danger, I 
think, in preempting franchise laws at a State level. The first 
issue, I think, that would arise is that the lending 
institutions in the States depend on the franchise laws with 
respect to the risk that they are going to assume. So one of 
the unintended consequences of Federal preemption of State 
franchise laws, or another concern, of course, would be going 
into bankruptcy, would be that the lending institutions would 
further tighten credit.
    I also think, Senator, that there is a misunderstanding 
about whether or not franchise laws could prevent the Big 
Three, in this case, from doing the things that they are 
recommending to you today. I don't think that State franchise 
laws do that. I brought a copy, Senator, of a boilerplate 
franchise agreement, General Motors agreement. When I was 
Commissioner of Consumer Protection, one of my jobs was to make 
sure that contracts that renters sign, for example, the average 
consumer wasn't lopsided. This agreement is absolutely lopsided 
toward the manufacturer. They can basically do anything they 
want. Many of the franchise holders in Connecticut that are--
    Chairman Dodd. What do you mean by that, James? What do you 
mean, they can do anything? Can they shut down a franchise, 
even though franchise laws exist?
    Mr. Fleming. There is no veto in--I can't think of any 
State law where there is an absolute veto over termination. And 
given the economic situation that exists right now, many 
dealers are going to voluntarily move to do that because of 
economic decisions. In that instance, there would be little or 
no liability on the part of the manufacturer. I think the 
liability would occur in that we could end up in bankruptcy, of 
course. I think we could end up losing dealerships that we did 
not want to lose.
    So if some entity was to be put together where the dealers 
had input into it, some board, as members have talked about 
today, I think that certainly the dealers would be willing to 
work with that board to discuss those types of issues within--
we are not exempt from antitrust, so that is why we don't have 
those types of discussions with the manufacturers now. But that 
type of discussion could, I think, occur. But I think you will 
find that dealers add such a tremendous value at that level 
that you may not want to go in that direction.
    Chairman Dodd. Tell me quickly, I mentioned to you earlier 
about the issue of the rebates. Obviously, we see all the 
advertisements that there are so many thousands of dollars that 
you get if you go in and you purchase so-and-so car, and based 
on, at least as I recall the conversations we had over those 
two or 3 hours a week or so ago in Connecticut, the concerns 
about whether or not dealers were actually being compensated 
for the rebates they provide and the pressures that it puts on 
them economically.
    Mr. Fleming. Dealers carry about 110--nationwide, about 
$110 billion worth of inventory costs. When the car, for 
example, leaves Detroit, the dealer owns it from that point. 
That is about $110 billion in inventory costs.
    Another thing happens with respect to the issue that you 
raise. When the manufacturers offer our dealers some kind of an 
incentive, they are actually floating with the dealers' money 
during the time period that that car is sold and when the 
manufacturer decides to reimburse the dealer for that cost, 
because remember the dealer is carrying the car that entire 
time. So there are tremendous benefits to the franchise system 
that is in place. But I don't think you will find that State 
franchise laws would do anything to prohibit what the 
manufacturers are trying to discuss with the Committee today.
    Chairman Dodd. Tell me about the floor plans, the costs. 
And I want you to explain that, as they had to explain it to me 
the other day. I am learning more about this than I understood 
before, about what a floor plan is and how it works.
    Mr. Fleming. We have tried to, as our dealers are talking 
to members of the Connecticut delegation and around the 
country, make sure that we don't use jargon which is going to 
be misunderstood. But what a floor plan is is the ability of a 
dealer to finance his inventory. And again, that is how you are 
paying for the $100 billion worth of inventory that the 
manufacturers sell to the dealer before it ends up in a 
consumer's hands.
    So the issue that most dealers are facing right now is that 
the credit situation is such that they cannot get good access 
to financing for floor planning. The captives, the GMACs, have 
made it more difficult and they have economic reasons why they 
have done that. The regional banks, in Connecticut, there are 
two. If they were step out of that business, the dealer would 
have no ability to finance that inventory. That hurts Detroit 
because they can't move their product, and in the case of a 
dealer in East Hartford that I was talking to, they have 
actually had to cut back on the inventory that they have on 
their lot because they cannot get that proper financing.
    Chairman Dodd. And this goes back to the point that until 
consumers start buying automobiles, the long-term success of 
these plans don't work.
    Mr. Fleming. That is correct.
    Chairman Dodd. That is why this is such a circular--that is 
why I think it is so important to understand this piece of the 
business, that if you can't finance the floor plan, the 
manufacturer cannot provide the automobiles to the dealer. The 
consumer can't afford to buy the car because the restrictions 
on the FICA scores are so high. You have the choking, not 
unlike what we are talking about in the financial system, and 
you end up clogging up the system and it doesn't work. And so 
it is important, we are all talking about this from a Detroit 
perspective, a lot of that today, I think we are paying enough 
time, and why I wanted you here and the suppliers, in a sense, 
because you need to understand how this works on these 
dealerships all over the country and what problems they face in 
terms of having that product move and the consumers having the 
access to it.
    Can I ask the CEOs quickly to respond to what Mr. Fleming 
has just talked about here in terms of the rebate issues and 
these other questions and just any comments you may have on 
that?
    Mr. Nardelli. I will make a couple of quick comments. One 
of the things I inherited was an inventory in the field of 
about 600,000 units. We have consciously tried to reduce that. 
We wanted to get it down significantly. We have not been able 
to do it, but it is down 200,000 units. That saves our dealers 
about a million dollars a day in floor planning costs, point 
one.
    Point two, we have not consciously made a decision to delay 
payments of incentives. We have a current schedule, and at this 
time, we are continuing to pay as per rearranged on the 
incentive payment----
    Chairman Dodd. How quickly does that happen, Mr. Nardelli? 
Just give me a----
    Mr. Nardelli. Generally, we pay about once a week. So we 
pay down our incentives to our dealers once a week. So as they 
report the sale of the car, we will pay it.
    On the last one, on the wholesale costs, back to the credit 
situation, on your chart, sir, our floor planning costs have 
gone up a couple hundred basis points and some of the 
governance that has been put on our new conduit is that the 
dealers now have to pay their floor planning--in other words, 
they can have nothing on floor plan beyond a certain period of 
time. So these new restrictions have been imposed on these 
dealers as a result of the financial crisis. So in addition to 
your point that you have made about consumer availability to be 
able to buy a car or a dealer to order it, just what they have 
on the floor plan is going up and their ability to get access 
to order is not available. So we have this perfect storm, if 
you will----
    Chairman Dodd. I presume some of these banks that we 
provided this financial injections of cash are exactly the very 
institutions on whom you rely for the credit you are talking 
about.
    Mr. Nardelli. Those financial institutions provided the 
conduit to the Chrysler Financial Company, yes, sir.
    Chairman Dodd. Do the other two have comments? Mr. Wagoner?
    Mr. Wagoner. Yes. We pay dealer cash incentive with about a 
2-week delay, is the normal process we have been using for 
them.
    I would like to add a comment, though, that you were onto. 
Just if you look at one of the reasons why our cash needs are 
going up so much, or funding needs going up so much in the near 
term, it is exactly this issue that dealers, because they can't 
get as much credit, are having to reduce their wholesale 
inventories.
    And just, for example, in the month of January, our current 
estimate, which I think is optimistic, is that we will produce 
about 30 percent less vehicles than we did in January a year 
ago and it is possible that we could actually produce even more 
than 50 percent less. And part of that is to try to help 
dealers get their inventories down so they can have the 
possibility of surviving, given the tight credit for them.
    But it obviously drives huge cash needs at our level and I 
think it really makes your point that this whole system is very 
reliant on a reasonable flow of credit from consumer to dealer 
to manufacturer and also to supplier, as well. And so this 
tightness of credit certainly has hurt the financial industry 
and the housing industry, but the auto industry has 
traditionally been a huge relier on credit and we are seeing it 
play right through.
    Chairman Dodd. Before going to Ford, I raised this question 
2 weeks ago with you because obviously it would address some of 
the Treasury's concerns about they only presume to be 
interested where there was a systemic financial risk involved, 
and while we have talked about credit default swaps and what 
can happen here, which is a little complicated, people 
understand, but certainly that is there, this also relates very 
directly in my view to the systemic financial issue.
    That is why when I asked the question candidly, I didn't 
get a very good answer. I was trying to set it up a little bit 
so you could explain why this was, in fact, fell into the very 
category that Treasury is using for its rejection of utilizing 
the TARP authority, in a sense, and why I specifically gave 
them that authority, along with my colleagues, obviously, 2 
months ago to be able to respond to situations like this.
    Well, Ford, do you want to respond?
    Mr. Mulally. You bet. Senator Dodd, just on your last 
comment about the systemic risk, Goldman Sachs did a study and 
made an assessment of your very question and they came up with 
a trillion dollars----
    Chairman Dodd. Right.
    Mr. Mulally. ----following your systemic risk----
    Chairman Dodd. I think that was J.P.Morgan. Was it 
J.P.Morgan or was it----
    Mr. Mulally. I thought it was Goldman Sachs. But anyway, it 
is to your point. It validates it.
    Mr. Fleming, I think, really summarized the situation well 
with credit. In Ford's case, we are very unique in that our 
finance company, we finance nearly 77 percent of that floor 
plan that you have been talking about on the wholesale sales 
and it is a real competitive advantage for us. We haven't 
changed our policy on the payments that you described, but----
    Chairman Dodd. How often does Ford----
    Mr. Mulally. But back to the----
    Chairman Dodd. How often do you pay your----
    Mr. Mulally. Let me just check. I will have to get back to 
you on that, but I think that the really important point is 
that freeing up the credit is the most important thing we do, 
because that is where it starts, because they are on the front 
line with the consumer.
    Chairman Dodd. Thank you very much.
    Senator Corker.
    Senator Corker. Mr. Chairman, thank you.
    This hearing is ending, I realize, and this will be the 
last time that we talk about this before either action is taken 
or action is not taken. We have had a lot of involvement with 
all of you, and I have to tell you candidly, each of you are 
very likeable as human beings and I think have been very 
forthcoming in many, many ways. But this is not about 
personalities. This is about trying to solve a problem.
    And so Chairman Dodd has got to decide, it seems, as to 
whether he is going to try to pursue some legislation that has 
sort of broad-based bipartisan support or whether he is going 
to--he sees that that is not possible and he punts, or he with 
Senator Reed and others decide to punt and sort of throw it 
back to the administration to either do something through 
Treasury or maybe let Chairman Bernanke at the Fed do something 
through 13(3). So we are kind of at that point, it seems.
    The issue, it seems, is that there are lots of--there are a 
number of Republicans that would be willing to consider if you 
were all to go bankrupt through Chapter 11 reorganization, they 
would be willing to consider government money, debtor in 
possession financing, that has first priority, but this would 
be in new companies that had shed all the many problems that 
each of you have because of the histories of your companies.
    So what we have discussed today a little bit, and numbers 
of people have done it, is how do we get a scenario like that 
set up where the sense of survival is still there and that 
parties come to the table and are willing to negotiate in good 
faith? I think Dr. Zandi hit it on the head. I mean, it is 
really tough to keep people following a game plan, I learned, 
after the money has left your hands, OK. There is really no 
stick left for us to keep the discipline in place.
    And so there has been a discussion about maybe some amounts 
of money being put forth and something having to occur by March 
31. And so I am going to try it one more time. I know I didn't 
get very far this last time, but there are things that--you 
know, GM is the reason that we are here, in essence. There is 
no way we would be having these meetings if it weren't for 
General Motors. I think that is pretty much a fact. Ford, Alan, 
your parents didn't raise a fool. I mean, if you can come up 
here and get $9 billion worth of unsecured financing at 2.5 
percent, certainly you are going to come, and I applaud you for 
being here. But we are really here because of GM. Chrysler 
would have never been able to be here on their own, I don't 
think.
    And I applaud Senator Bennett's exchange with Mr. Nardelli 
and certainly Rick Wagoner regarding the consolidation. I would 
like to see that happen. I am a little bit remiss because I 
don't sit in your seats and I think to force that when we don't 
know the circumstances is a little bit problematic. But 
candidly, I have told Mr. Nardelli and I have told the board of 
Cerberus that I hope that is an outcome because our country 
cannot really deal with three separate U.S. auto makers. And I 
know that there are some synergies there.
    Let me clarify one thing. I got a frantic e-mail from 
Secretary Bodman, OK, and so I just--I know Sherrod Brown did a 
good job clarifying----
    Chairman Dodd. People are watching. That is good.
    [Laughter.]
    Senator Corker. He, in essence, sent your applications back 
asking for more information, OK. So I take that as a rejection. 
Maybe I was a little bit too harsh. But the fact is that under 
136, to receive funds, which you have all said are important to 
you, you have to be going entities. The Secretary has to 
certify, and this is pretty important, that each of you are 
going entities.
    Well, so I will go back to GM, which is why we are here, 
and again, I think you put forth a thoughtful plan, is you meet 
with people who follow you and invest in you. There are three 
things that basically cause you not to be a viable entity. As a 
matter of fact, we just got a quote while we were talking. In a 
5-year credit default swap right now in your companies, 
basically, it is predicting that GM will default on its loans, 
96 percent chance, OK, and Ford will default, 91 percent 
chance, and the large suppliers at 80 percent. So, I mean, you 
are really close to the end in most people's minds.
    There are three things that have kept GM, according to, I 
think, you and others, from being competitive. One is you have 
an unsustainable debt level. That has just occurred over time, 
and I realize we have had a pretty big peak to trough drop in 
cars sold, that it is unsustainable. And the fact is that all 
of you have got to be companies, in order to be successful, 
that whenever we get through doing whatever it is we might do, 
people are going to want to invest in you, right? I mean, that 
is the measure of a going concern. Will somebody else invest 
dollars in you?
    So reorganization is an interesting thing, because we know 
that going through that process, as painful as it is, you guys 
would come out without all the legacy stuff. To the dealers--I 
have had a lot of them calling in--probably a lot less dealers, 
and I am certainly not advocating that. That is just probably a 
fact of what would occur after bankruptcy. And the fact is, 
your cost structure would be far different.
    So I am going to try one more time, and I am going to ask 
Mr. Wagoner, if we put language in, and I know that we are 
somewhat paying attention here more so than we did I know the 
others, and probably because we didn't with the others, we are 
paying more attention with you--if we put something in--here is 
what is going to happen. If we put government dollars into 
General Motors, immediately, immediately, the day that money is 
deposited, your bond holders all of a sudden, instead of being 
willing to take 19 to 21 cents on the dollar, it is going to go 
way up because all of a sudden, we are in the game. And as 
Senator Bennett mentioned, we are patient and we print money 
here. I mean, there is no end to it, unfortunately. So that is 
a problem. That is a real problem.
    The bond holders, on the other hand, as I mentioned, are 
not going to take the kind of haircut they would unless Mr. 
Gettelfinger at UAW takes a bigger haircut, and Mr. 
Gettelfinger, you and I--I have to tell you, you have been an 
honest broker in this, too, in the way that you have talked 
with us and you have done a lot of things in the past, but the 
past is the past. We have got companies here that are about to 
go bankrupt and all of the contracts that you have negotiated, 
if they go bankrupt, are out the window, toast. It is over. All 
these VEBA arrangements, they are gone.
    So let me just ask of this as a reasonable thing to sort of 
put in place a bankruptcy-type situation where we would say 
that your bond holders would have to take 30 cents on the 
dollar, which is a 50 percent premium over where they are 
trading today, by March 31; that the UAW, and there are two 
representatives here that represent the folks in Tennessee and 
I have found them great to work with. The problem is that the 
rest of the citizens in our State and in Montana and in 
Connecticut and Utah, they have a tough time thinking about us 
loaning money to companies that are paying way, way above 
industry standard to workers while they are not getting paid 
that money. So in essence, they are subsidizing that through 
their taxpayer dollars.
    So my question would be, would it be reasonable to ask that 
the UAW by that time have agreed to pay scales that are 
equivalent to the transplants, and would it be reasonable that 
the UAW not just do away with the jobs bank, which is a 
situation where you continue to pay people whether they are 
working or not, but they also do away with the sub piece?
    Now, it is interesting sitting where I sit, because when 
labor comes in, they say, by the way, will you ask the 
companies this and make sure that they do that. And when the 
companies come in, they send me e-mails back saying, by the 
way, will you make sure that labor does away with these sub 
payments because they are worse by far than the job banks. They 
make us very, very uncompetitive.
    So again, if money goes out the door, we lose that 
leverage. It is over. The concern that Dr. Zandi has becomes 
real. It is never going to happen. There is no way the bond 
holders will do the things they need to do if they know the 
spigot is unlimited, and there is no way you can survive 
without a vastly changed capital structure.
    So if the Senate and the House were to say, we will forward 
the money to get you through March 31, period, and potentially 
more will come with a trustee, if your bond holders have gotten 
rid of their debt at 30 cents on the dollar, because if you 
bankrupt, it is toast, and if the UAW will get their wages 
rationalized to where we are paying exactly the same, not a 
penny more, to what the transplants are making, would that be 
something that you think would cause your companies to be where 
they need to be for the long haul? And by the way, I would add 
to that the VEBA payment of $21 billion is no small deal. That 
is a big deal. You can't pay that right now. That is not 
possible.
    So I would add to that that at least half of that would 
have to be equitized into the company to get the capital 
structure where almost every analyst in the world is looking at 
your company says you have to be to be that kind of going 
entity that would actually allow people to invest in you in the 
future, which is what you have got to have to be a successful 
company. Is that something that would be reasonable?
    Mr. Wagoner. Thanks, Senator Corker. I appreciate you 
taking so much time to look into our plan and meet with our 
people. It is helpful to have the conversations.
    The plan we submitted, which you know because we went 
through, I think tries to address exactly what you want, not as 
specific in the amounts, either vis-a-vis the VEBA or the bond 
holders, but frankly, your idea of advancing money and saying, 
if you don't have these buttoned up, and you are putting more 
terms on it than we were specific on by a certain date, it is 
over, conceptually is one that I think would be constructive. 
And I think, frankly, having our idea of then as we were 
calling it the Federal oversight board as a forcing mechanism 
to force all of the pieces to come together as a contingency 
for getting this significant amount of additional money is a 
valid one.
    I guess I am, frankly, a little reluctant to give a 
specific sort of set of parameters between Mr. Gettelfinger and 
I because there are a lot of levers that we can pull to get 
their costs down, and he indicated yesterday in his comments he 
is willing to work with us. I guess if we were given a target 
of the kind of savings from each bucket, I would prefer the 
opportunity to work with him on that and figure out what is the 
best way to do that.
    Senator Corker. And I realize that you have--let me put it 
a different way. If we put those stipulations in place and said 
that by March 31, either you met those stipulations, which are 
a lot like a bankruptcy proceeding, OK, a lot like it except 
you are not bankrupt, and we said that if you don't do that by 
March 31, you either have to pay us back 100 percent of the $10 
billion that would have been forwarded or immediately file 
Chapter 11, would you take our money?
    Mr. Wagoner. Yes, I would. I am taking your point to be 
that--and I really think it is consistent with what we filed 
here, that----
    Senator Corker. Well, you made a step in that direction, 
and I will say that we got on the phone after your proposal 
came out and sort of got back with all the analysts and they, 
too, said it was thoughtful and it was a step in the right 
direction, but that you couldn't be a going entity if that is 
all you did, OK.
    And so what I would like to do is to--I know that--here is 
the rub that is probably going to exist. Look, I was a card-
carrying union person in my earlier life and I was a trustee on 
a pension fund to make sure that people got good benefits and I 
prided myself in paying our employees above industry standard 
wages always. The problem is that you have this built-in 
problem that is not going to be solved unless it is forced to 
be solved, and there is no way that Mr. Gettelfinger, there is 
no way that he is going to sit down and do the things that he 
has to do to make you competitive unless he knows the end game 
is bankruptcy. He is not going to do it. It is not possible. He 
can't get his membership--it is not just that he is not the 
best there is at Dale Carnegie attributes, OK. He can't make it 
happen with his membership without that happening.
    So I would just say to the Chairman, I realize that we will 
have a partisan divide on some of these issues, but it sounds 
to me like everybody's senses, if you will, are pretty alive 
right now and are willing to do some things that might make 
sense for the company. Usually when the government says, ``We 
are here to help you,'' most people run away, and that is for a 
good reason. I actually see that a big stick by the government 
in this case could actually cause your company for the first 
time in modern history to have the tools and the leverage to 
actually do the things that will make you strong for the 
future, because the fact of the matter is you have to build a 
company that can do well during the troughs, right----
    Mr. Wagoner. Sure.
    Senator Corker. ----and that is not where you are, and then 
do really well during the peaks because they come every seven 
or 8 years.
    Now, let us move over to----
    Mr. Wagoner. Can I just make one comment, Senator?
    Senator Corker. OK.
    Mr. Wagoner. I agree with you, and I think what has played 
out here is we have sort of redefined the trough, because if 
you had asked me, and I suspect my colleagues, what is the 
probability of the U.S. industry running to 12 million, we 
would have said, boy, that sounds like a 1-percenter. So we are 
going through a painful process of redefining the trough. I 
think the opportunity is exactly as you indicate, OK, tough 
times, you have really got to get leaned down. And when, 
hopefully 1 day, the economy and the industry comes back, we 
can be a very profitable enterprise and fund the advanced 
technologies.
    Your point about--and I am not here to defend Mr. 
Gettelfinger and I am not even sure he wants me to, but I think 
you have to look at what has been done between the companies 
and the union over the last 3 years, and I don't necessarily 
draw the conclusion that we can't continue to work together to 
get that wage gap maybe with the same vehemence that you do. I 
do think I need to recognize the fact that Mr. Gettelfinger has 
done more to address competitiveness issues in the last 3 years 
than I suspect have been done, I don't know, in the last 30 or 
40. I just want to make sure that is fairly recognized.
    Chairman Dodd. I sense that. I really do. The problem is 
that with the industry, you are in a trending-down industry. 
Each of you are losing market share within that downward 
trending industry and you have got unsustainable balance 
sheets, and so this is a draconian kind of thing that has to 
occur. So let us move on.
    Ford, of course, I think would like to benefit from any of 
the negotiations that take place. I think they don't want to be 
left out. If, in fact, your contract changes, I think they 
probably want their contract to change.
    But let me move to Chrysler then. I know that while this is 
happening, you are going to be going to spas and getting 
facials and hopefully finding someone to marry you, OK, but in 
the interim----
    Mr. Nardelli. I have been married for 38 years. I am doing 
just fine.
    Senator Corker. I am talking about the company. So what is 
it that--what is the right thing to do as it relates to your 
company when the best thing for our country and the best thing 
for the automobile industry and the best thing for the 
wonderful employees that work at your company is for you all to 
go away as a stand-alone entity? So what, as we negotiate this 
deal, is the best thing for us to do?
    Mr. Nardelli. Well, if we use your suggestion, then the 
best thing, I think, for you to do and for the auto industry is 
to provide us the $4 billion that we said we needed to get us 
through March 31.
    Senator Corker. And you would agree to all of the things 
that just were said? I don't know what we would do about--your 
debt issue is very different, obviously----
    Mr. Nardelli. It is all secured----
    Senator Corker. Yes----
    Mr. Nardelli. ----and so it is much different than an 
unsecured. But this is the Committee that sets the rules, so if 
you have got the power to consolidate an industry, you have got 
the power to work on, I guess, secured debt.
    Senator Corker. OK. So your debt is all unsecured----
    Mr. Nardelli. Secured.
    Senator Corker. Secured. So the problem, the one last 
component that is very problematic is we don't have a way--GM 
has about $20 billion in unsecured debt, but candidly, the 
security we would have is kind of problematic. I mean, it is 
franchise. It is the kind of stuff that goes away when the 
company goes away, so there is not a lot to secure, is there? 
Is there much real estate to go with that?
    Mr. Wagoner. No, primarily trademarks and overseas 
subsidiaries, which frankly could have some value under certain 
circumstances.
    Senator Corker. Yes.
    Mr. Nardelli. So the point, Senator, is ours is secured and 
I think this Committee, who has oversight over lending and 
banking, would have a hell of a time if they just unilaterally 
reject that on any future financial company's putting money 
into a company and getting secured positions. But again, you 
guys have the power to make that go away, I guess.
    Senator Corker. Mr. Chairman, I thank you. I just want to 
say that, to me, making them equivalent to the transplants 
means all the things. It means sub. It means 50 percent on VEBA 
equitized. It means all those things. But certainly to me that 
is an interesting thing that apparently all three of these 
folks, and I don't know what Mr. Gettelfinger and Mr. Wagoner 
will talk about afterwards, but I think there is a potential 
here at least for some serious discussion. I thank you for the 
hearing and I thank all of you for participating.
    Chairman Dodd. Well, I thank you, Senator, and again, I am 
reading from an article here, and I presume you may have seen 
it, as well, just talking about that equivalency. The base 
wages between the Big Three and foreign companies are roughly 
comparable, with a veteran UAW member earning $28 an hour in 
the Big Three compared to about $25 an hour at Toyota's plant 
in Georgetown, Kentucky. Toyota pays less at other American 
factories. So there is some disparity, but there is a lot of 
comparability, too, I am told. Now, again, I am relying on some 
documentation here. I appreciate the point.
    Let me say to our guests here at our hearing that Senator 
Bob Corker, while a new member of the Senate and sitting in the 
seat I sat in not that many years ago at the very end of the 
table, works as hard as any Member of this Committee does to 
understand issues that come before us. And as the Chairman of 
this Committee, I am very grateful to him. He was invaluable 
back several months ago in working through issues that were 
tremendously complex and difficult. You are a workhorse and I 
am pleased to have you a part of this Committee, and your 
suggestions and ideas and always trying to figure out a way for 
us to get things done.
    This Committee doesn't function well on a partisan basis. 
In the 22 months I have been Chairman of it, we have never 
acted that way. On virtually every issue we come out of this 
Committee with, we try to seek consensus and work forward, and 
Bob Bennett falls into that category, as well, and most members 
here. My Democratic colleagues have been tremendously helpful. 
So I am very grateful to him and the rest of our colleagues.
    We have kept you here for 6 hours today. That is a long 
time, and I know you have got a full day tomorrow in the other 
body, in the House, to deal with these issues. Obviously, we 
have got some challenges in front of us over these coming days 
to figure out how to move forward.
    And while not predicting again a consensus here, I think 
you get a sense that all of us appreciate up here that inaction 
is unacceptable. I think that is a--obviously, I can't speak 
for everyone, but my sense is that that is how many of us feel. 
That is not an acceptable alternative. We also are not about to 
write a check and just hand it over. That is not going to 
happen, either, I promise you that.
    The question is, can we in the hours given us here do a lot 
of the things we have talked about today? Can we get some help, 
frankly, from the administration level, where, frankly, I am 
very disappointed that we didn't get participation today, that 
there has been a flat-out rejection of even stepping up with us 
to talk about this, that this falls all in our lap up here as 
Democrats and Republicans in the waning hours of a Congress 
with hours to go to try and answer this question, given the 
implications.
    I think most people concede it is probably the case, that 
if this were to collapse, to use your language, Dr. Zandi, it 
is a catastrophe, and I worry about that. Maybe history would 
prove us wrong, but that is a hell of a bet to make with one 
out of every ten jobs in this country and the implications if 
you are wrong here.
    And so we need to try and sit down over these next 24, 48 
hours or so and see what we can do to pull something together 
here to make some sense to allow us to get to a point where we 
can do a lot of the things we have talked about here today. And 
I take Bob Corker's point well. I realize you are right. When 
you start writing checks and then try to do something after the 
fact, it gets very hard. And to coin a phrase, nothing 
concentrates the mind like a death sentence and we are looking 
at a death sentence here if we don't respond intelligently and 
prudently.
    So I am very grateful to all of you. You have come back 
again, and obviously you needed to be here, given the reaction 
that people have. And I will make the point I made at the 
outset. Those of us here who helped write this emergency 
economic stabilization bill, in retrospect, I thought we gave 
the kind of accountability standards and so forth that would 
see prudent practices and I am disappointed, to put it mildly, 
we haven't seen a lot of that, but intend to make sure that 
those people are back before us here explaining why it is we 
are making some of these decisions without greater 
accountability. And I think those who said it earlier said it 
well.
    You are probably in a sense here paying a price because of 
how some of these other matters have been handled, and 
therefore we are sitting here demanding greater accountability 
and greater protections for taxpayers in the midst of all of 
this.
    So I plan as Chairman of the Committee, and I have talked 
to many members already, they are going to be here over the 
next day or two or three to meet with the leadership of the 
House and the Senate to see what possibly can be done here to 
address this. But as the Chairman of the Committee, I want to 
express my gratitude to all of you for coming out today and 
sharing your thoughts with us. And as has been said, these 
proposals, these plans were a giant step forward from where we 
were a couple of weeks ago, and obviously more needs to be 
done, but my intention as Chairman of this Committee is not to 
walk away from this. We are not going to leave town without 
trying. I am not a miracle worker, no one is here. But I am not 
going to pack a bag and leave and go back to Connecticut. I am 
going to stay here and try and get this done.
    So I thank all of you for being here and we look forward to 
your continuing cooperation and to work with us.
    The Committee will stand adjourned.
    [Whereupon, at 3:45 p.m., the hearing was adjourned.]
    [Prepared statements and response to written questions 
supplied for the record follow:]
             PREPARED STATEMENT OF SENATOR DANIEL K. AKAKA
    Mr. Chairman, thank you for conducting this hearing today. I am 
greatly concerned about the potential consequences of the collapse of 
the domestic automobile industry. With more than 730,000 workers 
employed in the automotive vehicle and parts industries, the financial 
condition of Chrysler, Ford, and General Motors is significant to our 
economy. These automakers are tied to suppliers, dealers, bondholders, 
and many others whose welfare is directly linked to their solvency.
    An auto industry collapse would be devastating, particularly during 
the current recession. However, we must make sure that the assistance 
is coupled with business practice changes that ensure the near and long 
term vitality of these companies. I look forward to continuing to work 
with you and the other Members of this Committee to bring about 
enactment of legislation that will help stabilize the financial 
condition of our domestic automakers. Thank you, Mr. Chairman.
                  PREPARED STATEMENT OF GENE L. DODARO
            Acting Comptroller General of the United States,
                    Government Accountability Office
                            December 4, 2008


























             PREPARED STATEMENT OF G. RICHARD WAGONER, JR.
                 Chairman and Chief Executive Officer,
                             General Motors
                            December 4, 2008
    Thank you, Mr. Chairman, I appreciate the opportunity to return to 
this Committee to speak about the urgent need for federal assistance 
for General Motors and the domestic auto industry. It's fair to say 
that last month's hearings were difficult for us, but we learned a lot. 
For sure, we took very seriously the concerns raised by the Members of 
this Committee, and that has accelerated a healthy internal review, and 
a lot of good discussion with our partners and stakeholders.
    It's no secret that GM, like our fellow domestic automakers, has 
struggled in the face of increased competition from foreign 
manufacturers with lower wage, healthcare, and benefit costs. We made 
decisions that were right for the times, collective bargaining 
agreements, investments in full-size trucks and SUVs that consumers 
wanted, and others. But we made mistakes, as well, such as failing to 
build sufficient flexibility into our operations, and not moving fast 
enough to invest in smaller, more fuel-efficient vehicles for the U.S. 
market.
    We have addressed these and many other issues in the plan for long-
term viability that we submitted to this Committee 2 days ago. Our plan 
demonstrates why GM needs temporary government funding, how it will be 
used, how we intend to repay the taxpayers, and why such funding is 
necessary for the company, and beneficial to the U.S. economy.
    Our plan dramatically accelerates and expands the restructuring 
that we've been driving in North America for the past several years. 
It's a blueprint for creating a new General Motors, one that is lean, 
profitable, self-sustaining, and fully committed to product excellence 
and technology leadership, especially in alternative propulsion.
    Key elements of our plan include:

    Increased production of hybrid, flex-fuel, and other fuel-
        efficient vehicles, and an increased commitment to new, energy-
        efficient technologies like those in the Chevy Volt.

    Significant changes to our market and retail operations, 
        including a reduction in brands, models, and retail outlets.

    Further manufacturing and structural cost reductions.

    Full labor cost competitiveness with foreign manufacturers 
        in the U.S. by no later than 2012.

    Significant capital restructuring involving our debt and 
        post-retirement healthcare obligations.

    Continued suspension of GM's common stock dividend for the 
        life of any federal loans associated with the plan.

    Changes in executive compensation. For example, I will 
        reduce my salary to $1, Board members have elected to reduce 
        their annual retainer to $1, and the next four most senior 
        officers will reduce their total cash compensation by about 50 
        percent in 2009.

    And as of this week, the cessation of all corporate 
        aircraft operations.

    These and other actions detailed in our plan affect everyone 
associated with GM, but we believe they're necessary to position the 
company for long-term success. And we believe this success is fully 
achievable, if we are able to weather the ongoing global financial 
crisis and the lowest per-capita U.S. vehicle sales in 50 years.
    Toward that end, our plan respectfully requests that the Federal 
Government make available $12 billion in short-term loans, along with a 
$6 billion line of credit in the event the current severe market 
downturn persists. Specifically, we're seeking an immediate loan of $4 
billion, and a second draw of up to $4 billion in January. Our intent 
is to begin to repay the loans as soon as 2011, and under baseline 
industry assumptions, fully repay them by 2012. And should GM share 
prices increase as a result of the plan, warrants issued as part of the 
loans would allow taxpayers to benefit.
    Our plan also proposes the creation of a Federal Oversight Board to 
help facilitate restructuring negotiations with a range of 
stakeholders. This Board would oversee the loans and restructuring 
plan, and protect taxpayer investments, in part by assuring that loans 
are made contingent on GM achieving its benchmarks.
    Let me close by noting that GM has been an important part of 
American culture for 100 years, and for most of that time, we've stood 
as the world's leading automaker. We're here today because we made 
mistakes. And we're here because forces beyond our control have pushed 
us to the brink. Most importantly, we're here because saving General 
Motors, and all this company represents, is a job worth doing.
    Thank you. I look forward to your questions.

                           EXECUTIVE SUMMARY

       General Motors Restructuring Plan For Long-Term Viability

Overview
    This Restructuring Plan is a blueprint for creating a new GM, one 
that is lean, profitable, self-sustaining and fully competitive. The 
Plan calls for:

    A dramatic shift in the company's U.S. portfolio, with 22 
        of 24 new vehicle launches in 2009-2012 being more fuel-
        efficient cars and crossovers

    Full compliance with the 2007 Energy Independence and 
        Security Act, and extensive investment in a wide array of 
        advanced propulsion technologies

    Reduction in brands, nameplates, and retail outlets, to 
        focus available resources and growth strategies on the 
        company's profitable operations

    Full labor cost competitiveness with foreign manufacturers 
        in the U.S. by no later than 2012

    Further manufacturing and structural cost reductions 
        through increased productivity and employment reductions

    Balance sheet restructuring and supplementing liquidity via 
        temporary Federal assistance
Temporary Federal Bridge Loans
    GM is seeking a term bridge loan facility from the Federal 
Government of $12 billion to cover operating requirements under a 
baseline forecast of 12 million U.S. industry vehicle sales for 2009. 
In addition, GM is seeking a revolving credit facility of $6 billion 
that could be drawn should severe industry conditions continue, 
resulting in sales of 10.5 million total vehicles in 2009.
    This bridge loan is expected to be fully repaid by 2012 under the 
baseline industry assumptions. Also, warrants issued as part of the 
loans would allow taxpayers to benefit from growth in the company's 
share price that might result from successful completion of the plan. 
GM anticipates an initial draw of $4 billion in December 2008 with the 
next draw of $8 billion by March 2009. Any draws would be conditioned 
on achieving specific restructuring benchmarks.
Product Portfolio and Fuel Efficiency
    While remaining a full-line manufacturer, GM will substantially 
change its product mix over the next 4 years, and launch predominately 
high mileage, energy-efficient cars and crossovers. In addition, the 
Chevy Volt, which can travel up to 40 miles on electricity alone, is 
scheduled for production in 2010, with other versions to follow.
    By 2012, more than half of GM vehicles will be flex-fuel capable, 
and the company will offer 15 hybrid models. GM will continue 
development of hydrogen fuel cell technology, which, when commercially 
deployed, will reduce automotive emissions to just water vapor. GM 
expects to become a significant creator of green jobs in the United 
States, as well helping suppliers and dealers transform the U.S. 
economy.
Market and Retail Operations
    In the U.S., GM will focus its product development and marketing 
efforts on four core brands - Chevrolet, Cadillac, Buick and GMC. 
Pontiac will be a specialty brand with reduced product offerings within 
the Buick-Pontiac-GMC channel. Hummer has recently been put under 
strategic review, which includes the possible sale of the brand, and GM 
will immediately undertake a strategic review of the Saab brand, and 
explore alternatives for the Saturn brand.
Manufacturing and Structural Costs
    GM will accelerate its current efforts to reduce manufacturing and 
structural costs, building on significant progress made over the past 
several years. With planned assembly plant consolidations, further 
productivity improvements in the plan, and additional changes to be 
negotiated, GM's wages and benefits for both current workers and new 
hires will be fully competitive with Toyota by 2012.
Balance Sheet Restructuring
    GM plans to engage current lenders, bond holders and its unions to 
significantly reduce the debt currently carried on its balance sheet. 
GM's plan would preserve the status of existing trade creditors and 
honor all outstanding warranty obligations to both dealers and 
consumers, in the U.S. and globally.
Compensation and Dividends
    The plan calls for shared sacrifice, including further reduction in 
the number of executives and total compensation paid to senior 
leadership. For example, the chairman and CEO will reduce his salary to 
$1 per year. The common stock dividend will remain suspended during the 
life of the loans.
Federal Oversight Board
    Given the importance and urgency of this restructuring for GM, 
other domestic manufacturers and the U.S. economy as a whole, the 
company supports the formation of a Federal oversight board. The board 
would help facilitate restructuring negotiations with a range of 
stakeholders.
Sustainability
    Once GM has completed the restructuring actions laid out in the 
plan, the company will be able to operate profitably at industry 
volumes between 12.5 and 13 million vehicles. This is substantially 
below the 17 million industry levels averaged over the last nine years, 
so it is considered to be a reasonably conservative assumption for 
gauging liquidity needs.
    The complete Plan is attached to this testimony. I look forward to 
working with your Committee on legislation that addresses the liquidity 
challenges facing GM and the auto industry.












































































                 PREPARED STATEMENT OF RON GETTELFINGER
                               President,
  International Union, United Automobile, Aerospace, and Agricultural 
                      Implement Workers of America
                            December 4, 2008
    Mr. Chairman, my name is Ron Gettelfinger. I am President of the 
International Union, United Automobile, Aerospace and Agricultural 
Implement Workers of America (UAW). The UAW represents one million 
active and retired members, many of whom work for or receive retirement 
benefits from the Detroit-based auto companies and auto parts suppliers 
across the United States. We welcome the opportunity to appear before 
this Committee to present our views on the state of the domestic 
automobile industry: Part II.
    The UAW believes the situation at GM, Ford, and Chrysler is 
extremely dire. As is evident from the materials which have been 
submitted by the companies in response to the letter from Speaker 
Pelosi and Majority Leader Reid, it is imperative that the federal 
government act this month to provide an emergency bridge loan to the 
domestic auto companies. Without such assistance, GM could run out of 
funds by the end of the year, and Chrysler soon thereafter. These 
companies would then be forced to liquidate, ceasing all business 
operations. The collapse of these companies would inevitably drag down 
numerous auto parts suppliers, which in turn could lead to the collapse 
of Ford.
    The UAW appreciates the desire by Congress, as expressed in the 
letter from Speaker Pelosi and Majority Leader Reid, to ensure that any 
assistance from the Federal Government is conditioned on strict 
accountability by the companies and a demonstration that they can be 
viable businesses in the future. We fully support both of these key 
principles.
    Specifically, the UAW supports conditioning any emergency bridge 
loan on strict accountability measures, including:

    tough limits on executive compensation, prohibiting golden 
        parachutes and other abuses, and making it clear that top 
        executives must share in any sacrifices;

    a prohibition on dividend payments by the companies;

    giving the federal government an equity stake in the 
        companies so that taxpayers are protected; and

    establishing an Advisory Board to oversee the operations of 
        the companies to ensure that all funds from the emergency 
        bridge loan are spent in the United States, that the companies 
        are pursuing viable restructuring plans, and that the companies 
        are meeting requirements to produce advanced, more fuel 
        efficient vehicles.

    We are prepared to work with Members of this Committee to 
incorporate other accountability requirements that may be appropriate.
    In addition, the UAW supports conditioning any emergency bridge 
loan on the companies pursuing restructuring plans that will ensure the 
viability of their operations in the coming years. For such 
restructuring plans to succeed, we recognize that all stakeholders--
equity and bondholders, suppliers, dealers, workers and retirees, and 
management--must come to the table and share in the sacrifices that 
will be needed.
    The UAW and the workers and retirees we represent are prepared to 
do our part to ensure that the companies can continue as viable 
operations. As indicated in our previous testimony, workers and 
retirees have already stepped forward and made enormous sacrifices.

    In 2005 the UAW reopened its contract mid-term and accepted 
        cuts in wages for active workers and health care benefits for 
        retirees.

    In the 2007 contract the UAW agreed to slash wages for new 
        workers by 50 percent to about $14 per hour, and to exclude new 
        workers from the traditional health care and pension plans. The 
        UAW also allowed the companies to outsource cleaning work at 
        even lower rates.

    Under the 2007 contract, beginning January 1, 2010, the 
        liabilities for health care for existing retirees will be 
        transferred from the companies to an independent VEBA fund. 
        Taken together, the changes in the 2005 and 2007 contract 
        reduced the companies' liabilities for retiree health care 
        benefits by 50 percent.

    As a result of the 2005 and 2007 contracts, workers have 
        not received any base wage increase since 2005 at GM and Ford, 
        and since 2006 at Chrysler. All of these workers will not 
        receive any increase through the end of the contract in 2011. 
        Workers have also accepted reductions in cost of living 
        adjustments.

    New local operating agreements at many facilities provided 
        dramatic flexibilities and reductions in classifications, and 
        have saved the companies billions of dollars.

    Reforms in the 2007 contract have largely eliminated the 
        jobs banks.

    Since 2003 downsizing by the companies has reduced their 
        workforce by 150,000, resulting in enormous savings for GM, 
        Ford, and Chrysler.

    Thanks to the changes in the 2005 and 2007 contracts, and changes 
that have subsequently been agreed to by the UAW, the labor cost gap 
with the foreign transplant operations will be largely or completely 
eliminated when the contracts 3 are fully implemented. Industry 
observers applauded the sacrifices made by workers and retirees, 
calling the 2007 contract a ``transformational'' agreement.
    The UAW is continuing to negotiate with the domestic auto companies 
on an ongoing basis over ways to make their operations more efficient 
and competitive. We recognize that the current crisis may require all 
stakeholders, including the workers and retirees, to make further 
sacrifices to ensure the future viability of the companies. We are 
willing to do our part. In particular, we recognize that the 
contributions owed by the companies to the retiree health care VEBA 
fund may need to be spread out. The UAW has retained outside experts to 
work with us on how this can be accomplished, while still protecting 
the retirees. We also recognize that adjustments may need to be made in 
other areas.
    But the UAW vigorously opposes any attempt to make workers and 
retirees the scapegoats and to make them shoulder the entire burden of 
any restructuring. Wages and benefits only make up 10 percent of the 
costs of the domestic auto companies. So the current difficulties 
facing the Detroit-based auto companies cannot be blamed on workers and 
retirees.
    Contrary to an often-repeated myth, UAW members at GM, Ford, and 
Chrysler are not paid $73 an hour. The truth is, wages for UAW members 
range from about $14 per hour for newly hired workers to $28 per hour 
for assemblers. The $73 an hour figure is outdated and inaccurate. It 
includes not only the costs of health care, pensions and other 
compensation for current workers, but also includes the costs of 
pensions and health care for all of the retired workers, spread out 
over the active workforce. Obviously, active workers do not receive any 
of this compensation, so it is simply not accurate to describe it as 
part of their ``earnings.'' Furthermore, as previously indicated, the 
overall labor costs at the Detroit-based auto companies were 
dramatically lowered by the changes in the 2005 and 2007 contracts, 
which largely or completely eliminated the gap with the foreign 
transplant operations.
    The UAW submits that it is not feasible for Congress to hammer out 
the details of a complete restructuring plan during the coming week. 
There is simply not enough time to work through the many difficult and 
complex issues associated with all of the key stakeholders, including 
equity and bondholders, suppliers, dealers, management, workers and 
retirees, as well as changes in the business operations of the 
companies.
    What Congress can and should do is to put in place a process that 
will require all of the stakeholders to participate in a restructuring 
of the companies outside of bankruptcy. This process should ensure that 
there is fairness in the sacrifices, and that the companies will be 
able to continue as viable business operations. This process can begin 
immediately under the supervision of the next administration. By doing 
this, Congress can make sure that the emergency assistance is indeed a 
bridge to a brighter future.
    Contrary to the assertions by some commentators, in the current 
environment a Chapter 11 reorganization--even a so-called ``pre-
packaged" bankruptcy--is simply not a viable option for restructuring 
the Detroit-based auto companies. As previously indicated, research has 
indicated that the public will not buy vehicles from a company in 
bankruptcy. It also is doubtful that the companies could obtain debtor-
in-possession financing to operate during a bankruptcy. In addition, 
attached to this testimony is a more detailed analysis prepared with 
the assistance of experienced bankruptcy practitioners explaining why a 
``pre-packaged'' bankruptcy is not a feasible option for the domestic 
auto companies because of the size and complexity of the issues that 
would necessarily be involved in any restructuring, including 
relationships with thousands of dealers and suppliers and major changes 
in business operations. Thus, the UAW wishes to underscore that any 
bankruptcy filings by the domestic auto companies at this time would 
inevitably lead to Chapter 7 liquidations and the cessation of all 
business operations.
    The collapse of the domestic auto companies would have disastrous 
consequences for millions of workers and retirees and for the entire 
country.

    Hundreds of thousands of workers would directly lose their 
        jobs at GM, Ford, and Chrysler, and a total of three million 
        workers would see their jobs eliminated at suppliers, 
        dealerships and the thousands of other businesses that depend 
        on the auto industry.

    One million retirees could lose part of their pension 
        benefits, and would also face the complete elimination of their 
        health insurance coverage, an especially harsh blow to the 40 
        percent who are younger than 65 and not yet eligible for 
        Medicare.

    The Pension Benefit Guarantee Corporation could be saddled 
        with enormous pension liabilities, jeopardizing its ability to 
        protect the pensions of millions of other workers and retirees. 
        To prevent this from happening, the federal government could be 
        forced to pay for a costly bailout of the PBGC. The federal 
        government would also be liable for a 65 percent health care 
        tax credit for pre-65 retirees from the auto companies, at a 
        cost of as much as $2 billion per year.

    Revenues to the Federal, State, and local governments would 
        drop sharply, forcing cuts in vital social services at a time 
        when they are urgently needed.

    The ripple effects from the collapse of the Detroit-based 
        auto companies would deal a serious blow to the entire economy, 
        making the current recession much deeper and longer.

    There also would be a serious negative impact on many 
        financial institutions that hold large amounts of debt from the 
        Detroit-based auto companies and their auto finance associates. 
        This could pose a systemic danger to our already weakened 
        financial sector.

    For all of these reasons, the UAW submits it is imperative that 
Congress and the Bush administration act next week to provide an 
emergency bridge loan to the Detroit-based auto companies. The 
consequences of inaction are simply too devastating; the economic and 
human toll are too costly.
    The UAW believes that the recent actions by the federal government 
to provide an enormous bailout to Citigroup reinforce the case for 
providing an emergency bridge loan to the Detroit-based auto companies. 
The total assistance provided to Citigroup will dwarf that being sought 
by the domestic auto companies. Citigroup received this assistance 
without being required to submit any ``plan'' for changing its 
operations or demonstrating its future viability. It was not required 
to change its management. And it is still able to continue paying 
bonuses and other forms of lucrative executive compensation.
    If the Federal Government can provide this type of blank check to 
Wall Street, the UAW submits that Main Street is no less deserving of 
assistance. Since the domestic auto companies have come forward with 
detailed plans relating to accountability and their future viability, 
there is simply no justification for withholding the emergency bridge 
loan that is necessary for them to continue operations.
    The UAW also notes that other governments around the world are 
actively considering programs to provide emergency assistance to their 
auto industries. In particular, the European Union is considering a $51 
billion loan program for automakers. And there are ongoing discussions 
with Germany, Great Britain, Sweden, Belgium, Poland, South Korea, 
China, and other nations about steps their governments can take to 
assist their auto industries. Clearly, other governments recognize the 
economic importance of maintaining their auto industries. The UAW 
submits that the economic importance of GM, Ford, and Chrysler to the 
U.S. economy is no less important and no less deserving of assistance.
    It is not enough, however, for the federal government to provide an 
emergency bridge loan to the Detroit-based auto companies, and to 
oversee and facilitate the restructuring of the companies. The 111th 
Congress and the Obama administration have a responsibility to pursue 
policies in a number of areas that will be critically important to the 
future viability of the domestic auto companies, as well as the well 
being of our entire nation.
    First, the UAW is very pleased that Congressional leaders and the 
Obama transition staff are already making plans to move forward quickly 
with a major economic stimulus package that will create jobs and give a 
boost to the entire economy. We believe this is urgently needed to 
prevent the economy from slipping into a deeper and more serious 
recession. This is particularly important for the auto sector. In order 
for the Detroit-based auto companies to succeed, it is vital that auto 
sales rebound from the record low levels we have seen in recent months. 
The single most important thing that can be done to increase auto sales 
is to reinvigorate the overall economy.
    Second, the UAW believes it is critically important that Congress 
and the Obama administration move forward quickly with plans to reform 
our broken health care system, and to put in place programs that will 
guarantee health insurance coverage for all Americans, contain costs, 
ensure quality of care, and establish more equitable financing 
mechanisms. In particular, we believe any health care reform initiative 
should include proposals to address the challenges associated with 
providing health care to the pre-Medicare population aged 55-65.
    There can be no doubt that one of the major financial challenges 
facing the Detroit-based auto companies in future years is the cost of 
providing health care to almost a million retirees. Although the 2005 
and 2007 contracts greatly reduced the companies' retiree health care 
liabilities, they are still enormous and a major problem that hinders 
the ability of the companies to obtain financing from private lenders.
    All of the other major auto producing nations have national health 
care systems that spread the costs of providing health care across 
their societies. As a result, the automakers in these countries are not 
burdened by retiree health care legacy costs. Accordingly, the UAW is 
hopeful that the enactment of national health care reform in the United 
States would help to establish a level playing field among all 
employers, and alleviate the retiree health care legacy costs facing 
the Detroit-based auto companies.
    Third, during the coming year Congress and the Obama administration 
are likely to consider major new initiatives dealing with energy 
security and climate change. The UAW strongly supports prompt action in 
both of these vital areas. Specifically, besides requiring automakers 
to comply with the tougher new fuel economy standards that were enacted 
in 2007, we believe Congress and the Obama administration should take 
steps to ensure that fuel economy improvements continue in the years 
following 2020, and that the companies move expeditiously to introduce 
advanced technology vehicles. In particular, we support an aggressive 
program to increase domestic production of plug-in hybrids and their 
key components, and to expand the infrastructure that will be needed to 
support these vehicles. To help achieve these objectives, Congress and 
the Obama administration should make sure that the Section 136 Advanced 
Technology Vehicles Manufacturing Incentive Program (ATVMIP) continues 
to be fully funded, and that additional resources are provided to 
ensure that production of advanced, more fuel efficient vehicles and 
their key components is ramped up quickly. In addition, the UAW 
strongly supports the enactment of an economy-wide cap-and-trade 
program to aggressively reduce emissions of greenhouse gases that are 
causing climate change.
    Although these initiatives pose challenges for the auto industry, 
the UAW also believes they can provide great opportunities. Properly 
structured, these initiatives can not only ensure that our nation 
reduces its consumption of oil and emissions of greenhouse gas 
emissions. They also can ensure that the more fuel efficient vehicles 
of the future and their key components are built in the United States 
by the domestic auto companies and American workers. In effect, these 
initiatives can be an important part of the restructuring that is 
necessary to ensure the future viability of the domestic auto 
companies.
    Fourth, Congress and the Obama administration must make sure that 
our nation's trade policies promote fair trade, not so-called ``free 
trade'' that fails to provide a level playing field and instead places 
our domestic automakers at a significant competitive disadvantage. In 
particular, prompt action needs to be taken to eliminate unfair 
currency manipulation by China and Japan. In addition, Congress and the 
Obama administration should insist that the U.S.-Korea free trade 
agreement must be renegotiated to require that Korea dismantle the non-
tariff barriers that have kept its market closed to U.S.-built 
automotive products, before it is granted any further access to the 
U.S. market.
    By pursuing all of these policies, Congress and the Obama 
administration can benefit our entire country. The UAW also believes 
that these policies can provide a basis under which a restructured 
domestic auto industry can remain viable and strong in the coming 
years.
    In conclusion, the UAW appreciates the opportunity to testify 
before this Committee on the state of the domestic automobile industry: 
Part II. We strongly urge this Committee and the entire Congress to act 
promptly to approve an emergency bridge loan to the Detroit-based auto 
companies to enable them to continue operations and to avoid the 
disastrous consequences that their liquidation would involve for 
millions of workers and retirees and for our entire Nation.
Pre-Packaged Bankruptcy Is Not the Path To Revitalize the Domestic Auto 
        Companies
    Some commentators have suggested a pre-packaged bankruptcy as an 
alternative to (or as part of) government-backed relief for the 
domestic auto companies. But the promoters have not explained how pre-
packaged bankruptcy procedures can be successfully brought to bear in a 
case with the complexity and scope of one or all of the Detroit-based 
auto companies. Indeed, bankruptcy experts are skeptical that pre-
packaged bankruptcy can work. As one noted business writer who has 
consulted with bankruptcy experts has concluded, ``it makes no sense.'' 
\1\
---------------------------------------------------------------------------
     \1\  Joe Nocera, ``Road Ahead Is Long for G.M.,'' The New York 
Times, November 22, 2008.
---------------------------------------------------------------------------
    In a pre-packaged bankruptcy, a company negotiates a financial 
restructuring with its major creditors outside of bankruptcy, lines up 
all or most of its major creditors in support of the proposed debt 
restructuring, and then uses the bankruptcy process to achieve a quick, 
consensual approval of its repayment plan. Any minority, dissenting 
creditors are out-voted by the pre-arranged majority support for the 
plan. Bankruptcy law permits pre-packaged deals as an efficient form of 
business restructuring.
    Pre-packs can work with financial restructurings, i.e., those that 
do not involve substantial operational issues. Where a company must 
restructure its balance sheet, but the business is otherwise sound, 
large creditors holding secured and unsecured debt are more likely to 
agree on the business fundamentals, and therefore more likely to reach 
a negotiated agreement on restructuring terms--for example, swapping 
debt for equity or extending debt maturities. But the domestic 
automobile manufacturers are in the midst of a much broader 
restructuring which is, to a large degree, operational. They are 
shifting their product mix; they are developing new-technology 
vehicles; and they are revamping their production locations. None of 
these issues can realistically be addressed in a pre-packaged 
bankruptcy, which is aimed at obtaining the consent of creditors to 
renegotiated terms on their financial debt instruments. Pre-packs were 
not intended for operational restructuring scenarios.
    In fact, no one has explained how the basic elements of a pre-
packaged bankruptcy can be achieved in the case of the domestic auto 
companies. Who are the debt holders, and can enough of them agree on 
negotiated terms? The New York Times reports that the domestic 
automakers owe more than $100 billion to banks and bondholders. The 
originating banks have probably syndicated, or sold off, pieces of the 
debt to others. Some $56 billion in new debt securities was reportedly 
issued to investors such as pension funds, insurancecompanies and hedge 
funds. \2\ For a pre-packaged bankruptcy to work--or even get 
organized--the lion's share of the outstanding debt holders need to be 
identified, agree to come to the table, and then agree on restructuring 
terms. This process would be a lengthy and expensive one, undertaken in 
an uncertain and weak economic environment.
---------------------------------------------------------------------------
     \2\  Zachary Kouwe and Louse Story, ``Big Three's Troubles May 
Touch Financial Sector,'' The New York Times, November 24, 2008.
---------------------------------------------------------------------------
    The same types of problems would exist for other claimants. The 
various creditors engaged in the process would likely want to see a 
business plan before negotiating restructured terms. Thus, the pre-
packaged bankruptcy would be the proverbial tail wagging the dog. 
Assumptions made by some proponents of a pre-pack about whether 
stakeholders will participate in a pre-packaged effort and what the 
likely outcomes would be are unsupported supposition. Also unanswered 
are questions about how a bankruptcy filing would deal with GMAC and 
the other auto finance entities or the companies' overseas operations.
    A pre-packaged bankruptcy could disintegrate into a regular, 
contested bankruptcy proceeding. First, the likelihood of obtaining the 
requisite consents is already challenged by the size, potential scope, 
and lack of transparency of the debt holders. Second, pre-packs must 
follow solicitation rules which are governed by securities laws, not 
bankruptcy law. The company would have to put together a solicitation 
that successfully navigates these rules. And, once in bankruptcy court, 
the efficient nature of the approval process would depend on sufficient 
compliance with the solicitation rules, and a sufficient supporting 
majority, to overcome challenges by dissenting creditors or others. If 
the approval process became prolonged, then the advantages of speed and 
efficiency would be lost.
    Pre-packaged bankruptcy would not eliminate the risks associated 
with a bankruptcy filing. It would not eliminate the threat of systemic 
risk resulting from the effects of a bankruptcy by one or all of the 
domestic automakers on the financial markets. \3\ Moreover, a pre-
packaged bankruptcy is still a bankruptcy as far as customers are 
concerned. The promoters have not explained how pre-packaged bankruptcy 
would allay the concerns of the majority of consumers who have said 
they would not buy an automobile from a company in bankruptcy. Given 
this consumer reaction, a bankruptcy filing by any one of the domestic 
automakers in the current environment is a dangerous ``bet the 
economy'' proposition.
---------------------------------------------------------------------------
     \3\  Zachary Kouwe and Louse Story, ``Big Three's Troubles May 
Touch Financial Sector,'' The New York Times, November 24, 2008.
---------------------------------------------------------------------------
    None of the elements of an auto industry restructuring require a 
bankruptcy proceeding. Restructuring milestones, repayment terms, 
taxpayer protections and other conditions of a loan can be established 
through legislation. Moreover, legislation can establish a process 
under which the actual restructuring of the domestic auto companies is 
supervised by the next administration. This can ensure that all 
stakeholders come to the table and share in the sacrifices that will be 
required, and that the domestic auto companies will be viable 
businesses after the restructuring is completed. In contrast, putting 
the fate of an auto industry restructuring in the hands of a bankruptcy 
court, even if a pre-packaged plan were realistically possible, would 
put narrow creditor interests ahead of all other stakeholders and ahead 
of important national concerns, including health care and pension 
policy, energy and transportation policy, and the negative effects of 
the economic downturn. These are interests that must be addressed and 
balanced by our elected government.
                                 ______
                                 
                 PREPARED STATEMENT OF ALAN R. MULALLY
                 President and Chief Executive Officer,
                           Ford Motor Company
                            December 4, 2008
    Mr. Chairman, Senator Shelby, and Members of the Committee. Thank 
you for the opportunity to share Ford's plan. We appreciate the valid 
concerns raised by Congress about the future viability of the industry. 
We hope that our submission and today's testimony will help instill 
confidence in Ford's commitment to change, including our accountability 
and shared sacrifice during this difficult economic period.
    On Tuesday, Ford Motor Company submitted to your Committee our 
comprehensive business plan, which details the company's path to 
profitability through an acceleration of our aggressive restructuring 
actions and the introduction of more high-quality, safe and fuel-
efficient vehicles-including a broader range of hybrid-electric 
vehicles and the introduction of advanced plug-in hybrids and full 
electric vehicles.
    In addition to our plan, we are also here today to request support 
for the industry. In the near-term, Ford does not require access to a 
government bridge loan. However, we request a credit line of $9 billion 
as a critical backstop or safeguard against worsening conditions as we 
drive transformational change in our company.
    One Plan: Beginning earlier this decade, we recognized the 
challenges the domestic auto industry faced and began implementing a 
disciplined global business plan to completely transform Ford, to 
improve our efficiency, cut costs and champion innovation. Our plan 
builds on the success we have seen in the past 2 years by accelerating 
the development of our new products that customers want and value. Our 
plan is anchored by four key priorities:

    Aggressively restructure to operate profitably at the 
        current demand and changing model mix;

    Accelerate development of new products our customers want 
        and value;

    Finance our plan and improve our balance sheet; and

    Work together effectively as one team, leveraging our 
        global assets.

    One Goal: Our team and plan is dedicated and focused on delivering 
profitable growth for all. While market, economic and business 
conditions recently have deteriorated worldwide at a rate never before 
seen, we have made substantial progress since we launched our plan in 
late 2006:

    We obtained financing by going to the markets in December 
        2006 to raise $23.5 billion in liquidity, consisting of $18.5 
        billion of senior secured debt and credit facilities, 
        substantially secured by all of our domestic assets, and $5 
        billion of unsecured convertible debt.

    We have implemented our strategy to simplify our brand 
        structure. As a result, we sold Aston Martin, Jaguar, Land 
        Rover and the majority of our ownership of Mazda, and we're 
        considering our options for Volvo. We have divested other non-
        core assets. These sales have also helped our overall liquidity 
        and generated $3.7 billion in additional capital to re-invest 
        in the business.

    To achieve maximum efficiency, we will have reduced our 
        North American operating costs by more than $5 billion between 
        year end 2005 and 2008.

    We have taken painful downsizing actions to match capacity 
        and market share in North America, including closing 17 plants 
        and downsizing by 12,000 salaried employees and 44,000 hourly 
        employees.

    Ford is committed to building a sustainable future for the benefit 
of all Americans, and we believe Ford is on the right path to achieve 
this vision. I know the Members of the Committee have had an 
opportunity to review our plans over the last 2 days, so I will 
highlight new details about Ford's future plans and forecasts:

    Ford's plan calls for an investment of approximately $14 
        billion in the U.S. on advanced technologies and products to 
        improve fuel efficiency during the next 7 years.

    Based on current business planning assumptions--including 
        U.S. industry sales for 2009, 2010, and 2011 of 12.5 million 
        units, 14.5 million units and 15.5 million units, 
        respectively--Ford expects both our overall and our North 
        American automotive business pre-tax results to be break even 
        or profitable in 2011.

    As part of a continuing focus on building the Ford brand, 
        we are exploring strategic options for Volvo Car Corporation, 
        including the possible sale of the Sweden-based premium 
        automaker. The strategic review is in line with a broad range 
        of actions we are taking to focus on the Ford brand and ensure 
        we have the resources to fund our plan. Since 2007, Ford has 
        sold Aston Martin, Jaguar, Land Rover, and the majority of its 
        stake in Mazda.

    Half of the Ford, Lincoln, and Mercury light-duty 
        nameplates by 2010 will qualify as ``Advanced Technology 
        Vehicles'' under the U.S. Energy Independence and Security 
        Act--increasing to 75 percent in 2011 and more than 90 percent 
        in 2014. We have included these projects in our application to 
        the Department of Energy for loans under that Act and we hope 
        to receive $5 billion in direct loans by 2011 to support Ford's 
        investment in advanced technologies and products.

    From our largest light duty trucks to our smallest cars, 
        Ford will improve the fuel economy of our fleet an average of 
        14 percent for 2009 models, 26 percent for 2012 models and 36 
        percent for 2015 models--compared with the fuel economy of its 
        2005 fleet. Overall, we expect to achieve cumulative gasoline 
        fuel savings from advanced technology vehicles of 16 billion 
        gallons from 2005 to 2015.

    Next month at the North American International Auto Show in 
        Detroit, we will discuss in detail Ford's accelerated vehicle 
        electrification plan, which includes bringing a family of 
        hybrids, plug-in hybrids and battery electric vehicles to 
        market by 2012. The work will include partnering with battery 
        and powertrain systems suppliers to deliver a full battery 
        electric vehicle (BEV) in a van-type vehicle for commercial 
        fleet use in 2010 and a BEV sedan in 2011. We will develop 
        these vehicles in a manner that enables it to reduce costs and 
        ultimately make BEVs more affordable for consumers.

    The 2007 UAW-Ford labor agreement resulted in significant 
        progress being made in reducing the company's total labor cost. 
        Given the present economic crisis and its impact upon the 
        automotive industry, however, we are presently engaged in 
        discussions with the UAW with the objective to further reduce 
        our cost structure and eliminate the remaining labor cost gap 
        that exists between Ford and the transplants.

    As previously announced, Ford plans two additional plant 
        closures this quarter and four additional plant closures 
        between 2009 and 2011. We have announced our intent to close or 
        sell what will be four remaining ACH plants. And we will 
        continue to aggressively match manufacturing capacity to real 
        demand.

    Ford will continue to work to reduce its dealer and 
        supplier base to increase efficiency and promote mutual 
        profitability. By year end, we estimate we will have 3,790 U.S. 
        dealers, a reduction of 606 dealers overall--or 14 percent from 
        year-end 2005--including a reduction of 16 percent in large 
        markets. In addition, Ford has been able to reduce the number 
        of production suppliers eligible for major sourcing from 3,400 
        in 2004 to approximately 1,600 today, a reduction of 53 
        percent. We eventually plan to further reduce the number of 
        suppliers eligible for major sourcing to 750.

    After reducing our workforce by 50 percent in just three 
        years, we are also canceling all bonuses and merit increases 
        for North America salaried employees--including top 
        management--in 2009. And should Ford need to access funds from 
        a potential government bridge loan, I will work for a salary of 
        $1 a year--as a sign of my confidence in the company's 
        transformation plan and future.

    We are moving ahead with plans we announced this summer to 
        leverage the company's global product strengths and bring more 
        small, fuel-efficient vehicles to the U.S. The plan includes 
        delivering best-in-class or among the best fuel economy with 
        every new vehicle introduced. We are also introducing industry-
        leading, fuel-saving EcoBoost engines and doubling the number 
        and volume of hybrid vehicles.

    This product acceleration will result in a balanced product 
        portfolio with a complete family of small, medium and large 
        cars, utilities and trucks. And we are increasing our 
        investment in cars and crossovers from approximately 60 percent 
        in 2007 to 80 percent of our total product investment in 2010.

    Our plan is working, but there is clearly more to do--something 
that is increasingly difficult in this tough economic climate. That is 
why we are seeking access to a $9 billion bridge loan, even though we 
hope to complete our transformation without accessing any of these 
funds.
    Despite the serious global economic downturn, Ford does not 
anticipate a liquidity crisis in 2009--barring a bankruptcy by one of 
our domestic competitors or a more severe economic downturn that would 
further cripple automotive sales and create additional cash challenges.
    In particular, the collapse of one or both of our domestic 
competitors would threaten Ford because we have 80 percent overlap in 
supplier networks and nearly 25 percent of Ford's top dealers also own 
GM and Chrysler franchises.
    The impact of a bankruptcy also reaches beyond Ford and the U.S. 
auto industry. It would cause further stress to our domestic banking 
industry and private retirement systems. Goldman Sachs estimates the 
impact at up to $1 trillion.
    We also believe effective restructuring involves a broader dialogue 
with all our stakeholders. President-elect Obama has indicated an 
interest in such a discussion. There are a number of complicated 
questions that will need to be considered, for example:

    How do we create a dealer body that meets market demand and 
        is profitable for all?

    How do we develop a healthy and viable supplier base?

    How do we work with the UAW to ensure that our cost 
        structure is competitive with the foreign transplants?

    How do we address the significant debt obligation of the 
        domestic industry?

    We are prepared to work together with this Committee and all of the 
parties to address these critical issues as part of our plan.
    Ford has a comprehensive transformation plan that will ensure our 
future viability--as evidenced by our profitability in the first 
quarter of 2008. While we clearly still have much more to do, I am more 
convinced than ever that we have the right plan that will create a 
viable Ford going forward and position us for profitable growth.
    Thank you.
                                 ______
                                 
                 PREPARED STATEMENT OF ROBERT NARDELLI
                 Chairman and Chief Executive Officer,
                              Chrysler LLC
                            December 4, 2008
    I appreciate the opportunity to represent the one million people 
who depend on Chrysler for their livelihoods. Before I answer your 
questions regarding our loan request, let me state clearly why we're 
here: Chrysler requests a $7 billion loan to bridge the current 
financial crisis.
    In exchange, Chrysler is committed to: continue our restructuring, 
including negotiating cost-saving concessions from all constituents; 
investing in fuel-efficient cars and trucks that people want to buy and 
beginning repayment of our government loan in 2012. I also want to 
reinforce the need for Chrysler Financial to receive immediate 
assistance from TARP--as its continued vitality is a critical 
assumption to our plan.
    Chrysler requires this loan to get back to our transformation that 
began just over 1 year ago. As a newly independent company in 2007, 
Chrysler was on track for financial profitability. Since August of 
2007, we have eliminated more than 1.2 million units, or 30 percent of 
our capacity. We reduced our fixed costs by $2.4 billion and separated 
more than 32,000 workers, including 5,000 on the Wednesday before 
Thanksgiving. And at the same time, we invested more than half a 
billion dollars in product improvements in our first 60 days, improved 
our J.D. Power quality scores and reduced our warranty claims by 29 
percent. As a result, through the first half of 2008, Chrysler met or 
exceeded its operating plan and ended the first half of the year with 
$9.4 billion in unrestricted cash.
    We are here because of the financial crisis that started in 2007 
and accelerated at the end of the second quarter of 2008. As consumer 
confidence fell and credit markets remained frozen, the lowest U.S. 
auto sales in more than 20 years put tremendous pressure on our cash 
position. U.S. industry sales fell from 17 million a year in 2007, to a 
monthly annualized rate of 10.5 million last month--a 6.5 million unit 
decline.
    What does that mean for Chrysler? At 10 percent market share, it 
translates to a loss of 650,000 vehicles, or roughly $16 billion in 
lost revenue opportunity. With such a huge hit to our sales and revenue 
base, Chrysler requires the loan to continue the restructuring and fund 
our product renaissance.
    Chrysler has a sound plan for financial viability that includes 
shared sacrifice from all constituents. We have identified 
approximately $4 billion of potential cost savings and improvements 
that have been included in our plan. We are committed to negotiate with 
all constituents to achieve our savings targets. Our plan also includes 
producing high-quality, fuel-efficient cars and trucks that people want 
to buy, while supporting our country's energy security and 
environmental sustainability goals.
    For the 2009 model year, 73 percent of our products will offer 
improved fuel economy compared with 2008 models. We plan on launching 
additional small, fuel-efficient vehicles. ENVI is our breakthrough 
family of all-electric and range-extended electric vehicles--similar to 
the one parked outside.
    Chrysler's long-range product plan is robust, realistic, and green. 
The plan features 24 major launches from 2009 through 2012. It includes 
a hybrid Ram truck and our first electric-drive vehicle in 2010 with 
three additional models by 2013.
    A key feature of Chrysler's future is our capability as an electric 
vehicle company. Through our GEM neighborhood electric vehicle 
division, Chrysler is the largest producer of electric-drive vehicles 
in the U.S. today. Combined with the new products from our ENVI group, 
we expect that 500,000 Chrysler electric-drive vehicles will be on the 
road by 2013.
    Chrysler will continue to aggressively pursue new business models 
that include alliances, partnerships and consolidations. This model is 
currently successful in helping Chrysler increase the efficient 
utilization of our manufacturing capacity. For example, in North 
America today, Chrysler manufactures all Volkswagen minivans, and 
beginning in 2011, we will produce all Nissan full-size trucks.
    With government collaboration, our industry can accelerate how 
America drives cutting-edge technology. An Automotive Energy Security 
Alliance would: coordinate public and private spending already devoted 
to advanced vehicle technologies; produce basic technology available to 
all manufacturers; work with national labs and major research 
universities and draw private investment to meet our national energy 
and environmental goals. Such an alliance would help ensure that as a 
country, we do not trade our current dependence on foreign oil for a 
future dependence on foreign technologies.
    I recognize that this is a significant amount of public money. 
However, we believe this is the least costly alternative considering 
the depth of the economic crisis and the options we face.
    Thank you.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
                 PREPARED STATEMENT OF JAMES T. FLEMING
                               President,
              Connecticut Automotive Retailers Association
                            December 4, 2008
    Chairman Dodd, Ranking Member Shelby, and Members of the Committee: 
My name is Jim Fleming. I am President of the Connecticut Automotive 
Retailers Association. We are comprised of approximately 300 members 
who collectively employ more than 14,000 people in jobs that pay good 
wages with benefits. Our dealer members are small businesspeople and 
entrepreneurs, many of whose families have been in the business for 
generations. Several of them are sitting behind me today. My testimony 
also reflects the views of the National Automobile Dealers Association 
and their 19,700 members.
    We very much appreciate the fact that you are seeking the retail 
dealer's perspective today on the important issue of assisting the 
domestic automobile industry. What you end up doing or not doing will 
have just as much impact on us as it will on the manufacturers. If they 
go under, so do we. It is that simple.
    You know how difficult times are--so do the small businesspeople 
that run the dealerships in this country. People are not coming into 
our showrooms and buying cars. Consumer confidence has evaporated. 
Sales are way, way down and dealerships are going under. In 2007, we 
had 325 new car dealerships in Connecticut. Now we have 300: a loss of 
25 dealers in one year. Nationwide, nearly 700 mostly family owned new 
car retail businesses have closed in the last 11 months--that equates 
to some 20,000 newly unemployed women and men. Last year in 
Connecticut, our employees totaled about 15,000 in good jobs with 
benefits and retirement plans: now it is 14,300, down 700. That 
reduction equals $23 million in lost payroll.
    Let me put a human face on this issue. Senator Dodd already knows 
this because he met with the small business people in Connecticut who 
run the dealerships. If you have not done the same, please do so before 
you vote on this issue. We are not Wall Street or Detroit: we are Main 
Street in East Hartford or New Britain, Connecticut. Let me give you 
just one example of what has been happening as our dealers head into 
this holiday season. A Connecticut dealer who sells domestic and 
foreign brands and has been in the Hartford area for three generations 
has told me the following:

    In the last month, thirty customers walked through his 
        doors and all were interested in purchasing a new car. 
        Normally, most of those customers would have qualified for 
        credit, but banks are so squeamish--they couldn't get financed. 
        Thirty sales were lost.

    The dealer had no alternative but to cut back. He has had 
        to lay-off 30 employees, fully 10 percent of his workforce. 
        That's $1 million in payroll lost to those workers and their 
        families. It's also a loss in revenue to the government of 
        $200,000 through payroll, Social Security and Medicare taxes 
        that now won't be paid.

    This dealer has also essentially wiped out his advertising 
        budget, slashing $1 million in that line item for the next 
        year. What will the Ad firm do? I think cut back as well. The 
        local newspapers, radio and television stations will feel those 
        cuts, and they, too, will cut back or lay-off employees as a 
        result. Auto advertising accounts for almost 35 percent of the 
        revenue to the local networks in our State. In many cases it is 
        now down to single digits.

    This dealer has also reduced his inventory, compounding the 
        problems that Detroit is having. He is buying fewer cars from 
        the manufacturers. That also means less in sales tax revenue to 
        the state in the future. I might add that we traditionally sell 
        $9 billion in vehicles in Connecticut, with the State receiving 
        hundreds of millions of dollars in sales tax revenue; car sales 
        alone account for 17 percent of the State sales tax. With fewer 
        vehicle sales, there is a ripple effect: fewer mechanics, fewer 
        orders for parts or tires, and fewer shipments of these parts 
        by FedEx or UPS.

    Members of the Committee, this is not a bailout bill for Detroit or 
Wall Street. This is about investing in the future of our small towns 
and businesses, in the economies and budgets of our State governments, 
and ultimately, in the overall welfare of our country.
    So, I guess the question is: will you help the industry? There are 
two possible answers to this, a ``no'' or a ``yes.'' Saying ``maybe'' 
really means ``no''--taking no action or allowing bankruptcy will have 
very real implications for the people who you represent back home. 
Members of the Committee: I served in public office for 28 years in 
Connecticut as a state senator and member of the Governor's cabinet. I 
know what it is like to cast tough votes and make difficult decisions. 
The right thing to do here is to provide the bridge loans to the 
manufacturers.If you say ``no,'' then here is the bottom-line: If GM, 
Ford, or Chrysler go bankrupt, our members who retail those cars will 
also go under. There is just no doubt in my mind about that. Most 
consumers will not buy a car made by a bankrupt company. The brand will 
be tainted and consumers will lack confidence that there is anyone 
standing behind the product or warranty. The retail dealership system 
for any bankrupt brand will collapse. Consumer choice will be 
drastically limited as to the choice of new automobiles and the 
distance needed to travel for service and warranty work will increase 
dramatically. Banks will not have confidence to deal with franchised 
dealers if the risk is too great or the rules are abruptly changed.
    If you say ``yes'' to some type of financing package for the 
manufacturers, it will give us time to ride out this economic tsunami. 
You are right to demand to know how the funds will be used and to 
assure accountability with public funds. James Madison said that ``if 
men were angels we would not need government''. Well men are not 
angels, so put their feet to the fire, and hold these gentlemen and 
their boards accountable; impose timelines, make sure the people's 
funds are properly handled, and push them to produce more efficient 
vehicles. The people I represent, the 300 dealers and their 14,000 
employees, will sell them to the public. But do the right thing here 
and support this legislation. A resurgence of the automobile industry 
is necessary for a recovery of the overall U.S. economy. So hold the 
industry accountable. But be sure that you leave a well-capitalized, 
financially sound dealer network in place, as it is essential to the 
success of every automobile manufacturer, especially a manufacturer 
facing economic challenges.
    Franchised dealerships are independent, mostly family-owned 
businesses, not the ``company owned'' stores that many other retail 
industries employ. As such, it is the dealer--and not the 
manufacturer--that invests in the land, buildings, equipment, 
computers, tools, personnel, training, advertising and promotions, and 
good will necessary to sell and service vehicles. Through these 
multimillion dollar dealer investments--$11.3 million per dealership on 
average--manufacturers are able to externalize virtually all of the 
costs associated with establishing and maintaining their national 
retail distribution network.
    A key element in preserving a strong dealer network is maintaining 
the current state franchise laws; stability in the automotive industry 
cannot be found by altering them. The pre-emption or suspension of 
State franchise laws would further threaten the economic stability of 
Main Street and further erode the national infrastructure essential to 
the recovery of troubled manufacturers. If the manufacturers are 
empowered to ignore these statutes, they will act precipitously to the 
detriment of the dealers and the local communities they support. The 
consequences of wholesale dealer terminations would include closed 
businesses, terminated employees, increased foreclosures, and idle real 
estate, thereby deepening the current recession and threatening even 
the dealerships that the manufacturers would designate for survival.
    Moreover, even in the absence of the this type of actual 
manufacturer abuse, any elimination or suspension of the State 
franchise laws would operate to increase the cost of the capital that 
is needed for the efficient distribution of vehicles. Dealer 
investments are premised on the existence of franchise law protections. 
If the franchise laws were not present to protect those investments, 
the investments would carry more risk. And that risk, in turn, would 
command a risk premium. Indeed, publicly traded auto retailers 
routinely disclose the possible repeal of State franchise laws as a 
risk factor in their public filings. If those laws were in fact to be 
removed, that risk would mature into a reality and the capital 
investment markets would respond accordingly. Existing capital would 
seek safer havens, and the cost of attracting new capital would rise. 
While this would be very visible in the public capital markets, the 
same phenomenon would play out in the private capital arena as private 
dealers made decisions where to place their resources. And these 
increased costs would have to be paid somewhere in the overall industry 
value chain. Thus, far from saving manufacturers anything, the removal 
of the State franchise laws would actually raise their costs of 
operation.
    Think carefully about the value that the dealer franchise network 
provides. Keep it healthy and intact. The American dealerships absorb 
massive costs to market, sell, finance, distribute and service the 
vehicles produced by the manufacturers. The buildings, service bays, 
the very signs on Main Street for GM, Chrysler, Jeep, and Ford are paid 
for by the dealers. The American public makes two big purchases--homes 
and cars. They want to eyeball the person who sells them a car, not 
some computer screen or massive corporate entity. When they have a 
problem they want to go to the local business and have it resolved.
    So what am I asking? Pass this legislation and do so soon. Help 
bring back consumer confidence in the automobile sector. You can play a 
major role in doing that by saying ``yes'' to an assistance package for 
the industry that will provide bridge loans for the domestic automobile 
manufacturers and includes elements to stimulate business on Main 
Street right now:

    Allow a temporary deduction of interest on consumer new 
        auto loans and of the sales taxes on new vehicle purchases. 
        Senators Mikulski and Bond have a bill, S. 3684, that would do 
        this and I urge its swift passage.

    Enact a temporary expansion of the definition of a ``small 
        business'' to provide dealers access to working capital through 
        Small Business Administration loan guarantees.

    Provide for a temporary, refundable consumer tax credit for 
        car and truck buyers.

    Fund state fleet modernization programs, often called 
        ``cash for clunkers'' where consumers are given a direct 
        incentive to upgrade older vehicles to more environmentally-
        friendly ones.

    Enact temporary increases in the expensing and depreciation 
        of business vehicle purchases.

    Finally, ensure that the recently announced TALF initiative 
        extends to floor planning loans or inventory financing for 
        retail dealers.

    Mr. Chairman, we appreciate the fact that you have included the 
retail automotive dealers in this discussion. I've just outlined 
specific steps that you could take that will help us ride out the 
current economic storm. The U.S. domestic auto industry hangs in the 
balance--and so do dealers and their local communities. Thank you.
                                 ______
                                 
                  PREPARED STATEMENT OF KEITH WANDELL
                               President,
                         Johnson Controls, Inc.
                            December 4, 2008
    Chairman Dodd, Senator Shelby, and Members of the Committee, thank 
you for the opportunity to provide testimony on the state of the 
domestic automotive industry. My name is Keith Wandell and I am 
President and Chief Operating Officer of Johnson Controls, Inc., a 
global multi-industry company with sales of $38 billion in 2008. 
Approximately 37 percent of our sales involve the supply of systems and 
services to improve the energy efficiency of nonresidential and 
residential buildings worldwide. We are also the largest supplier of 
batteries to the automotive aftermarket and original equipment 
manufacturers.
    In addition, Johnson Controls is the 7th largest automotive 
supplier in the world. We are the third largest supplier in North 
America behind Magna, a Canadian company, and Delphi, a U.S. company 
which has been in bankruptcy since 2005. Our global sales of seats and 
other interior products to the auto industry totaled $19 billion, $6.7 
billion of which are to the North American market. We supply every 
automaker with a presence in the U.S.: Chrysler, Ford, GM, Honda, 
Hyundai-Kia, Mazda, Mercedes, Mitsubishi, Nissan, and Toyota. Johnson 
Controls has 43,000 employees in the U.S. with operations in all 50 
States. Some 22,000 are employed in the States represented by the 
members of this Committee.
    While Johnson Controls is a key supplier to the global automotive 
industry we are an atypical automotive supplier. We are much larger and 
more diversified by product, geography, and markets. Being a supplier 
of interior systems, we are less capital intensive than many automotive 
suppliers. We are profitable, and we have a strong balance sheet. We 
do, however, share the same issues and concerns about the domestic 
automotive industry as those suppliers which are solely dedicated to 
the automotive market.
    A Detroit 3, failure would have dire economic ramifications for the 
vast interconnected supply chain of companies providing the parts and 
components which enable the U.S. automakers to assemble vehicles. Our 
main concern is that once cascading supply chain interruptions would 
begin, many suppliers will fail due to the interdependence of the 
supply chain, causing some companies to fail that could otherwise have 
continued operations. Many of the companies which would be impacted are 
small, women and minority-owned businesses.
    At Johnson Controls we are proud to have many joint-ventures/
partnerships and supply arrangements with women and minority-owned 
businesses. This year for the second time we were named ``Corporation 
of the Year'' by the National Minority Supplier Development Council, in 
part, in recognition of the $1.7 billion of goods and services we 
purchased from minority and female-owned business. I can assure you 
that each of the Detroit 3 is equally committed to the development of 
women and minority-owned businesses with a combined purchase of 
approximately $12 billion from such businesses in the last year. Should 
any one of the U.S. automakers suddenly fail, the vast majority of 
these businesses will fail and fail quickly.
    Let me share an example with you. Recently, a minority supplier to 
Johnson Controls, Plastech Engineered Products, failed and went into 
bankruptcy. This supplier had $800 million of revenue, shipped 6,200 
part numbers from 11,350 tool sets providing parts to 52 vehicle 
assembly plants, 121 vehicle lines and 12 customers: General Motors, 
Ford, Chrysler, Volkswagen, Mercedes, Honda, Toyota, Nissan, Hyundai-
Kia, AM General, Mazda, and Mitsubishi. Had Johnson Controls and the 
first-tier lending group not acquired Plastech's assets out of 
bankruptcy, assembled an operating team to manage the process, and 
provided bridge financing, the supplier would have been liquidated, and 
forced the shutdown of these 52 assembly plants to one degree or 
another for varying durations.
    A year ago approximately 20 percent of Johnson Controls automotive 
suppliers were financially distressed according to independent third 
parties. Since the rapid deterioration of industry volumes that number 
has grown to beyond 35 percent and continues to grow. Johnson Controls 
suppliers employ 100,000 people in the U.S. so you can understand how 
serious this situation has become.
    Should one of the Detroit 3 fail a significant number of supplier 
failures would occur and become unmanageable. These suppliers, in 
general, support all three automakers and many, like Plastech and 
Johnson Controls, also supply the Asian and European transplants in the 
U.S. I can assure you that even though Toyota, Nissan, Honda, and other 
foreign automakers are not here today, they too are deeply concerned 
about the viability of the U.S. supply base. The automotive suppliers 
are financially distressed due to reduced cash flows resulting from the 
recent volume reductions, they are experiencing higher borrowing costs 
and many cannot access the credit markets at all.
    None of us would disagree that major changes are needed in the 
North American automotive industry. This is obvious as shown in the 
plans submitted by the Detroit 3 for these hearings. It is in the best 
interest of all constituents that these changes occur in an orderly 
fashion which is unlikely if we allow even one of these companies to 
fail.
    It is extremely important that we have a sound, healthy and 
sustainable U.S.-owned automotive industry that is competitive 
globally. I do not believe that Americans want to yield an industry 
that impacts millions of jobs, invests billions of dollars in 
technology, and will help secure our energy independence through new, 
innovative, and environmentally friendly transportation. It is just as 
important that our domestic supply base is strong as it delivers 70 
percent of the value-added components of a vehicle and 40 percent of 
the research and development dollars spent.
    The plans that have been submitted address many of the issues that 
have been burdensome to the health of this industry: excess capacity, 
proliferation of brands, a sub-optimized dealer network and an 
uncompetitive cost structure. Given the opportunity to continue to 
address these challenges the Detroit 3 would be able to invest at an 
even greater rate to bring to market the consumer-desired fuel 
efficient, environmentally friendly vehicles.
    Our company is also a leader in helping to develop fuel efficient 
vehicles. In our automotive seating and interiors business we are 
constantly striving to reduce weight in our components to help increase 
fuel efficiency and to introduce recyclable and renewable materials 
into our products. We are also developing the next generation of 
battery systems for hybrid and plug-in electric vehicles, and we are 
working with the Detroit 3 to bring these environmentally favorable 
vehicles to market.
    I was also asked to comment on the potential impact of a Detroit 3 
failure on Johnson Controls. Earlier I said that we are diversified, 
profitable, and have a strong balance sheet. Unlike many automotive 
suppliers, we would weather this storm largely due to our strong non-
automotive businesses. A Detroit 3 failure would have a short/mid-term 
impact on our cash flow, access to capital and cost of borrowing. One 
of the bigger impacts would be the curtailment of our investments in 
new technologies in all of our businesses, including hybrid vehicle 
battery technology.
    The U.S. industry has a long and proud heritage; it has played a 
significant role in the development of this country's strong economic 
position in the world. Speaking for our company, and, I am sure for all 
auto parts suppliers, we respectfully urge the Members of this 
Committee, and the Congress as a whole, to provide the financial 
support the automakers need at this critical time. Each is on their own 
path to improve their performance and the fuel efficiency of the 
vehicles they produce. But their progress has been hampered by the 
current economic crisis which has tightened access to consumer credit 
and further eroded vehicle sales.
    To avoid drastic economic ramifications to the automotive industry 
supply chain, including hundreds of small and medium-sized businesses 
throughout the country, we hope the Congress will take positive action 
to assist this vital U.S. industry.
    Thank you for your attention.
                    PREPARED STATEMENT OF MARK ZANDI
                    Chief Economist and Co-Founder,
                          Moody's Economy.com
                            December 4, 2008


















               PREPARED STATEMENT OF ALLAN I. MENDELOWITZ
                   Member of the Board of Directors,
                     Federal Housing Finance Board
                            December 4, 2008
Summary
    The downturn in the fortunes of the Big Three automakers has led 
policy makers to revisit the 1979 Chrysler Loan Guarantee Act. The Act 
is widely viewed as a successful government intervention in a private 
company to achieve a public policy objective. In practice, the Act 
caused Chrysler to be reorganized outside of bankruptcy with the 
Federal Government providing the equivalent of ``debtor in possession'' 
(commonly referred to as DIP) financing.
    The public debate about the Federal Government's potential role in 
a rescue package for the Big Three has focused around two principle 
alternatives: (a) government loans to bridge the companies through 
necessary reorganizations and the economic downturn, and (b) 
reorganizing the companies under Chapter 11 of the bankruptcy laws. The 
purported choice between government loans and bankruptcy is, in fact, 
not a choice at all. A restructuring in bankruptcy would require tens 
of billions of dollars in short-term DIP financing to support 
operations. In today's financial markets, DIP financing is difficult to 
get--and at the levels of financing the Big Three will need--is 
probably impossible. Therefore, for bankruptcy to be a viable 
restructuring option, the Federal Government would need to play the 
role of DIP financier.
    Although often cited as a public policy success, the mechanics of 
the Chrysler Loan Guarantee Act are generally misunderstood. Rather 
than a single implementation of the loan guarantee program, there were, 
in fact, two distinctive Chrysler transactions: The first, which I 
refer to as Chrysler 1, gave Chrysler $800 million in loan guarantees 
in return for a modest restructuring of Chrysler's balance sheet and 
operations and granting the government a priority secured interest in 
all company assets. The second transaction, which I refer to as 
Chrysler 2, provided an additional $400 million of loan guarantees. In 
return for this second tranche of support, the Federal Government 
required the substantial restructuring of the company to which the 
success of the loan guarantee program is linked. The required 
restructuring was made possible only because of the leverage over all 
interested parties that the government gained by taking a priority 
security interest in all Chrysler assets as part of Chrysler 1.
    In addition to the financing structure, there were other key 
principals that made the Chrysler Loan Guarantee Act a success. 
However, one of the most important lessons learned from the Chrysler 
rescue is that if the decision is to grant funding outside of a 
bankruptcy reorganization, the Federal Government must take a priority 
security interest in the assets of the company prior to extending any 
loans or loan guarantees. Only then will the Federal Government have 
sufficient leverage to force a substantial restructuring to achieve the 
public policy objectives.
Statement
    Mr. Chairman and Members of the Committee:
    Thank you for inviting me to submit this statement for the record 
to supplement your hearing on this important matter. My name is Allan 
I. Mendelowitz, and while I currently serve on the Board of Directors 
of the Federal Housing Finance Board, I bring a special insight into 
the topic of today's hearing. I spent 1980 as the representative of the 
Comptroller General of the United States (one of the three voting 
members of the Chrysler Corporation Loan Guarantee Board) and as one of 
the principle government negotiators putting together the terms of the 
Chrysler loan guarantee. In fact, one of my accomplishments during that 
time is that I was directly and personally responsible for including as 
a condition of the loan guarantee, the warrants which earned the 
taxpayers more than $300 million. In addition, I spend the better part 
of two decades directing a substantial body of work on the automobile 
industry for the U.S. Congress.
    The downturn in the fortunes of the ``Big Three'' domestic 
automakers has led policy makers to revisit the ``Chrysler Corporation 
Loan Guarantee Act of 1979'' (Public Law 96-185 signed into law by 
President Carter on January 7, 1980) which is largely viewed as a 
successful government intervention in a private company to achieve a 
public policy objective. There are some similarities between the 1979-
80 Chrysler Corporation financial crisis and that of the Big Three 
today. Like 1979-80, there has been recent volatility in oil prices and 
the economy is in difficult circumstances. In addition, arguments made 
in 1979 in support of the Loan Guarantee Act are very similar to 
arguments made today, for example: (a) Chrysler could not be 
successfully reorganized under the bankruptcy laws because consumers 
would not buy cars from a bankrupt company, (b) bankruptcy would impose 
excessively high economic costs, including lost jobs etc., in a time of 
national economic difficulty, and (c) it would be cheaper for the 
Federal Government to bail out Chrysler than to bear the cost of its 
failure--unemployment insurance, lost tax revenue, etc.
    Despite the similarities, there are significant differences today 
relative to 1979-80. At that time, the government was dealing with one 
sick company in an otherwise healthy domestic industry. In addition, 
there was a credible business case for helping Chrysler. The company 
required financing for a 6 to 18 month time horizon, during which time 
the launch of the K-car would give the company a realistic shot at 
returning to profitability. Today, all of the Big Three are in 
financial trouble and face the very real prospect of bankruptcy. 
However, none of the Big Three can propose a short-term turn-around 
plan. For example, the Chevrolet Volt which may be an important vehicle 
10 years from now will be launched in two years at such low initial 
volumes and at such a high price, that it will not contribute to the 
financial turnaround of General Motors when it goes on sale. Success 
today will depend almost entirely on executing major restructurings of 
the companies.
    The public debate over the federal government's potential role in a 
rescue package for the Big Three has focused on two principle 
alternatives: (a) government loans to bridge the companies through 
necessary reorganizations and the economic downturn, and (b) 
reorganizing the companies under Chapter 11 of the bankruptcy laws. 
These options are presented as alternatives, but both in reality put 
the federal government in a similar position. The choice between 
government loans and bankruptcy is, in fact, not a choice at all. A 
restructuring in bankruptcy would require tens of billions of dollars 
in funding to support operations, commonly known as ``debtor in 
procession'' or DIP financing. In today's financial markets, any DIP 
financing is difficult to get--and at the levels of financing needed by 
the Big Three--is probably impossible. Therefore, for bankruptcy to be 
a viable restructuring option, the Federal Government must be ready to 
provide DIP financing.
    As a result, if there is a public policy decision that the domestic 
car industry should survive--the Federal Government's role will likely 
be the same no matter which action is taken. Whether providing loans to 
restructure the Big Three outside of bankruptcy, similar to the 
Chrysler Loan Guarantee Act, or DIP financing for reorganization under 
bankruptcy, the Federal Ggovernment will be acting as lender of last 
resort.
    The 1979 Chrysler Loan Guarantee Act is viewed as a successful 
government intervention in a private company to achieve a public policy 
objective: (a) Chrysler avoided bankruptcy, (b) with the introduction 
of more fuel-efficient cars and the minivan concept, Chrysler 
recovered, and (c) the Federal Government was well protected and well 
compensated for the loan guarantee. However, the mechanics of the loan 
guarantee program are generally misunderstood. Rather than a single 
Chrysler loan guarantee transaction, there were in fact, two 
distinctive Chrysler transactions: Chrysler 1 and Chrysler 2.
    Chrysler 1 was put together in the spring of 1980 when Chrysler was 
granted the first $800 million in loan guarantees. This was a partial 
``first step.'' However, there was one absolutely key provision. In 
return for the initial guarantees, the Federal Government took a 
priority security interest in every asset of the company including 
property, plant, equipment, inventory, work in progress, and even 
patents and trademarks. In fact, existing lenders with offset rights to 
compensating balances were required to cede those offset rights to the 
federal government. In the event of liquidation, the Federal Government 
held sufficient collateral to be made whole--and other creditors were 
likely to receive nothing. However, the company itself underwent a 
modest restructuring at most. For example, lenders did not forgive 
principle and continued to receive substantial interest payments.
    Chrysler 2 came about in the fall of 1980. At that point, Chrysler 
had burned through the first $800 million of federally guaranteed 
funding and came back for an additional $400 million in new guarantees. 
However, the original basis for granting the first $800 million was no 
longer credible to support this request. There had to be a new basis 
for extending additional guaranteed loans. As a result, in Chrysler 2, 
the government effected a reorganization of the company and its balance 
sheet in a way to justify extending additional funds. It was only in 
Chrysler 2 that the lenders gave significant debt forgiveness, i.e., 
$1.2 billion in loans were forgiven in exchange for payment of about 15 
cents on the dollar. Workers gave significant wage concessions, as well 
as changes in work rules and benefits. When Chrysler 2 was finished, 
the company looked more like it would have looked had it gone through a 
bankruptcy reorganization.
    The structuring of the loan guarantee tranches was a critical 
operational aspect of why the program succeeded. However, the ability 
to restructure the company in the Chrysler 2 transaction was a direct 
result of the key underlying principles that made the Chrysler Loan 
Guarantee Act a success. The key principles include:
    The Loan Guarantee Act had a clear public policy objective. In a 
market with a severe shortage of 4-cylinder fuel-efficient cars, the 
program set out to preserve the annual production capacity for three-
quarters of a million of such vehicles. In addition, the program 
avoided the bankruptcy of Chrysler that would have resulted in the loss 
of hundreds of thousands of manufacturing and ancillary service jobs 
(at Chrysler, its suppliers, its dealers, etc.) in a time of domestic 
economic weakness. Chrysler used the federally guaranteed funds to 
maintain development and launch production of a modern 4-cylinder fuel 
efficient car (the ``K-cars'') that was in high demand.
    Powerful independent board required to approve disbursement of 
funds. The Chrysler Corporation Loan Guarantee Board had three voting 
members: the Secretary of the Treasury, the Chairman of the Board of 
Governors of the Federal Reserve, and the Comptroller General of the 
United States. The makeup of the board insured that all decisions had a 
clear, credible, and transparent justification included in the 
transcripts of board meetings and in board reporting the U.S. Congress. 
There were no ad hoc or opaque decisions made by the Chrysler 
Corporation Loan Guarantee Board.
    The Federal Government had a reasonable assurance of repayment. The 
guarantees could only be provided if the Chrysler Corporation Loan 
Guarantee Board determined that there was a reasonable assurance of 
repayment. This determination was based on credible operating and 
financing plans, and the Federal Government taking a priority security 
interest in every asset of the company (valued at more than $2.5 
billion).
    Well-defined time frame and scope. Chrysler was offered up to $1.5 
billion of federal government loan guarantees for a maximum of 10 years 
subject to stringent conditions. In addition, no permanent government 
agency or permanent corporate entitlement was created.
    Government resources were used sparingly with no free riders. Built 
into the statute was the requirement that there be $2 dollars of 
contributions from interested parties for every $1 dollar of federally 
guaranteed loans. In addition, everyone who stood to gain from 
Chrysler's turnaround was required to contribute to the program: (a) 
existing lenders to Chrysler provided debt forgiveness, (b) Chrysler 
employees agreed to wage and benefit reductions, (c) states and 
localities where the company had plants contributed with additional 
loans, (d) Chrysler was forced to sell off all assets not central to 
the core automotive business including Chrysler Defense (that was a 
shareholder contribution) and, (e) executive salaries and perks were 
cut (Lee Iacocca worked for $1 a year and much to his chagrin, his 
Gulfstream executive jet had to be sold).
    Bad incentives and precedents were avoided. The stringent terms of 
the Chrysler loan guarantee were so onerous that no business--based on 
this precedent--would consider this program a desirable alternative to 
anything else. The program was truly a last resort.
    The Federal Government received the upside of success. In return 
for the loan guarantees, the Federal Government received expense 
reimbursement, guarantee fees, and warrants. When the Chrysler 
Corporation eventually recovered and paid-off the guaranteed loans in 
1984 (6 years early) the government sold the granted warrants for a 
profit of over $300 million.
    If the public policy decision is made--no matter what its form--to 
attempt to rescue the U.S. auto industry, the government is going to be 
involved as a lender either: (a) outside of bankruptcy like the 
Chrysler Loan Guarantee Act, or (b) as debtor in procession lender as 
part of a bankruptcy reorganization. Furthermore, no government 
assistance can succeed without substantial restructuring of the 
companies. If the government grants the requested billions in loans 
without a bankruptcy filing, the single most important condition 
precedent must be that the Federal Government takes a priority lien on 
all assets of the companies prior to the distribution of funds. This 
will give the government the necessary leverage to insure the proper 
restructuring of the companies. Given the claims by at least two of the 
companies that they need assistance before the end of the year, this 
condition is all the more important to assure that the money is used to 
support the public policy aim of restructuring the companies so that 
they return to profitability and become again competitive players in 
the automobile market.
RESPONSE TO WRITTEN QUESTIONS OF SENATORS BROWN AND TESTER FROM 
                         GENE L. DODARO

Q.1. Information for the record in response to questions 
regarding the state of the automakers' pensions and their 
potential impact on the Pension Benefit Guaranty Corporation 
(PBGC).

A.1. I have previously noted that the PBGC Director stated, in 
a November 28, 2008, Wall Street Journal interview, that the 
funding of the automakers' pensions is ``OK''; that is, the 
plans are likely not to require any contributions in 2009, and 
in some cases 2010, to meet the Employee Retirement Income 
Security Act of 1974 (ERISA) minimum funding standards. 
Additionally, the Director has noted that, in the event of an 
immediate reorganization, the plans may continue rather than 
being terminated. \1\ In a November 24, 2008, New York Times 
interview, the Director stated that ``we would maintain that it 
[GM] can afford to keep its plan intact,'' and that ``based on 
past history, we think that argument has a reasonable chance of 
success.''
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     \1\ For example, a number of auto parts suppliers in Chapter 11 
with collectively bargained pension plans have emerged from 
reorganization without terminating their pension plans.
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    For the future, however, the automaker pension plans pose 
considerable financial uncertainty to the PBGC. Current, 
detailed information that reflects the true financial health of 
the automakers' pension plans has not been made public. 
However, PBGC is very concerned about the future health of the 
automaker pension plans in light of the current problems facing 
U.S. financial markets and the current economic downturn. For 
example, automaker plans, like many others in the U.S., could 
experience significant losses in asset value that would impact 
plan financial health. The agency has also expressed concern 
that automaker ``attrition'' programs, which seek to 
restructure or reduce their workforces by offering severance 
and early retirement packages to current employees, could also 
undermine the state of the automakers' plans by creating large 
obligations on the pension plans that have not been funded. For 
example, in a recent letter to General Motors, PBGC noted that 
the obligations on recently-negotiated attrition programs alone 
have a present value of $5 billion.
    If the automakers' plans were to result in a distress 
termination, \2\ PBGC's accumulated deficit could increase 
dramatically from its current level of about $11 billion. The 
plans sponsored by the automakers represent a significant 
portion of the assets, liabilities, and participants in the 
defined benefit system. Although it is impossible to know what 
the exact claims to PBGC would be until it were to take over a 
plan, based on estimates of their current funded status, 
termination of the auto companies' plans could double the PBGC 
deficit from its September 30, 2008, level. Further, from an 
administrative standpoint, PBGC would be presented with an 
unprecedented number of assets to manage as well as benefit 
liabilities to administer. As I noted during questioning, we 
estimate that the automakers' plans include roughly 1.3 million 
participants, which would double the total number of PBGC's 
current or future beneficiaries.
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     \2\ Employers end a plan through a process called ``plan 
termination.'' If a plan has insufficient assets to meet the plan's 
accrued benefit promises through the purchase of annuities and if the 
sponsoring employer believes it is financially distressed it may apply 
for what is known as a distress termination. To do so, however, the 
employer must prove to a bankruptcy court or to PBGC that the employer 
cannot remain in business unless the plan is terminated. If the 
application is granted, PBGC will take over the plan as trustee and pay 
plan benefits, up to the legal limits, using plan assets and PBGC 
guarantee funds.
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    PBGC's prior experience with the termination of plans of 
financially troubled sponsors is not encouraging. In some of 
its larger terminations the financial condition of the plans 
was significantly worse than had been reported in their ERISA 
filings in the years shortly before plan termination. GAO has 
reported on the weakness in the funding rules in the past, \3\ 
and indeed the Pension Protection Act of 2006 (PPA) was 
intended to address these weaknesses and strengthen plan 
funding. However, it is not clear that the PPA contains the 
provisions that will in the end protect the PBGC from assuming 
rapidly deteriorating pension plans in the auto industry. The 
possible impact this could have on the PBGC should be a 
consideration in assessing federal financial assistance to the 
automakers.
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     \3\ GAO, Private Pensions: Recent Experiences of Large Defined 
Benefit Plans Illustrate Weaknesses in Funding Rules. GAO-05-294. 
Washington, DC: May 31, 2005.
