[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]


 
          RAMIFICATIONS OF AUTO INDUSTRY BANKRUPTCIES (PART I)

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

                                HEARING

                               BEFORE THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 21, 2009

                               __________

                           Serial No. 111-22

                               __________

         Printed for the use of the Committee on the Judiciary


      Available via the World Wide Web: http://judiciary.house.gov


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                       COMMITTEE ON THE JUDICIARY

                 JOHN CONYERS, Jr., Michigan, Chairman
HOWARD L. BERMAN, California         LAMAR SMITH, Texas
RICK BOUCHER, Virginia               F. JAMES SENSENBRENNER, Jr., 
JERROLD NADLER, New York                 Wisconsin
ROBERT C. ``BOBBY'' SCOTT, Virginia  HOWARD COBLE, North Carolina
MELVIN L. WATT, North Carolina       ELTON GALLEGLY, California
ZOE LOFGREN, California              BOB GOODLATTE, Virginia
SHEILA JACKSON LEE, Texas            DANIEL E. LUNGREN, California
MAXINE WATERS, California            DARRELL E. ISSA, California
WILLIAM D. DELAHUNT, Massachusetts   J. RANDY FORBES, Virginia
ROBERT WEXLER, Florida               STEVE KING, Iowa
STEVE COHEN, Tennessee               TRENT FRANKS, Arizona
HENRY C. ``HANK'' JOHNSON, Jr.,      LOUIE GOHMERT, Texas
  Georgia                            JIM JORDAN, Ohio
PEDRO PIERLUISI, Puerto Rico         TED POE, Texas
MIKE QUIGLEY, Illinois               JASON CHAFFETZ, Utah
LUIS V. GUTIERREZ, Illinois          TOM ROONEY, Florida
BRAD SHERMAN, California             GREGG HARPER, Mississippi
TAMMY BALDWIN, Wisconsin
CHARLES A. GONZALEZ, Texas
ANTHONY D. WEINER, New York
ADAM B. SCHIFF, California
LINDA T. SANCHEZ, California
DEBBIE WASSERMAN SCHULTZ, Florida
DANIEL MAFFEI, New York

       Perry Apelbaum, Majority Staff Director and Chief Counsel
      Sean McLaughlin, Minority Chief of Staff and General Counsel


                            C O N T E N T S

                              ----------                              

                              MAY 21, 2009

                                                                   Page

                           OPENING STATEMENTS

The Honorable John Conyers, Jr., a Representative in Congress 
  from the State of Michigan, and Chairman, Committee on the 
  Judiciary......................................................     1
The Honorable Lamar Smith, a Representative in Congress from the 
  State of Texas, and Ranking Member, Committee on the Judiciary.     2
The Honorable Steve Cohen, a Representative in Congress from the 
  State of Tennessee, and Member, Committee on the Judiciary.....     3
The Honorable Steve King, a Representative in Congress from the 
  State of Iowa, and Member, Committee on the Judiciary..........     4
The Honorable Daniel Maffei, a Representative in Congress from 
  the State of New York, and Member, Committee on the Judiciary..     5
The Honorable Brad Sherman, a Representative in Congress from the 
  State of California, and Member, Committee on the Judiciary....     7
The Honorable Darrell Issa, a Representative in Congress from the 
  State of California, and Member, Committee on the Judiciary....     7
The Honorable Howard Coble, a Representative in Congress from the 
  State of North Carolina, and Member, Committee on the Judiciary     7
The Honorable Sheila Jackson Lee, a Representative in Congress 
  from the State of Texas, and Member, Committee on the Judiciary     7

                               WITNESSES

Mr. Lynn M. LoPucki, Professor, Security Pacific Bank Professor 
  of Law, UCLA Law School
  Oral Testimony.................................................     8
  Prepared Statement.............................................    10
Mr. Damon Lester, President, National Association of Minority 
  Auto Dealers
  Oral Testimony.................................................    14
  Prepared Statement.............................................    15
Mr. Randolph B. Henderson, Jr., President, Henderson Automotive 
  Family, National Automobile Dealers Association
  Oral Testimony.................................................    18
  Prepared Statement.............................................    20
Mr. Andrew M. Grossman, Senior Legal Policy Analyst, The Heritage 
  Foundation
  Oral Testimony.................................................    22
  Prepared Statement.............................................    24
Mr. Bruce Fein, Principal, The Lichfield Group
  Oral Testimony.................................................    41
  Prepared Statement.............................................    42
Mr. Clarence M. Ditlow, Executive Director, Center for Auto 
  Safety
  Oral Testimony.................................................    43
  Prepared Statement.............................................    46
Mr. Ralph Nader, Consumer Advocate
  Oral Testimony.................................................    66
  Prepared Statement.............................................    67
Ms. Joan Claybrook, President Emeritus, Public Citizen
  Oral Testimony.................................................    70
  Prepared Statement.............................................    71
Mr. David A. Skeel, Professor, S. Samuel Arsht Professor of 
  Corporate Law, University of Pennsylvania Law School
  Oral Testimony.................................................    75
  Prepared Statement.............................................    77

                                APPENDIX
               Material Submitted for the Hearing Record

Prepared Statement of the Honorable Daniel Maffei, a 
  Representative in Congress from the State of New York, and 
  Member, Committee on the Judiciary.............................   111
Prepared Statement of the Honorable Trent Franks, a 
  Representative in Congress from the State of Arizona, and 
  Member, Committee on the Judiciary.............................   112
Prepared Statement of the Honorable Nick J. Rahall, II, a 
  Representative in Congress from the State of West Virginia.....   120
Material submitted by the Honorable Steve King, a Representative 
  in Congress from the State of Iowa, and Member, Committee on 
  the Judiciary..................................................   121
Letter to the Honorable Steven Rattner, Counselor to the 
  Secretary of the Treasury, submitted by the Honorable Daniel 
  Maffei, a Representative in Congress from the State of New 
  York, and Member, Committee on the Judiciary...................   166
Material submitted by Ralph Nader, Consumer Advocate.............   172
Prepared Statement of Jeremy Warriner, submitted by Joan 
  Claybrook......................................................   177


          RAMIFICATIONS OF AUTO INDUSTRY BANKRUPTCIES (PART I)

                              ----------                              


                         THURSDAY, MAY 21, 2009

                          House of Representatives,
                                Committee on the Judiciary,
                                                    Washington, DC.

    The Committee met, pursuant to notice, at 1:07 p.m., in 
room 2141, Rayburn House Office Building, the Honorable John 
Conyers, Jr. (Chairman of the Committee) presiding.
    Present: Representatives Conyers, Watt, Jackson Lee, 
Waters, Delahunt, Cohen, Johnson, Sherman, Maffei, Smith, 
Coble, Goodlatte, Issa, King, Gohmert, and Jordan.
    Staff Present: Danielle Brown, Majority Counsel; Susan 
Jensen, Majority Counsel; Daniel Flores, Minority Counsel; and 
Zachary Somers, Minority Counsel.
    Mr. Conyers. Good afternoon. The Committee will come to 
order.
    This oversight hearing is one of a series that the 
Judiciary Committee has held on business bankruptcy 
reorganization in this Congress and in prior Congresses. 
Today's hearing will consider a wide-ranging ripple effect and 
possibly unintended consequences presented by automobile 
industry bankruptcies. In particular, I want to focus on how 
various constituencies are being affected--the workers, the 
retirees, the auto dealers, the automobile owners and consumers 
in general.
    We have thousands of dealers, many of whom are small, 
family-run businesses, but have been passed sometimes from one 
generation to the next, being summarily terminated by Chrysler 
and General Motors. Some say it makes no economic sense to 
terminate these dealerships, and that doing so could actually 
undermine the ability of our Nation's auto industry to regain 
its financial stability.
    Customers are already anxious about whether their repair 
warranties will be honored. Now they will also have to worry 
about whether their local dealer will even be in business long 
enough to service their car, or whether they will have to drive 
a long distance to some other dealer--or whether they should 
just purchase their next auto from a foreign car dealer to have 
some assurance of continued service.
    The lack of consumer confidence in American cars is largely 
what drove this industry into bankruptcy. But what the industry 
now proposes to do to its dealerships may actually exacerbate 
the industry's financial difficulties by further undermining 
consumer confidence.
    So we need to consider the consequences of these 
bankruptcies on American workers and their families. Right now 
thousands of Americans are either losing their jobs or at risk 
of losing their jobs. And not just at GM and Chrysler, but also 
at the thousands of suppliers and other businesses directly or 
indirectly connected to the automobile industry in some way.
    In Detroit, the official unemployment rate is at an amazing 
22 percent, three times the national average; and the 
unofficial rate is assuredly even higher than that. In 
addition, many of the retirees may lose or have already lost 
their hard-won health and medical benefits as a result of these 
bankruptcies.
    Some of these costs will be shifted to budget-strained 
State and local governments. Witness California. Others will 
fall onto the already overburdened shoulders of the retirees 
and their families.
    Just the other day we learned that General Motors may close 
more than a dozen as yet undetermined plants, and shift 
production to Mexico, Korea, China and other foreign locations. 
This latest development is particularly egregious in light of 
the fact that American workers, as taxpayers, as loyal 
citizens, are being asked to bear the burden of funding General 
Motors financial reorganization, a process that now appears to 
be designed to either intentionally or unintentionally 
eliminate American jobs by shipping them overseas.
    We should consider how safety and legal accountability 
concerns will be affected by these bankruptcies. And so I am 
happy and proud that this Committee and those witnesses that we 
were able to assemble are here.
    I will insert the rest of my statement in the record and 
turn to our friend from Texas, the Ranking Minority Member 
Lamar Smith for his comments.
    Mr. Smith. Thank you, Mr. Chairman.
    The events the Nation has witnessed with Chrysler and 
General Motors are very troubling. An attorney for senior 
secured creditors of Chrysler has said, quote, ``One of my 
clients was directly threatened by the White House and, in 
essence, compelled to withdraw its opposition to the deal, 
under threat that the full force of the White House press corps 
would destroy its reputation if it continued to fight,'' end 
quote. For a brief moment, these creditors held firm refusing 
to hand over their property to the Administration and the 
United Auto Workers union. They stood their ground until the 
President himself demonized them on April 30th before the White 
House press corps. Seeing a threatened plan unfold before their 
eyes, they backed down. In short order, other 
dissonantcreditors went with them.
    Let's be clear about what is happening to America's 
automakers. Union labor costs priced these companies out of the 
market and drove them to the brink of bankruptcy. What is the 
President's proposed solution? Deliver the companies over a 
union ownership through bankruptcy.
    Poor management is said to have hastened the demise of 
these companies. So what was President Obama's solution? To 
sack the senior management and appoint himself CEO. Thanks to 
the Administration, GM now stands for Government Motors. That 
is my own line.
    While the UAW is cashing in, it is the dealers, creditors 
and the American taxpayers who are being forced to cash out. 
Secured creditors, pension funds for teachers, fire fighters 
and State workers, like the dealers, are being sacrificed to 
appease the demands of the UAW.
    And what has happened to the taxpayers' money? The 
Administration is now using taxpayer dollars to rescue UAW. 
What is worse, the money will be written off as a forgiven 
debt. The UAW gets the piggy bank and the American people won't 
see a dime.
    The Administration's handling of Chrysler and General 
Motors should give all Americans great concern. In Chrysler and 
GM the Administration is replacing CEOs and strong-arming 
senior secured creditors. Corporate bondholders are being asked 
to sacrifice their property rights to deliver companies into 
union hands.
    In the TARP program the Administration is giving billions 
to banks and refusing to let the banks pay them back. That is 
hijacking the banks. In the GM negotiations, billions of 
dollars in TARP aid appeared slated to be completely forgiven. 
Call it a gift on the taxpayers to the UAW, courtesy of 
President Obama.
    Mr. Chairman, today we have an opportunity to scrutinize 
the unprecedented actions that have brought us to this point 
with these two auto dealers, and I thank you for having this 
hearing.
    Mr. Conyers. Lamar, you always manage to get a zinger in 
there in the opening statements. Thank you.
    I would like to recognize Subcommittee Chair Steve Cohen of 
Memphis, Tennessee, for any comment that he would like to make.
    Mr. Cohen. Thank you, Mr. Chairman.
    There are few things as firmly woven into our fabric as a 
Nation and our customs as the automobile. Everybody wants to 
get a car when they turn 16, or soon thereafter, and learn how 
to drive. There are cars that inspire songs: Beach Boys' GTO 
and Little Deuce Coupe; the first rock and roll song ever, 
Jackie Brenston's Rocket 88; unfortunately, another company 
that didn't do good, My Little Nash Rambler, BP; Mustang Sally, 
Warren Zevon's Studebaker.
    You will notice, none of those songs are about Toyotas or 
Hondas or Isuzus. It is American cars. And American cars are a 
lot about what our country has been about and what we have 
defined ourselves as with our cars--which cars we drive and 
what we do.
    General Motors, Ford and Chrysler produced those cars and 
employed millions of Americans and been a great part of our 
engine. At one time it was said what is good for General Motors 
is good for the Nation. I am not sure we can say that today.
    They have employed many people, and they still do, and they 
continue to employ hundreds of thousands of people who work in 
the industry and for suppliers and at dealerships.
    U.S. Automakers support thousands of retirees who are 
concerned about losing their pensions and their health care, 
and we need to be concerned about how these people come out in 
this bankruptcy of Chrysler and possible bankruptcy of General 
Motors, for these people gave their lives and expected 
payments. There are literally tens, probably hundreds of 
thousands of individuals in this class.
    The automobile industry is important for many areas in our 
country's economy and historically in east Tennessee, far away 
from my home, but in my State, people went from east Tennessee 
to Anderson, Indiana, and places in Michigan to gain employment 
and have since returned to retire. But their retirements are in 
jeopardy.
    The American automakers have stumbled badly. Some blame 
President Obama for the situation. I had a lady call me last 
week who said, ``President Obama has closed the Chrysler 
dealership in South Haven; he doesn't know anything about how 
to run a car company.''
    Well, apparently the people that were running the car 
companies didn't know much either. They failed initially to 
respond seriously to the challenge from foreign competitors 
until after those competitors had established strong footholds 
in our country and taken over the marketplace with cars that 
had better fuel efficiency and better records as long-lasting 
and safe vehicles. They resisted fuel efficiency standards and 
resisted making fuel-efficient vehicles. Even last year there 
were folks coming to my district and opposing better fuel 
standards for our cars.
    While American automakers have made great strides in 
addressing some of these problems, they are suffering because 
of their past missteps. Now one American icon, Chrysler, is in 
already in bankruptcy. Another, GM, faces an imminent 
bankruptcy filing. And while I hope to learn more about the 
details of both companies' restructuring proposals, I am 
particularly interested in a few points based on my 
understanding of their proposals.
    I am concerned about reports indicating GM intends to shift 
a significant amount of its production out of the country while 
depending on American moneys to keep it going. I hope we don't 
end up subsidizing the shipping of American jobs to other 
countries.
    Additionally, I wonder about the fate of GM stockholders, 
particularly the retirees, who will end up with very little in 
their investments. And I wonder how Chapter 11 is going to 
affect these people, and if these experts could tell us what 
they think the old Chapter 11 would have been at addressing the 
concerns of the American automobile companies, the workers, the 
retirees that might be different from this new Chapter 11, 
because Chapter 11 is the bailiwick upon which my Committee is 
looking.
    So I thank Chairman Conyers for holding this important 
hearing on the actual and potential bankruptcies of these 
automobile giants. I thank our witnesses for making themselves 
available to testify on short notice. And I am eager to learn 
about their thoughts on Chapter 11 and the possible 
consequences to the American public of the bankruptcy of these 
two most heralded and traditional American companies.
    Thank you, Mr. Chairman.
    Mr. Conyers. You are welcome.
    Steve King, Iowa, is recognized for any comments he may 
choose to make.
    Mr. King. Thank you, Mr. Chairman. I very much appreciate 
being recognized. And I appreciate this hearing today. This is 
a subject matter the American people need to know about, and I 
am going to be very interested in the perspective that each of 
the witnesses brings before this Committee.
    What is on my mind is, how do we preserve free enterprise, 
how do we preserve the rights of property, the rights of 
contract, the rights of franchise? What is happening to the 
capital investment in America if it fears that it will be taken 
over by the Federal Government or some machinery that results 
in the same?
    As I look at the sequence of events, we passed, over my 
objection, the TARP funding last fall, the $780 billion. Some 
of that went to bail out investment companies; some of the 
investment companies were secured holders of collateral in 
Chrysler and in General Motors. Some of those investment 
companies were leveraged out of their position to force a 
Chapter 11 result, which would have been a better result for 
the secured creditors if that had been the case. But they were 
leveraged out of their position because they received TARP 
money. One after another they dropped out until only about 5 
percent of the secured creditors were left when they gave up 
their position and the shares that get proposed to be handed 
over to the unions rather than the secured creditors, which 
turns this collateral and property right upside down.
    While that is going on we have franchise holders across 
this country that are told you are out of business and we 
handed your neighbor your assets of maybe $1 million or 
multiple millions of dollars in values of these franchises.
    Now, the rights of property are essential to the vigor in 
the free enterprise system. And how this could unfold and we 
end up with companies that are run for the benefit of the 
people working for them rather than for the profit of the 
investors, it is anathema to me and my entire philosophy about 
how the economy in the United States of America should work.
    If you want somebody's business, go buy it. If you don't 
like that, then start your own business and compete. That is 
what has made America great. And those are some of the things 
that I hope come out in the hearing today. And I know there 
will be differing viewpoints on the panel.
    Mr. Chairman, I ask unanimous consent to enter into the 
record an objection filed in bankruptcy court in the Chrysler 
bankruptcy case. It is a group of Indiana State pension funds, 
and the objection is to the Obama administration's Chrysler 
bankruptcy plan. This brief I would ask unanimous consent to 
enter into the record.
    And, without objection, I would also be willing to yield 
back the balance of my time.
    Mr. Conyers. Without objection, so ordered.
    Mr. King. I would yield back and I thank the Chairman.
    Mr. Conyers. Let me yield for an introduction: Mr. Daniel 
Maffei, our distinguished colleague from New York.
    Mr. Maffei. Thank you, Mr. Chairman. I will not take more 
than a couple of minutes, but I do want to welcome a 
constituent of mine. He is one of the members of the panel, 
Randolph B. Henderson.
    Mr. Chairman, Mr. Henderson is one of the many dealers in 
my district that had stories that concerned me and prompted me 
to get together with a number of my colleagues and write a 
letter to the White House Auto Task Force. I would ask 
unanimous consent that that letter, along with my full opening 
statement, be submitted into the record.
    Mr. Conyers. Without objection, so ordered.
    Mr. Maffei. Thank you very much.
    Mr. Randolph Henderson, Randy Henderson, is the owner of 
Webster Chrysler Jeep in Webster, NY, which is just east of the 
city of Rochester. He has been selling Chryslers for 15 years, 
and in fact, in 1998, was named a five-star dealer.
    Before opening up the dealership in Rochester, he worked 
his way up in retail business. He is also very active in the 
community with his charitable work supporting many nonprofit 
organizations such as Action for a Better Community.
    Late last year Chrysler Financial froze Randy's floor line 
plan threatening his dealership. And now he is one of the 789 
affected dealers who were given just 3 weeks in the middle of 
this recession to close their doors after being notified that 
Chrysler was terminating his franchise agreement.
    So, Mr. Chairman, I do want to welcome particularly Mr. 
Henderson here to the Committee on the Judiciary.
    Very, very grateful that you would take the time to come, 
along with the rest of the panel. And I appreciate your story 
since it is so important to what we are doing.
    I yield back.
    Mr. Conyers. I thank the gentleman. We have a large panel, 
but it is a distinguished panel.
    We welcome Professor David Skeel from the University of 
Pennsylvania Law School; the redoubtable Ms. Joan Claybrook, 
President Emeritus of Public Citizen; consumer advocate, 
author, activist Ralph Nader; Clarence Ditlow, Treasurer, 
Executive Director of the Center For Auto Safety; the Honorable 
Bruce Fein, a principal in the Lichfield Group; Mr. Andrew 
Grossman, Senior Legal Policy Analyst of the Heritage 
Foundation--welcome; Mr. Randy Henderson, President of 
Henderson Automotive Family of the National Automobile Dealers 
Association; President Damon Lester of the National Association 
of Minority Auto Dealers; and Professor Lynn LoPucki, the 
Security Pacific Bank Professor of Law, UCLA Law School.
    Mr. Conyers. We will stand in recess until Sheila Jackson 
Lee of Houston, Texas, returns. And she will then commence the 
hearing while the rest of us finish voting.
    And so the Committee stands in recess.
    [Recess.]
    Ms. Jackson Lee [presiding]. Thank you for your patience. 
We are going to reconvene the hearing on the ramifications of 
auto industry bankruptcies. We have just completed our opening 
statements because we are very interested in the very important 
testimony that is coming forward. Would you allow me to yield 
to Mr. Watt, if he wanted to have 1 minute.
    Mr. Watt. I came to the hearing to hear the witnesses.
    Ms. Jackson Lee. Thank you.
    He yields back.
    Mr. Sherman.
    Mr. Sherman. Obviously, saving the auto industry is very 
important. At the same time, we have to make sure that all 
creditors are treated according to the law.
    I look forward to hearing how we can accomplish that and 
how we are not straining too far to help those creditors that 
these auto companies are going to need to do business with in 
the future, as opposed to those creditors who are not part of 
their future, but are part of their past.
    I yield back.
    Ms. Jackson Lee. I thank the Chairman very much.
    Mr. Issa. Madam Chairman.
    Ms. Jackson Lee. I thank Mr. Sherman very much. And I hear 
another voice seeking to be recognized. We are now 1 minute 
because of the witnesses and because we want to proceed.
    Mr. Issa of California.
    Mr. Issa. Madam Chair, I appreciate this opportunity to 
hear from such a panel of witnesses and to begin the process of 
reminding the entire world that we are a country of laws and 
that our bankruptcy laws and our contract sanctity matter. And 
I hope by the time we leave today that people far and wide will 
begin to realize that regardless of the actions of the 
executive branch, ultimately rule of law is paramount and must 
be obeyed.
    And certainly Chrysler seeking bankruptcy and the 
protection has never been more protection than it is now.
    I yield back.
    Ms. Jackson Lee. The gentleman has yielded back.
    I understand Mr. Coble would like to be recognized for 1 
minute.
    Mr. Coble. One minute. Thank you, Madam Chairman.
    I am just concerned about what cost benefit is realized by 
the factories in reducing the number of franchise dealers, 
number one. And what savings were realized by eliminating 
Chrysler dealers with a 30-day notice, as opposed to a 1-year 
notice.
    Those are two questions I would like to hear from.
    I yield back, Madam Chairman.
    Ms. Jackson Lee. I thank the Chairman, former Chairman very 
much. And let me take my 1 minute very briefly.
    I think the questions that have been raised by my 
colleagues are crucial; but I am here for one reason, and that 
is the lack of appreciation and understanding of the 
utilization of Chapter 11 and the negative impact and the 
seemingly pointed impact on automobile dealers and, in 
particular, minority automobile dealers. My concern is, how do 
you go into Chapter 11 and harm those who have been part of the 
infrastructure of your business? How do you go into Chapter 11, 
and before you even go in, you rid yourself of dealerships who 
have proven themselves to be financially worthy?
    I find it to be unacceptable, and I believe that even in 
this late time, as these companies are in bankruptcy, there 
should be an immediate legislative fix that we hope can be 
signed by the President that specifically designates and points 
out the automobile dealers who were, in essence, creditworthy 
doing their work, and with a particular focus on the minority 
automobile dealers that I believe have been both offended and 
certainly not defended.
    So I hope that there can be some guide even beyond the 
instructions that have been given by this government for 
Chrysler and GM to fix itself. Why then is the burden falling 
heavy on the heads of those in our community that are doing 
business and doing it right every single day?
    And I yield back.
    We will now start with Mr. LoPucki and we would appreciate 
the presenting of your testimony for 5 minutes. And we would 
ask that you revise your statement, or summarize your statement 
and we would be willing to submit the statement into the record 
in its full completion. Thank you.

TESTIMONY OF LYNN M. LoPUCKI, PROFESSOR, SECURITY PACIFIC BANK 
                 PROFESSOR LAW, UCLA LAW SCHOOL

    Mr. LoPucki. Thank you for the opportunity to be here.
    The United States bankruptcy courts have a progressive 
disease. That disease is forum shopping and competition for big 
cases.
    Chrysler is a Detroit company. So is General Motors. 
Chrysler has filed in New York, in the New York bankruptcy 
court, and GM will probably do the same.
    In the 1980's, this phenomenon, forum--this is called forum 
shopping, filing away from where the company is located--in the 
1980's, about 30 percent of large public companies forum 
shopped. The last time I addressed this subcommittee, in 2004, 
the number was 65 percent forum shopping, and today it is 75 
percent. Seventy percent of all the larger public bankruptcies 
in the United States are filed now in just two courts--Delaware 
and New York.
    The cases don't just come to those courts; the courts have 
to do something to attract the cases. The result is that 
Chapter 11 is evolving a bias, and it is a bias in favor of the 
people who control the choice of a court: the managers of the 
company, the professionals who represent the company, and 
whoever finances the bankruptcy. And here that is the United 
States.
    So the United States is, in the Chrysler case, the 
beneficiary of this bias.
    But every bias in favor of someone is a bias against 
someone else. And the people on the other side of this bias are 
the creditors, the suppliers, the employees, the landlords, the 
tax authorities, the dealers, the communities, literally 
hundreds of thousands of people. It is not a level playing 
field for the rest.
    I want to just give you two examples of this evolution. 
Chapter 11 takes about a year to 2 years if you go through the 
ordinary procedure. Managers want to get out more quickly, 
though. They would like to be out in 30 to 60 days, and there 
is a procedure whereby someone can do that. It is a 363 sale, a 
sale of the company. It is an exception for unusual cases, the 
unusual case being where there is a buyer for this company, 
where the company is actually being sold.
    Now, GM and Chrysler are presented in the form of a sale, 
but they are really reorganization plans. They shouldn't be 
approved by the court, but everybody knows that they will be 
approved. If the New York court did not approve the Chrysler 
case, the New York court would not get the GM case, it would go 
to Delaware instead. And once those two sales are approved, 
then a lot of future debtors are going to want to do the same 
thing--30 to 60-day bankruptcies, not the year to 2 years. And 
the courts will be unable to deny them because if one court 
says ``no'' to them, they will simply go to a different court.
    Now, the second example is professional fees. They have 
been increasing at the rate of 10 percent per year over a 
period of 10 years. I think that is higher than the rate of 
increase in health care costs. The effect is to drain funds 
that could have been used in the reorganization, could have 
made the company stronger. If a court tries, though, to control 
the fees, again it has no effect, because the cases will simply 
go to a different court that doesn't control the fees.
    So the system that has been set up by Congress for 
reviewing the fees has atrophied. The courts are simply 
ignoring the statutes and rules.
    We have documented this in a report. It was released a few 
weeks ago, and it contains--it is linked to all of the evidence 
out of the court files that these laws are being broken.
    The United States Trustee is the agency that monitors 
compliance with the fee control system. To date, they have had 
no comment on our report; and it is one of my hopes in coming 
here today that this Committee or some Member of this Committee 
will ask them for a comment.
    Thank you very much.
    Ms. Jackson Lee. Thank you very much for your testimony.
    [The prepared statement of Mr. LoPucki follows:]

                 Prepared Statement of Lynn M. LoPucki









                               __________

    Ms. Jackson Lee. We will now hear from Mr. Lester. Mr. 
Lester, I believe in your representation of the National 
Association of Minority Automobile Dealers you are joined by a 
number of members, which include Carl Barnett of Houston, Sam 
Wright, Alfred Glover, Warren Allen, Alan Moore, officers or 
principals in the organization, and many others. So we thank 
you for your presence. You, too, may submit your statement for 
the record and summarize your statement.

 TESTIMONY OF DAMON LESTER, PRESIDENT, NATIONAL ASSOCIATION OF 
                     MINORITY AUTO DEALERS

    Mr. Lester. Thank you, Madam Chairwoman.
    Again, my name is Damon Lester. I am the President of 
NAMAD, the National Association of Minority Automobile Dealers. 
NAMAD represents ethnic minority automobile dealers in the 
United States which--currently there are a total of 19,000 new 
automobile dealers of which less than 1,200 or 5 percent are 
owned by ethnic minority dealers in the United States.
    Since the auto bailout hearing last year and with the 
submission of both Chrysler and General Motors viability plans, 
it has been well documented by these manufacturers to either 
rationalize or reduce their dealer body by consolidation and 
brand elimination.
    In fact, dealerships are independently owned and 
independently financed franchises. They are the middleman 
between the manufacturer and the consumer, they represent the 
only distribution channel for manufacturer products, and they 
generate revenue for the manufacturers and are not an expense 
line item to the manufacturers. So using the excuse for 
consolidating and eliminating brands as a reason to save a 
manufacturer money is simply not true.
    Today's small dealerships throughout the U.S. are in a 
crisis and we need help now. The help needed is largely due to 
the lack of consumer confidence, the lack of confidence for 
retail credit, the lack of lender confidence to provide loans 
to automobile dealers for both working capital and floor plan 
loans even with government-backed loan guarantees. In fact, 
since our government provided working capital loans to 
automobile manufacturers, fair consideration should have also 
been given and needs to be given now to automobile dealerships 
via directly from the SBA, similar to what was done during the 
Carter administration in 1980.
    As the Chrysler bankruptcy filing and its announcement to 
terminate 789 dealerships in which these stores must close 
their doors by June 9, 2009, will result in over 40,000 direct 
dealership job losses, a projected loss of over $10 billion in 
local and State economic dealership contributions and 
employees, taxes, customer services, suppliers and charities, 
the bankruptcy filings will save Wall Street, but will tear 
down Main Street as many of these displaced employees do not 
have another option to seek employment quickly.
    For minority dealers, our representation has always been 
disproportionate compared to the entire dealer network. At our 
peak we have reached a maximum of over 2,000 dealerships in the 
United States, and today we are less than 1,200 with another 
reduction due to the Chrysler and General Motors terminations. 
This reduction in our dealer body will and has begun the 
elimination of wealth in the minority communities.
    The bankruptcy filing will allow Chrysler to evade the 
dealer franchise laws in various States. More importantly, the 
Federal statute intended to protect dealers in the Automobile 
Dealers Day in Court Act is negatively implicated by the recent 
filings. It is because of the filing that allows Chrysler and 
any other manufacturer that may file for bankruptcy to hide 
behind the Bankruptcy Code and the bankruptcy filing in order 
to terminate the dealer's franchise agreement and reduce its 
dealer body without providing reasonable and just compensation.
    Therefore, we request that Congress consider relieving the 
individual small dealers from personal liability as guarantors 
on floor plan and term loans. In addition, we believe that the 
small dealers should be allowed to keep the sales proceeds from 
the parts inventory, special tools and fixed assets to provide 
these dealers with a fresh start. Any financial institution 
that received TARP money, as well as captive finance companies 
such as Chrysler Financial, should take back their inventory 
and sell it themselves.
    Thank you.
    Ms. Jackson Lee. Let me thank you very much Mr. Lester for 
your testimony.
    [The prepared statement of Mr. Lester follows:]

                   Prepared Statement of Damon Lester







                               __________

    Ms. Jackson Lee. And, Mr. Henderson, as you address the 
Committee, allow me to acknowledge that I believe accompanying 
you today is Mr. Henry Ware, owner of the South Haven Pontiac-
Buick-GMC in South Haven, Mississippi, and the President of the 
General Motors Minority Dealers Association. We welcome him to 
the hearing. Would he raise his hand?
    Thank you very much. I just greeted you. Thank you very 
much.
    Mr. Henderson.

 TESTIMONY OF RANDOLPH B. HENDERSON, JR., PRESIDENT, HENDERSON 
   AUTOMOTIVE FAMILY, NATIONAL AUTOMOBILE DEALERS ASSOCIATION

    Mr. Henderson. Thank you Madam Chair. I am here today as a 
member of the National Automobile Dealers Association, the 
Chrysler Minority Dealers Association, the National Association 
of Minority Automobile Dealers, as well as----
    Ms. Jackson Lee. Mr. Henderson, would you please pull the 
mic closer and make sure your green light is on.
    Mr. Henderson. I am here today as a member of the National 
Automobile Dealers Association, the National Association of 
Minority Automobile Dealers, the Chrysler Minority Dealers 
Association; and as you indicated, I am accompanied by Mr. 
Ware, who is President of the General Motors Minority Dealers 
Association.
    I am also here to present the perspective of many of my 
fellow Chrysler and General Motors dealers across the Nation.
    We want to inform you of, one, the devastating impact of 
the Chrysler Corporation's bankruptcy and possible GM 
bankruptcy on the dealership body; two, the lack of 
transparency and the accountability in the taking of our 
properties and livelihood; and three, the disparate impact of 
the proposed dealership reductions on the minority dealer 
community and the communities in which they serve.
    I have been in the automotive retail area for 15 years--for 
27 years, the last 15 of which as a Chrysler corporation 
dealer, working my way up through the ranks and at one time 
employing over 130 people between three dealerships and 
generating annual revenues up to $85 million.
    My wife and I have donated hundreds of thousands of dollars 
over the years to our churches and community and have been an 
asset to Chrysler Corporation. However, the events that have 
developed around us recently have created an economic 
environment that is causing us financial ruin. Chrysler has 
slated my dealership franchise agreement and hundreds of others 
for termination through the rejection mechanism of the 
bankruptcy process.
    Over the last year, natural disasters, high gas prices and 
a drop in consumer spending made selling Chrysler vehicles very 
difficult. In spite of these factors, Chrysler told us we 
needed to order unneeded and unwanted vehicles to help to keep 
the plants going if we wanted to see the company survive. These 
very vehicles on June 9th could become a personal liability to 
many dealers.
    As you know, Chrysler filed for bankruptcy protection on 
August 30, 2009. There was a great deal of uncertainty among 
the dealer body because of no clear criteria regarding who 
would remain and who would not. On May 14th, Chrysler announced 
a list of 789 dealerships slated for termination. These 
businesses are slated for rejection and closure as Chrysler, 
Jeep or Dodge dealers on June 9th, and it creates challenges to 
some dealers as it relates to the Warren Act.
    Once our names were announced, we were inundated by the 
media, our employees went into shock and dealers saw 10, 30, 50 
years of hard work go down the drain; and the hardworking men 
and women that we employ, through no fault of their own, face 
the prospect of joblessness and inability to support their 
families.
    There has still been no clarity or clear criteria presented 
to us. There are dealers with identical profiles on both lists. 
There is no accountability, transparency or equity in the 
process by which the termination decisions are being made. 
Chrysler is not buying back vehicles, parts or special tools, 
and there is no right to appeal this decision within the 
company, yet the company has received billions of dollars in 
Federal loans and is currently receiving Federal taxpayer 
dollars.
    Because of Chrysler's action, Chrysler Financial has frozen 
many of our accounts. I am sad to say that many dealers are 
unable to even afford to retain individual legal representation 
to defend ourselves in this very expensive bankruptcy 
procedure. Deadlines to file individual objections to being 
rejected are approaching next week.
    For the 2,300 dealers on the assumed list, their survival 
is no less certain. They also could be moved to the rejection 
list.
    For minority dealers, the prospect of Chrysler's bankruptcy 
are tragic. Less than 5 percent of Chrysler's dealerships are 
minority owned, yet the Census Bureau reported last week that 
minorities make up 34 percent of the U.S. population. Out of 
Chrysler's 3,181 dealerships, minority business people own only 
158, yet Chrysler, in the first phase of its eliminations, 
plans to reject and thereby eliminate 24 percent of those 
minority dealers. By ethnicity, that is a 15 percent reduction 
for Hispanic dealers, 22 percent for Native American, 27 
percent for African American and 32 percent for Asian American 
dealers. The statistical evidence of disparate impact is hard 
to ignore.
    Similarly, the projected impact on the GM minority dealers 
is catastrophic as well. Out of General Motors' 6,000 
dealerships only 298 are owned by minority business dealers, 
representing less than 5 percent of the entire GM dealer 
network. It is estimated that 57 percent of the GM minority 
dealer body will be impacted by the Pontiac brand eliminations 
and the potential sale and spin-off of Saturn, Saab and Hummer 
franchises.
    The statistical evidence of disparate impact is hard to 
ignore. Moreover, given that Chrysler and General Motors are 
utilizing Federal funds, we believe there should be reasonable 
representation of minorities in this dealer body.
    In conclusion, I regret that I am here today on behalf of 
thousands of majority and minority business owners who face the 
prospect of financial ruin and the taking of their property 
without due process and fair compensation. This bankruptcy 
should not isolate Chrysler from accountability to this 
Judiciary Committee, dealers or consumers.
    I am proud to live in a country where I can call these 
hardworking small and large business people my friends and 
colleagues. We appeal to the leaders of this great Nation for 
direct intervention and assistance.
    Thank you, Ms. Chairman.
    Ms. Jackson Lee. Thank you very much, Mr. Henderson, for, 
as has been by the previous witnesses, very astute testimony.
    [The prepared statement of Mr. Henderson follows:]
            Prepared Statement of Randolph B. Henderson, Jr.
    Good morning Mr. Chairman, Congressman Smith, and members of the 
committee.
    I am here today at your invitation with Mr. Henry Ware, President 
of the General Motors Minority Dealers Association, and on behalf of 
the National Automobile Dealers Association, the Chrysler Minority 
Dealers Association and the National Association of Minority Automobile 
Dealers to present the perspective of many of our fellow Chrysler and 
General Motors Dealers across this nation. We want to inform you of 1) 
the devastating impact of the Chrysler Corporation's bankruptcy and 
possible GM bankruptcy on the dealership body; 2) the lack of 
transparency and accountability in the taking of our properties and 
livelihood; and 3) the disparate impact of the proposed dealership 
reductions on the minority dealer community.
    I am a Chrysler Jeep dealer in Webster, NY. Like many dealers, I 
grew up in the automobile business, started at the bottom by washing, 
gassing, and repairing cars, and then moved into the retail area for 27 
years, the last 15 of which as a Chrysler Corporation dealer. I have 
enjoyed the opportunity to strive for the American dream. Like many 
dealers, I have worked my way up through the ranks of the dealership 
world, competing on a national level, winning numerous awards, and 
employing over 130 people at one time between three dealerships and 
generating annual revenues of up to 85 million dollars. My wife and I 
have donated hundreds of thousands over the years to our churches and 
community and have been an asset to the Chrysler Corporation. However, 
the events that have developed around us recently, have created an 
economic environment where preventable circumstances are causing 
financial ruin. Chrysler has slated my dealership franchise agreement 
and hundreds of others for termination through the rejection mechanism 
of the bankruptcy process.
    This situation was not created overnight. It started with Chrysler 
strongly encouraging it's dealers to sell or purchase additional 
franchises as part of its consolidation plan--``the Genesis Plan'' and 
in many cases to also build new upgraded and expensive facilities. At a 
time when many challenges were arising in the market, lenders refused 
to assist many of us with our working capital needs. The financial 
sector froze and access to capital evaporated. In addition, Chrysler 
pressured dealers repeatedly during 2007 and 2008 to order additional 
new vehicles for our inventory to help the company even though we were 
unable to move the vehicles currently on our lots. Natural disasters, 
high gas prices and a drop in consumer spending because they were 
facing their own economic challenges, made selling Chrysler vehicles 
very difficult.
    Nonetheless, Chrysler told us we needed to help keep the plants 
going if we wanted to see the company survive. They sought federal 
financial assistance but did not provide any of those assistance funds 
to dealers despite the fact that at their request, we assisted them 
side by side in visits to capital hill to discuss the need for auto 
industry funding. Towards the end of the year, Chrysler Financial froze 
my floor plan lines in spite of the fact that we were and always had 
been current on our capital line, floor line, and mortgage payments to 
them and also denied us access to our working capital account deposits. 
Mine is not an isolated story, it has been repeated many times in the 
last several months all over the country. Chrysler has systematically 
used low working capital or low profits as the reason to shut down many 
dealers.

                          CHRYSLER BANKRUPTCY

    Then came the Bankruptcy--Chrysler filed bankruptcy on April 30, 
2009. There was a great deal of uncertainty among the dealer body 
because of no clear criteria regarding who would remain and who would 
not. On May 14, 2009, Chrysler announced the list of 789 dealerships 
slated for termination. These businesses are slated for rejection and 
closure as Chrysler, Jeep, or Dodge franchises on June 9th.
    Once our names were announced, we were inundated by the media, our 
employees went into shock, and dealers saw 10, 20, 40, 50 years of work 
go down the drain, the value of our assets disappeared and the 
hardworking men and women we employ, who through no fault of their own, 
faced the prospect of joblessness and the inability to support their 
families. Our sales have dropped or in some cases completely stopped. 
Customers are staying away because of the uncertainty regarding both 
the future of Chrysler and their local dealer.
    Why were we on the list? There has still been no clarity or clear 
criteria presented to us. There are dealers with identical profiles on 
both lists. There is no accountability, transparency or equity in the 
process by which the termination decisions are being made. Chrysler is 
not buying back vehicles, parts, or special tools and there is no right 
to appeal this decision with the company. Yet the company has received 
billions of dollars in federal loans and is currently receiving federal 
taxpayer dollars. What do the dealers receive? A few cents on the 
dollar, maybe. We have put our life savings into our businesses. 
Because of Chrysler's actions and the economy, we are cash poor and 
Chrysler Financial has frozen many of our accounts. I am sad to say 
that many dealers are unable to even afford to retain individual legal 
representation to defend ourselves in this very expensive bankruptcy 
proceeding. Deadlines to file individual objections to being rejected 
are approaching next week, but what can we do?
    For the 2300 dealers on the Assumed list, their survival is no less 
certain. They could be moved to the rejection list at Chrysler's whim. 
Even if they stay on the assumed list, many cannot afford the extensive 
facility upgrades and the working capital that Chrysler requires. 
Chrysler knows that with no access to capital in the private sector or 
direct aid from the federal government, these dealers will not be able 
to continue to operate in the current environment. As a dealer in Texas 
who is on the assumed list says, ``whether you will go away by 
rejection or attrition, you still go away.''

                            MINORITY DEALERS

    For minority dealers, the prospects of Chrysler's bankruptcy are 
tragic. Less than 5% of Chrysler's dealerships are minority owned. Yet 
the Census Bureau reported last week that minorities make up 34% of the 
U.S. Population. We drive cars, we help build the cars and we service 
the cars. We contribute to our communities and minority dealerships 
employ 50 people on average, both skilled and unskilled workers.
    Out of Chrysler's 3,181 dealerships, minority business people own 
only 158. Yet Chrysler, in the first phase of eliminations, plans to 
reject and thereby eliminate 24% of those minority dealers. By 
ethnicity, that is a 15% reduction for Hispanic dealers, 22% reduction 
for Native American dealers, 27% reduction for African American and 32% 
reduction for Asian American dealers. The statistical evidence of 
disparate impact is hard to ignore.
    Similarly, the projected impact on the GM minority dealers is 
catastrophic as well. Out of General Motors' 6,000 dealerships, only 
298 are owned by minority business people, representing a little less 
than 5% of the entire GM dealer network. While the actual number of 
ethnic minority dealers who received a franchise termination letter 
from General Motors last Friday is not yet confirmed, it is believed 
that a disproportionate number of those 1,124 dealers were ethnic 
minorities. Furthermore, it is estimated that 57% of the minority 
dealer body will be impacted by the Pontiac brand eliminations and 
potential sale or spin-off of the Saturn, Saab and Hummer franchises.
    The statistical evidence of disparate impact is hard to ignore. 
Moreover, given that Chrysler and General Motors are utilizing federal 
funds, there should be reasonable representation of minorities in its 
dealer body.

                               CONCLUSION

    In Conclusion, I regret that I am here today on behalf of thousands 
of majority and minority business owners who face the prospect of 
financial ruin and the taking of their property without due process and 
fair compensation. This bankruptcy should not isolate Chrysler from 
accountability to this Judiciary Committee, dealers or consumers. I am 
proud to live in a country where I can call these hardworking, small 
and large business people my friends and colleagues. We appeal to the 
leaders of this great nation for direct intervention and assistance. 
Thank you, Mr. Chairman and God Bless.
                               __________

    Ms. Jackson Lee. Mr. Andrew Grossman, you are recognized 
for 5 minutes. And you may summarize your statement and submit 
your entire statement into the record.
    Mr. Grossman.

 TESTIMONY OF ANDREW M. GROSSMAN, SENIOR LEGAL POLICY ANALYST, 
                    THE HERITAGE FOUNDATION

    Mr. Grossman. Good afternoon, and thank you for the 
opportunity to testify today.
    My name is Andrew Grossman, and I am Senior Legal Policy 
Analyst for The Heritage Foundation. My research there focuses 
on law and finance, economic regulation and the proper role of 
the government in structuring markets, and I will begin this 
hearing with the use of bankruptcy in the automotive sector, a 
subject on which I have published and spoken extensively.
    The testimony this afternoon concerns the very serious and 
negative consequences of the Obama administration scheme to 
evade the requirements of the bankruptcy system and reward a 
labor union at the expense of senior creditors.
    I have three points:
    First, this approach sacrifices the pragmatic discipline of 
a standard Chapter 11 reorganization, leaving both Chrysler and 
General Motors at a disadvantage;
    Second, the President besets risk-gutting bankruptcy law 
and facilitating corporate looting and freeze-outs; and
    Third, trampling senior lenders' contractual and property 
rights undermines the rule of law and threatens to do great 
damage to our economy.
    Contrary to the Administration's claims, these cases are 
not real bankruptcies. Instead, the Administration is abusing 
the Bankruptcy Code to grease the wheels of a massive automaker 
bailout. When this sort of sham transaction has been attempted 
by the private sector, the results have been close scrutiny by 
regulators and even prosecutions. Think Enron.
    My first point is that the scheming is counterproductive. 
Chapter 11, with its strict focus on maximizing the value of a 
business' assets, is designed to address the kind of deep-
seated, long-term problems that have plagued the automakers. 
Replacing Chapter 11 with a political process will impede the 
reforms that these companies need to be competitive. There is 
already evidence of this.
    For example, both Chrysler and General Motors have 
announced cuts to their dealer networks, an essential step. But 
the cuts are nowhere near as deep as industry veterans say are 
necessary, and this is probably due to politics. The result is 
that neither automaker will come close to achieving the 
efficiencies of Toyota's world-class distribution network.
    Another example is work rules. These Byzantine arrangements 
govern nearly every facet of automobile production at a major 
cost in terms of flexibility and efficiency. In its deal with 
Chrysler, the UAW did agree to simplify them a bit, a step in 
the right direction, but again, the gains are nowhere near what 
might have been had in a regular Chapter 11 case.
    This leaves Chrysler at a severe competitive disadvantage, 
and General Motors will probably suffer the same fate. The 
bottom line is that a regular Chapter 11 reorganization would 
have had better results than the Administration's bailout 
scheme.
    My second point is that the precedent set by the scheme 
puts our bankruptcy system at risk. Chapter 11, as crafted by 
Congress, works well to turn around troubled businesses. 
Research by Elizabeth Warren and others shows success rates of 
up to 72 percent for companies that were once on the verge of 
failure.
    The system is threatened when it is abused to steal from 
one party to give to another. That is exactly what happened in 
the case of Chrysler. Secured creditors holding super-safe debt 
were told to take a hike so that their assets, with some 
additional from the government added in, could be handed over 
to union control.
    This precedent will facilitate the looting of companies by 
insiders and the freezing out of investors. It is that 
dangerous.
    My third point is that trampling senior lenders' 
contractual and property rights undermines the rule of law and 
threatens grave damage to our economy. The rule of law means 
clear, generally applicable laws applied consistently by which 
individuals can organize their affairs. As James Madison 
explained in The Federalist, ``The rule of law is a 
prerequisite to due process and a protection against the 
arbitrary exercise of power,'' in other words, tyranny. Tossing 
aside well-established rights merely because they are 
inconvenient or expensive to the government strikes directly at 
the rule of law, and it will have consequences.
    Several are obvious. The automakers, of course, will have 
limited access to financial markets for years to come. When 
they are able to borrow, it will be expensive and on 
unfavorable terms. This will impede their recovery.
    More generally, unionizing industries will suffer a major 
blow. As one hedge fund manager explained this week, the 
obvious lesson of this episode is, don't lend money to a 
company with big legacy liabilities. That means unions. The 
automaker bailout will cost jobs in unionized industries.
    Finally, lending across the entire economy could be 
affected. Investor Warren Buffett has expressed this fear. 
Tinkering with the rule of law does not come cheap.
    I conclude with a recommendation. This episode of 
lawlessness began in Congress with the legislation that 
established the Troubled Asset Relief Program, or TARP, which 
has become the Administration's slush fund. Congress also has 
the power to put an end to these abuses by blocking future 
bailouts and beginning the slow process of unwinding those 
already made.
    Thank you for the opportunity to appear before you today. I 
stand ready to answer your questions.
    Ms. Jackson Lee. Thank you very much, Mr. Grossman.
    [The prepared statement of Mr. Grossman follows:]

                Prepared Statement of Andrew M. Grossman



































                               __________

    Ms. Jackson Lee. And now we recognize Mr. Fein, who is well 
familiar with this Committee. We thank you for coming again, 
and we ask you if you might summarize your statement and submit 
your entire statement into the record. You are recognized for 5 
minutes.

              TESTIMONY OF BRUCE FEIN, PRINCIPAL, 
                      THE LICHFIELD GROUP

    Mr. Fein. Thank you, Madam Chairman and Members of the 
Committee.
    I am here representing the Constitution of the United 
States. It is a document that you, of course, are all sworn to 
uphold and defend under Article VI, that has been viewed as 
quaint in recent years, I think much to the disadvantage of the 
rule of law and otherwise.
    And I am compelled to make this analogy, I think, hearing, 
I think, the consensus of the enormous impact the 
reorganizations of General Motors and Chrysler will have across 
the spectrum of the American economy, and the complaints about 
what the bankruptcy judges might be doing, what the executive 
branch is doing.
    And I recall a statement from Pogo in the 1970's, ``We have 
met the enemy and we are they,'' because the only reason why we 
are here complaining and worrying about bankruptcy judges and 
the executive branch is because this branch has given away all 
of the power without any guidelines whatsoever.
    Let's review exactly how we got to where we were through 
the delegation of power. It was this branch, through the TARP 
funds, that enabled the executives to utilize virtually 
unchanneled discretion to decide which businesses, which 
companies, would get money; which would not; what limitations 
would be placed on the money. There were no guidelines.
    And compared to the Supreme Court's invalidation of the 
National Recovery Act in Schechter Poultry, that statute was 
micromanagement compared to the TARP. And from there we go to 
bankruptcy.
    Well, bankruptcy judges serve for 14 years. They are 
appointed by courts of appeals, who also are appointed and 
serve life tenure. Where is the accountability to the 
bankruptcy judge, despite the fact that their decisions will 
have the enormous impact that you have described in your 
opening statements and the witnesses have described?
    The reason why the Founding Fathers entrusted legislative 
power to this branch was because you are politically 
accountable. Constituents have the ability to communicate 
directly, and you have to pay a price if you do something that 
turns out to be untoward.
    The Founding Fathers did not want platonic guardians 
sitting as bankruptcy judges, standing at the commanding 
heights of the economy, doing whatever they wanted and if it 
turned out wrong, that is too bad. Who is going to go pick at a 
bankruptcy judge? You can't have the response that the 
democratic process anticipates.
    And this is not an impractical suggestion that this branch 
should be deciding the fate of Chrysler and General Motors or 
other big companies. When the railroad industry was in peril, 
and I remember--I am sure Chairman Conyers remembers--that in 
the 1970's, Amtrak was established to take over the passenger 
service, out of bankruptcy, and it was a statute that enacted 
Amtrak.
    Conrail ended up taking over the freight rail service, and 
it was this branch that enacted the Conrail statute. It was 
called the Regional Railroad Reorganization Act of 1973, and it 
was this branch that privatized Conrail. They said, well, it is 
just too complex, it will be too lengthy a bill.
    Well I remember testifying and you voting on the World 
Trade Organization, over 1,000 pages long. I think ERISA was 
the one statute that no one had read completely, it was so 
long. So there are clear precedents for this branch enacting 
very complicated statutes and taking the accountability that 
the Constitution anticipates.
    Moreover, there are serious other constitutional questions 
than the unconstitutional delegation at issue here, and they 
have been raised with regard to the contracts clause. The 
bankruptcy laws basically endow unelected officials the 
authority to void executory contracts involving hundreds of 
thousands of persons, whether retirees, employees, dealers or 
otherwise. That is a very, very alarming power to delegate to 
someone who sits for 14 years because the court of appeals 
appointed him there. More reason than otherwise why it should 
be this branch should be taking that review process. That 
doesn't mean that ultimately this legislation that you would 
enact would be subject to judicial review, but every branch of 
government has the obligation to uphold and defend the 
Constitution of the United States, not just the bankruptcy 
courts.
    And I am worried seeing a broad spectrum of problems this 
country confronts of the repeated effort by this branch to 
yield to the executive branch all the important decision-making 
power, whether it is war and peace, whether it is the TARP 
funds or otherwise.
    You are elected here to make decisions, not to duck them; 
and that is what your obligation requires you to do. And I 
think this demonstration and hearing today shows what enormous 
ramifications will flow from the Chrysler and General Motors 
reorganizations that you should decide and let the politics 
work as they will.
    That is how democracy works. It doesn't mean you will be 
infallible, but at least we will have the dignity to know we 
will charting our own economic destiny, not a bankruptcy judge.
    Thank you, Madam Chairman.
    Ms. Jackson Lee. Let me thank the witness for his 
testimony.
    [The prepared statement of Mr. Fein follows:]

                    Prepared Statement of Bruce Fein

Dear Mr. Chairman and Members of the Committee:

    I am pleased to share views on the impending bankruptcy 
reorganizations of Chrysler and General Motors. I strongly believe the 
Congress of the United States should enact laws to stipulate the terms 
of any reorganization of these twin motor companies because of their an 
enormous affect on interstate commerce. If Congress fails to act, the 
reorganization decision will fall to politically unaccountable 
bankruptcy judges appointed to serve a 14 year terms by federal 
appellate courts. The Constitution does not contemplate the regulation 
of interstate commerce by Platonic Guardians standing over the 
commanding heights of the economy. The legislative power was assigned 
to Congress for a reason: self-government is a farce unless major 
decisions are made by political actors representing the collective 
voice of the people.
    General Motors and Chrysler employ tens of thousands. Even a 
greater number of retirees depend on the companies for various 
benefits. They also support dealer networks. Vehicle sales are in the 
millions. The Constitution entrusts the legislative power to regulate 
interstate commerce to Congress. When the railroad industry was 
reorganized in the 1970s, Congress played a pivotal role. It enacted 
the National Railroad Passenger Corporation Act of 1970 to form Amtrak 
to operate a passenger railroad system. Congress later enacted the 
Regional Rail Reorganization Act of 1973 to authorize the creation of 
Conrail to operate a railroad freight system. Conrail was later 
privatized at the direction of Congress with the Conrail Privatization 
Act of 1986.
    There is no sound reason based on precepts of democracy and the 
Constitution for Congress to play a lesser instrumental role in 
reorganizing major auto companies. Their impact on the economy is 
comparable. Bankruptcies entail the revision or voiding of executory 
contracts, which is in tension with the Contracts Clause and the due 
process clause of the Fifth Amendment. Further, the vast discretionary 
authority enjoyed by bankruptcy judges to readjust economic relations 
and contracts with toothless legislative guidance is in tension with 
the non-delegation doctrine of separation of powers.
    Members of Congress are elected to make significant economic 
decisions because they are closest to the people whose lives and 
livelihoods will be significantly affected. Members should decide on 
the economic destinies of General Motors and Chrysler. They would be 
neglecting their constitutional obligations by shuffling off the 
decisions to appointed bankruptcy judges shielded from the American 
people.
                               __________

    Ms. Jackson Lee. Let me now recognize Mr. Clarence Ditlow 
for 5 minutes.
    And, likewise, you can summarize your statement and submit 
your entire statement into the record. Mr. Ditlow, you are 
recognized for 5 minutes.

TESTIMONY OF CLARENCE M. DITLOW, EXECUTIVE DIRECTOR, CENTER FOR 
                          AUTO SAFETY

    Mr. Ditlow. Thank you, Madam Chairman and Members of the 
Committee.
    Before I begin my testimony, I would like to introduce two 
people who have come from California and from Indiana. Fargood 
Norian, who was injured when a Jeep failed to hold it in park; 
and Jeremy Warriner, who was burned tragically in another Jeep 
in a fire impact.
    Mr. Warriner. Thank you very much for having this hearing.
    Mr. Ditlow. At this point----
    Ms. Jackson Lee. Before you continue, let me--with the 
difficulty of standing, let me again welcome Mr. Fargood Norian 
and Jeremy Warriner to this hearing. We understand that they 
are plaintiffs in a personal injury and product liability suit 
with Chrysler.
    Your presence here today is recognized and it is 
acknowledged as very important. We thank you for your presence 
here today.
    Mr. Warriner. Thank you.
    Ms. Jackson Lee. The witness may continue.
    Mr. Ditlow. Thank you, Madam Chairman.
    I want to go from the lofty ideals of the Constitution, 
just expounded, to the world of the consumer who is 
dramatically affected by this Chrysler bankruptcy. And what we 
are looking at are consumers who purchased lemon automobiles 
today, who will lose their lemon rights under the bankruptcy 
proceeding and consumers who buy an automobile who have the 
misfortune of being in a crash in the future. Because under the 
bankruptcy, the Chrysler, the new Chrysler will purchase the 
assets free and clear of interest in property. And basically 
what that means is that the new Chrysler will not assume 
litigation costs for an accident, no matter how significant 
that accident is; and for the consumer who gets a lemon, they 
won't assume the lemon rights under the litigation.
    So now what we are really looking at is that seldom have 
consumers needed a voice more today, when fundamental rights 
are jeopardized by this proceeding; and, in fact, the rights 
are being taken away with the assistance of payment of billions 
of taxpayer dollars.
    Now, what are we talking about: What we are talking about 
are defects such as the lack of a brake shift interlock in a 
car that allows Mr. Norian to be run over and injured, fire 
systems in vehicles that caused the burn injuries of Jeremy 
Warriner and others.
    We are talking about seat backs that are so weak that when 
you are hit from behind in a minor collision, they collapse and 
cause injuries. What we are talking about are roofs that are 
weak and, in a rollover crash, the roof doesn't hold.
    Now, not all Chrysler vehicles are this way, but some are. 
We have a recall system in place in this country. Recall rights 
are preserved. But recalls come about because consumers are 
injured, come to the attention of the National Highway Traffic 
Safety Administration, and we get the recall.
    But the very consumers who are injured, that generated the 
recall, have no rights under this new proceeding because their 
liability litigation rights are taken away. They won't receive 
compensation for those injuries that led to a recall. And even 
when we do have a recall, ones like the Chrysler tailgate 
latch, there were--almost half of those vehicles were never 
fixed in the recall, so they are still out there on the roads. 
So we have a tremendous gap that is not covered.
    And when we look at this, the consumers in the future--I 
mean, we are not talking about an enormous amount of money, but 
we are putting tens of billions of dollars into this 
reorganization of Chrysler and GM, but we are not taking care 
of the consumer. Their rights are being wiped out. And to the 
consumer, it is their entire life.
    The automobile--as the dealers have indicated, it is the 
primary means of transportation in this country. If you have a 
lemon and you lose your vehicle, it is not reliable, you are 
not going get to work; you may lose your job, that causes 
family problems. But yet every single State has a lemon law, 
but the rights under that lemon law are now being jeopardized 
by this bankruptcy.
    In addition, when you look at a consumer who is injured, 
often a consumer in a rollover crash becomes paralyzed. If 
there is no coverage through a liability claim, their insurance 
will often run out; they become wards of the State.
    So sooner or later the taxpayers are going to pick it up. 
The system is not designed to work that way. And what we would 
recommend is that the new Chrysler recognize those liabilities 
and assume them from the old Chrysler in the future, that they 
take out an insurance policy to cover it.
    And if all else fails, and we can't get this bankruptcy 
court to listen to reason and take care of the consumer, then 
we should create a fund from the government to take care of the 
consumer, just like we are taking care of the corporation.
    So I want to thank you for that, and I want to assure you 
that there are just tremendous impacts on the consumers that 
have been overlooked in this entire proceeding.
    Thank you.
    Ms. Jackson Lee. Mr. Ditlow, we thank you again for that 
instructive testimony.
    [The prepared statement of Mr. Ditlow follows:]

                Prepared Statement of Clarence M. Ditlow









































                               __________

    Ms. Jackson Lee. And we recognize a gentleman that needs no 
further introduction, but we acknowledge his long years of 
service and commitment to the consumer.
    Mr. Ralph Nader is recognized for 5 minutes.

          TESTIMONY OF RALPH NADER, CONSUMER ADVOCATE

    Mr. Nader. Thank you, Madam Chair and Members of the House 
Judiciary Committee for this hearing.
    The government-led restructuring of Chrysler and General 
Motors has been twice delegated, first by Congress to the 
executive branch and then by the President to a task force.
    The task force is made of up cabinet official an high level 
political appointees, but the predominant ones have from Wall 
Street. They have a financial approach to this problem, they 
are not reflecting manufacturing knowledge at all. And I 
mention Secretary Geithner, economic director Larry Summers and 
Steve Rattner. In law school we used to study cases involving 
excess delegation of congressional authority to agencies and 
departments in the government. Those problems are really quaint 
compared to the wholesale delegation these days. I think 
Congress feels it is so overwhelmed that it is exhibiting 
evidence of cognitive dissidents.
    And it is important historically to know that Congress has 
conducted hearings and pronounced policies into law that are 
very complex, the tax laws for example, the pension laws, the 
Trade laws. As Bruce Fein pointed out a very detailed analysis 
of that led to the Conrail legislation, Amtrak legislation. And 
in 1979, the House and Senate had extensive hearings on the 
Chrysler bailout. What is the difference it now except that the 
ramifications are horrifically greater. Whatever the difference 
now except the damage to checks and balances constitutionally 
are greater than ever.
    I think it is important to note that if the GM is going to 
go into bankruptcy without any shareholder approval, notice 
that, the business judgment rule now extends that a few bosses 
under prodding from Washington can throw a company into 
bankruptcy without a shareholders vote of either approval or 
denial. The shareholders, common shareholders, preferred 
shareholder shunt to the side.
    Today we had a press conference where small bond holders 
were making their plea. If GM goes into bankruptcy, what will 
emerge, what will be launched would be a conclusive death star 
to tens of thousands of jobs, thousands of smaller businesses 
and adverse effects it to hundreds of communities around the 
country. And Congress is entitled to ask does this have to 
happen. When a company in 2008 can sell 8.1 million cars, 3 
million in this country, over 1 million in China, the rest 
around the world and be considered a basket case unworthy of 
detailed congressional examination and policy making, along 
with the rest of the industry, we are entitled to ask a lot of 
questions. Workers are entitled to ask questions, the dealers 
are entitled to ask questions, rural dealers, minority dealers 
are entitled to ask questions, auto suppliers.
    Toyota has been conducting people here saying if GM goes 
bankrupt, its suppliers, a lot of its suppliers will go 
bankrupt because they sell the GM and Toyota. There are a lot 
of issues in your opening statements, Members of the Committee 
and in the prior statements here that argue overwhelmingly for 
this task force to be considered in its final report in a few 
days as an advisory committee to the Congress. And it comes 
back here to the Congress for thorough areas, policy resolution 
and legislation. This is, if anything is, a responsibility of 
the Congress.
    When an unelected little task force, operating in secret a 
few days ago can tell Chrysler to terminate 780 dealers, 
averaging 60 jobs per dealer, that is 45,000 jobs, against 
Chrysler's will, because it doesn't cost anything for Chrysler 
to have dealers and they sell more cars, and it is more 
convenient to motorists, especially in poorer areas an rural 
areas. When that can happen, that is just a harbinger of 
congressional delegation run riot.
    I would like to note, in conclusion, that the fly in the 
ointment here is the China strategy of General Motors, years 
ago General Motors realized that the U.S. market was a 
stagnant, declining market for itself, it couldn't compete with 
Toyota and others, and that China was the future. And now China 
is being used as the platform to reexport to the United States 
to further hollow out communities and jobs on behalf of General 
Motors.
    I don't think you can ever have free trade with a country 
that is a dictatorship, because a dictatorship dictates costs, 
it dictates wage levels and no unions and dictates pollution at 
will, it dictates bribery. And those are serious unfair methods 
of competition. Whatever you can say about China violating 
repeatedly for visions of the World Trade Organization, you can 
also add that if Congress does not examine the China policy and 
examine all these other issues that have been raised here, it 
will go down as one of the greatest abdications of 
congressional responsibility in the economic realm. And that 
death star will turn into a fire ball of political protests 
that will come back to Washington, and it will not be directed 
at the Republican party, it will be directed at the party in 
power.
    And I will conclude with a short comment by a worker in the 
Kenosha Chrysler plant in Wisconsin, an award winning modern 
engine plant when he said--this is Rudy Kuzel, K-U-Z-E-L, he 
said, ``the government's coming in saying we have to shape 
these communities up and providing the money to do it. That's 
good, that's what we want. But if the companies use the 
government's support, the tax money to shut factories and move 
the jobs out of the country, what are we saving, the company 
name?''
    In short, what is at stake here is a huge demand for 
congressional policy making, bringing together all the various 
variables, all the value systems that only Congress can bring 
together. And the other day, I was astonished by a legislative 
agent to a senator who told me, we don't want this to come back 
from a task force to a congressional fish bowl, Congress cannot 
make tough decisions. Well, if Congress cannot make tough 
decision, I think it better have a major hearing on itself.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Nader follows:]

                   Prepared Statement of Ralph Nader

Dear Senator Dodd and Congressman Frank:

    The government-led restructuring of Chrysler and General Motors has 
been twice delegated--first by Congress to the Executive, and then by 
the President to a task force. Formally made up of cabinet officials 
and high-level political appointees, control over the process has in 
fact been delegated, without adequate standards, to a handful of 
special advisers. Thus has the future of a centerpiece of American 
manufacturing capacity been delegated to a small unelected and largely 
unaccountable group arranged to avoid the Federal Advisory Committee 
Act. The Congress must, at the least, reclaim its oversight role in 
this process, and subject the Auto Task Force's proposals and plans to 
careful scrutiny before irreversible measures--such as a GM bankruptcy 
filing--are undertaken.
    The President has stated that ``I am absolutely committed to 
working with Congress and the auto companies to meet one goal: The 
United States of America will lead the world in building the next 
generation of clean cars.'' That is a laudable sentiment, and it is 
imperative that this goal be achieved.
    But it is not befitting our system of checks and balances for 
Congress to rely on a presidential statement of good intentions--
particularly when it is a small, informal group of appointed non-
experts who are charged with rescuing the auto industry.
    The Auto Task Force has guided Chrysler into bankruptcy, and 
appears on course to do the same with GM. The government overseers are 
hoping for a quick bankruptcy reorganization, resolution of creditor 
claims that were not resolving themselves through private negotiation, 
and emergence of a debt-free company, shorn of encumbering assets, 
post-bankruptcy.
    However, there is enormous risk in such a move. The bankruptcy 
process may not move as quickly as imagined; it is after all, 
independent judges who control the process, not the executive branch. 
Especially if the bankruptcy process lingers--but even if it does not--
there is a serious risk of impairing consumer purchasing confidence in 
a once-bankrupt auto company. This was conventional wisdom just six 
months ago. It is not clear why this conventional wisdom has been 
abandoned, notwithstanding the government guarantee of GM and Chrysler 
warrantees.
    The matter of impaired consumer confidence deserves much more 
attention than it has received, at least in any public fashion. 
Already, reports are emerging of further declines in Chrysler sales 
after its bankruptcy filing, and of widespread belief among consumers 
that the company is liquidating.
    Lost consumer confidence in GM could quite conceivably overwhelm 
the ``benefits'' to the company of eliminating outstanding liabilities. 
Thus the plans of the task force may prove to be a house of cards.
    The bankruptcy route for GM is also likely to have important ripple 
effects especially on suppliers, with a ripple of supplier bankruptcies 
likely to follow such a move by GM. Even Toyota has commented to 
Members of Congress on its concern that a GM bankruptcy will pull down 
suppliers that sell to both companies. Such a ripple will mean more 
lost jobs, more pain for communities across the country, and a loss of 
some the most dynamic and innovative parts of the industry.
    It is obvious that GM needs a new direction, and the removal of its 
CEO was a welcome step. The rest of the incumbent management though, 
remains in place, raising concerns about the ability of the company to 
remake itself.
    While the company needs a new direction, and probably a 
contraction, it is not obvious that it needs to contract as much as the 
secretive task force envisions, and in the ways apparently planned. 
Before the task force's plans with GM are enacted--and certainly before 
the company declares bankruptcy--Congress should hold deliberative 
hearings to protect taxpayers' investments and seek answers to these 
questions, among many others:

          Is the task force right in pushing for elimination of 
        as many brands as it has demanded?

          Is the task force asking for too many plants to 
        close?

          Do GM and Chrysler really need to close as many 
        dealerships as have been announced? Is the logic of closing 
        dealers to enable the remaining dealers to charge higher prices 
        (See, for example, Peter Whoriskey and Kendra Marr, ``Chrysler 
        Pulls Out of Hundreds of Franchises,'' Washington Post, May 15, 
        2009); and if so, why is the government facilitating such a 
        move? Is it reasonable and fair for GM to impose liability for 
        disposing of unsold cars on dealers with which it severs 
        relations, as Chrysler has apparently done?

          Has the task force evaluated the social ripple 
        effects on suppliers, innovation, dealers, newspapers, banks 
        and others that hold company stock and/or are company 
        creditors, and other unique harms that might stem from 
        bankruptcy?

          Would a government-driven bankruptcy process comport 
        with the rights of owner-shareholders?

          Why has the task force maintained the Bush 
        administration-negotiated obligation for unionized auto workers 
        at GM and Chrysler to accept wages comparable to those in non-
        unionized Japanese company plants in the United States? This 
        requirement is especially troubling given the low contribution 
        of wages to the cost of a car (10 percent), and that it may set 
        off a downward spiral of wages, with the non-union plants no 
        longer needing to compete with union wages, and union wages 
        following those in non-union plants.

          Is the task force obtaining guarantees that, after 
        restructuring with U.S. taxpayer financing, GM cars sold in the 
        United States be made in the United States? If not, why not?

          How will bankruptcy affect GM's overseas operations, 
        with special reference to China and GM corporate entanglements 
        with Chinese partners? Are they and their profits being 
        exempted from the restrictions and cutbacks imposed on domestic 
        operations? If there is such a disparity, is it reasonable and 
        unavoidable?

          How will bankruptcy affect GM's obligations to 
        parties engaged in pending litigation in the courts with GM 
        regarding serious injuries suffered because of design or 
        product defects?

          What guarantees is the task force obtaining to ensure 
        that the GM of the future invests in safer and more fuel 
        efficient vehicles, and what investments will the new company 
        make in ecologically sustainable technologies? How will a 
        potential bankruptcy filing affect, ignore or preclude any such 
        future investments and commitments?

    Among the most worrisome components in the restructuring plan is 
the willingness to sacrifice U.S. manufacturing, and permit GM to 
increase manufacturing overseas for export back into the United States. 
Recent news reports indicate that the company will rely increasingly on 
overseas plants to make cars for sale in the United States, with cars 
made in low-wage countries like Mexico rising from 15 to 23 percent of 
GM sales in the United States. For the first time, GM plans emerged to 
export cars from China to the United States, in what may be a harbinger 
of the company's future business model; although the company has stated 
after negative publicity that it will not export from China, there is 
no evidence that it is abandoning the business model of outsourcing 
production for the U.S. market, and questions remain about how binding 
is the recent commitment not to export to the United States from China.
    Not surprisingly, industry analysts have quickly weighed in to 
emphasize that ``political considerations'' should not interfere with 
obtaining purported ``efficiencies.'' But such talk is gibberish in the 
context of a government bailout. What is the point of the U.S. 
government bailing out GM if not to respond to the political 
considerations of preserving jobs, communities, manufacturing capacity 
and directing the mismanaged company to an ecologically sustainable 
future?
    Will the U.S. Congress abdicate its responsibilities while such 
plans are finalized by the delegated task force? Such a willful 
abdication would contrast starkly with the dutiful legislative hearings 
and legislation regarding the Chrysler bailout in 1979.
    At the very least, the Congress must exercise its oversight powers. 
It should, at the very least, urge the Obama administration to defer 
any plans for bankruptcy or other irreversible moves until after the 
task force plan has been subjected to close and careful review via 
thorough Congressional hearings. If delay requires some additional 
bridge funding for GM, surely such funding with suitable equity 
positions is appropriate, in light of the potential risks of bankruptcy 
to millions of families and further governmental relief programs, and 
the vastly greater sums that have been so recklessly expended on the 
virtually condition-free Wall Street bailout.
                               __________

    Ms. Jackson Lee. I thank the gentleman for his testimony.
    Mr. LoPucki, you have a schedule departure time, what time 
is that?
    Mr. LoPucki. I will need to leave shortly after 3.
    Ms. Jackson Lee. All right. I think we might be able to get 
in the last 2 witnesses and then the questioning will begin 
with you.
    Again Ms. Claybrook needing no extensive introduction, but 
we thank you for your long-standing service to the consumer, 
Ms. Claybrook is recognized for 5 minutes.

TESTIMONY OF JOAN CLAYBROOK, PRESIDENT EMERITUS, PUBLIC CITIZEN

    Ms. Claybrook. I thank you, Madam Chairman, and I will try 
and take less than that so that your other witnesses can be 
questioned. The major point that I want to make is that the 
United States taxpayers are shelling out about $35 billion to 
Chrysler and General Motors and GMC, another 5 to suppliers and 
as much as 60 billion more to come. And yet there is, in both 
the bankruptcy decisions and in the bailout decisions, that has 
already been explained are being made by a small group of 
individuals. There is no give-back by the companies in terms of 
safety. Now, I would have said that about fuel economy until 
the President's announcement on Monday or Tuesday, which I was 
extremely pleased about, so I can't go into that detail. But 
what the President has pushed for and is going to implement is 
vastly improve fuel efficiency and a national standard for 
emissions and fuel economy.
    But the issue that is on the table as well for this Nation 
is health care and in the President's meeting with industry 
leaders and others last week, he talked about the importance of 
prevention. While there are 40,000 people killed every year, 
and 2\1/2\ million people injured on our highways. There is a 
lot that can be done about it. And the automotive industry has 
spent decades trying to prevent safety standards from being 
adopted. And yet there is a very important unrealized agenda 
for safety improvements. I would like to briefly mention them 
for the record, and that is stronger rules inside window 
glazing, and important safety belt protection for occupants in 
rollover crashes. They kill 10,500 people a year, so much more 
than almost any other issue that we are so concerned about 
obviously in wars and other things.
    Stronger seats and seat backs which fail, causing terrible 
injury, not only to people in those seats but to children who 
we now insist be put in the back seat. And protection for rear 
seat occupants as well with side impact air bags and belt use 
warning signals, improved latching for child seats, testing 
them in real crashes. And pedestrians protection, most people 
don't realize it, but a car can be designed so that pedestrians 
are far less likely to be seriously injured and also bicycle 
riders. And Honda is leading the way on this, but the U.S. 
Government has no standard on pedestrian protection.
    And then compatibility and safety requirements between 
vehicles of different size, which is very important, given the 
different size vehicles on our highway and event data recorders 
in all vehicles, some have them, some don't. It is not a 
systematic requirement so that we know what happens on the 
highway.
    My view, Madam Chairman, and Mr. Chairman, is that if we 
are going to give all this money to the auto industry, we ought 
to at least get improved safety on the highway and not just 
give it to them and let them to continue to oppose safety 
improvements for our people. I, of course, endorse all the 
other statements, particularly about the automobile dealers and 
closing the plants. I would like to submit for the record an 
excellent article called The Case for Kenosha in the Nation 
Magazine this week that talks about this great plant that is 
being closed arbitrarily. Thank you so much.
    Ms. Jackson Lee. With unanimous consent and without 
objection it will be submitted into the record. Hearing no 
objection.
    [The prepared statement of Ms. Claybrook follows:]

                  Prepared Statement of Joan Claybrook









                               __________

    Ms. Jackson Lee. Mr. Skeel, you are Professor Skeel, you 
are recognized for 5 minutes and you might summarize your 
statement and submit the entire statement into the record.

    TESTIMONY OF DAVID A. SKEEL, PROFESSOR, S. SAMUEL ARSHT 
  PROFESSOR OF CORPORATE LAW, UNIVERSITY OF PENNSYLVANIA LAW 
                             SCHOOL

    Mr. Skeel. Thank you, Madam Chairman and Members. Of the 
Committee, it is a great honor to appear before you this 
afternoon. I would like it make two basic points in my opening 
remarks. First, our bankruptcy laws are well designed to handle 
the financial distress of Chrysler and General Motors and to 
facilitate their restructuring.
    Second, the Administration's handling of the Chrysler 
bankruptcy and its apparent plans for GM have violated the 
basic rules of bankruptcies in ways that could have and I think 
may well have dangerous consequences. Let me briefly expand on 
each of these points. First our bankruptcy laws, in particular 
Chapter 11, are well designed to successfully restructure the 
automakers. There is a widespread misconception in this country 
that bankruptcy means the death of a business. In many 
countries, this would be accurate, but the American bankruptcy 
laws are uniquely designed, as they have been, since corporate 
organization was first devised over a century ago to preserve 
and restructure viable enterprises like the car makers.
    The first major mistake with the car makers, in my view, 
was waiting so long to consider the bankruptcy option. General 
Motors lost $20 billion last year. The company surely would 
have lost less and would be much further along in its efforts 
to restructure if it's former management had not refused to 
plan for or even consider the possibility of a bankruptcy until 
late last year. The arguments GM's management made for avoiding 
bankruptcy, such as the claim that customers would refuse to 
buy the cars of a company in bankruptcy were never plausible. 
In my view, the decision finally to use Chapter 11 has thus 
been a good and overdue decision. But the Administration's 
handling of the bankruptcy process has been deeply problematic. 
This is the second of my two points.
    In a case like Chrysler, the parties ordinarily would 
negotiate over the terms of the reorganization plan and then 
each class of creditors or shareholders would vote whether to 
approve the plan. Rather than use the traditional process, the 
Administration has structured Chrysler's bankruptcy as a shame 
sale of most of Chrysler's assets to a new entity to called new 
Chrysler for roughly $2 billion. The goal of this strategy 
seems to circumvent the voting process and to alter the 
ordinary rules of priority. Under the usual priority rule known 
as absolute priority, senior lenders are entitled to be paid in 
full before lower priority creditors, including employees 
receive anything. The sale in Chrysler undermines the rights of 
senior lender by setting an artificially low sales price that 
will give them less than 30 percent of what they are owed, 
while promising a substantial recovery to lower priority 
creditors.
    I believe that the Auto Task Force and the Administration 
generally believe that their plan is the best strategy for 
restructuring the you a tore industry and making it profitable 
again. But they have distorted the bankruptcy rules to achieve 
this result. The Chrysler strategy could have at least two very 
dangerous consequences. First, the subversion of basic priority 
rules could interfere with lenders willingness to extend credit 
to troubled corporation. Senior lenders have been burned in 
Chrysler, they will take steps not to be burned again. Lenders 
will be especially reluctant to make loans to any company that 
might be the subject of government intervention, such as the 
suppliers to the auto industry. More generally, the unsettling 
of the priority rules could appreciably increase the cost of 
borrowing for any company that is in financial distress in the 
coming years.
    Second, the Chrysler sale sets a dangerous precedent. In 
future cases the insiders of a company that files for 
bankruptcy will be able to propose a similar sham sale that 
benefits favored creditors, perhaps the managers of the company 
at the expense of disfavored creditors. Interest already are 
reasons to worry about bankruptcy sales that are proposed by 
insiders. But the Chrysler precedent goes well beyond anything 
that previously would have been thought possible. I don't 
believe that the sham sale in Chrysler will be treated as an 
extraordinary one time event. Much like the Supreme Court 
decision in Bush versus Gore, it will influence future cases on 
these issues in the years to come.
    In sum, I believe that our bankruptcy laws are well 
designed for restructuring of the troubled car makers, but it 
is very dangerous for the Administration to distort the 
bankruptcy laws to achieve its preferred outcome. Thank you.
    [The prepared statement of Mr. Skeel follows:]

               Prepared Statement of David A. Skeel, Jr.












                               __________
    Mr. Conyers. [Presiding.] Thank you so much, I want to 
begin by thanking our colleague, Sheila Jackson Lee, for 
Chairing the Committee through this very important and serious 
testimony that has been rendered 2, 4, 6, 8, 9 panelists; and 
we are grateful to them. And I would like to ask any of my 
colleagues if anyone has any burning questions they would like 
to put to Mr. LoPucki before he may have to depart at whatever 
time is required of him to leave?
    I would like now to yield to Lamar Smith, who has been 
extremely cooperative with the Committee in terms of us coming 
together as quickly as we were able to.
    Mr. Smith. Thank you, Mr. Chairman.
    Mr. Grossman, let me direct my first question to you. There 
have been serious allegations that is Chrysler senior secured 
creditors were strong armed into agreeing to the auto task 
force Chrysler deal. What are the ramifications of that for 
creditors, the bankruptcy system and our overall financial 
institutions.
    Mr. Grossman. Thank you, Mr. Smith for that question. As 
you noted, there have been ample news reports that multiple of 
holdout creditors were holding senior debts of Chrysler were 
approached by officials of the Administration and were in 
various terms threatened that their reputation would be 
tarnished and that is the Administration would use various 
means at its disposal to impact their businesses. The effect of 
these almost thuggish techniques on lending and on really the 
availability of credit to corporate entities I think will be 
very severe. Politically connected companies, companies that 
have large union work forces, and other companies that may be 
subject to government intervention will find it tougher to 
access capital markets.
    When they are able to arrange loans, those loans will be 
more expensive. The results will be that those companies and 
those industries will suffer competitive disadvantage and that 
will cost job and economic growth.
    Mr. Smith. Thank you. Mr. Nader, individuals in the room 
who are under 40 or 50 may not know that back in the 1960's and 
1970's, you were a campus hero. And I had several classmates, 
in fact, who worked for you after graduation.
    My quick question for you has a couple of words that will 
be familiar only to those of us over 50 or thereabouts. And my 
question is this, do you believe that the Auto Task Force is 
unsafe at any speed?
    Mr. Nader. Yes. Worse than that.
    I just want to add I disagree with my colleague here, 
Professor Skeel, when he said that consumers be less willing to 
buy cars from companies in bankruptcy. He called it 
implausible. I don't think it is implausible, do you, Clarence?
    Mr. Ditlow. Absolutely not.
    Mr. Nader. The whole structure is built on a house of 
cards. If there is another strong dip in sales for GM. As 
Chrysler has been down from last year big time, but it is down 
even more if I am not mistaken since the bankruptcy. You know 
there is resale value and all these things. And the fact that 
the government is guaranteeing warranty, I don't think that 
solves the problem and it hasn't sunk in. This is a task force 
that looks at these companies in very financial terms and 
doesn't take into account enough variables around the country. 
It is ideological, empirically starved and this is what happens 
when you put Wall Street people in charge of heartland 
manufacturing companies fate and the future. I am not saying we 
have the answers, I am saying Congress has got to get this back 
before it is too late in the next 10 days because they will go 
into bankruptcy court within hours after this task force 
reports.
    Mr. Smith. Thank you, Mr. Nader. I liked your one-word 
initial response, yes.
    You said that the Chrysler bankruptcy deal is a sham, what 
does it mean to the rule of law under our bankruptcy system?
    Mr. Skeel. I think it is very dangerous, as I said in my 
opening statement, what this is, it is not a real sale. If 
there had been a real urgency about selling the assets right 
away or this had been a sale we are there were real buyers out 
there, it would be one thing, but this is a completely 
artificial sale devised by the government to achieve the 
results it wants to achieve, which is turning the ordinary 
priorities on their head. My fear is not only is that going to 
have significant negative consequences for Chrysler itself in 
the Chrysler restructuring itself, but in the future, it is 
going to tempt other people to do the same sort of thing. Once 
the government does it, other companies that are in trouble are 
going to do this as well. They are going to get into 
bankruptcy, instead of going through the ordinary restructuring 
process with the voting rules, what they will do is propose a 
sale to the company that they will--a shell company that they 
will set up and ask the court to bless it and I fear that some 
courts will.
    Mr. Smith. Thank you, Professor. Thank you, Mr. Chairman.
    Mr. Conyers. The Chair is pleased to recognize the 
gentleman from North Carolina, Mel Watts.
    Mr. Watts. Thank you, Mr. Chairman. And I thank the Chair 
for convening this hearing, a somewhat distressing hearing, but 
unfortunately that is not unique over the last several months 
as a Member of the Judiciary Committee and the Financial 
Services Committee. We have had a number of very, very 
difficult choices to make and it is always difficult to hear 
some of the projected consequences of those choices, but let me 
confine myself to this aspect of what we are talking about 
rather than the overall financial malaise that we have been 
trying to deal with in my other Committee, Financial Services.
    We obviously have been working very closely with the 
minority automobile dealers, trying to save them. We tried to 
get them included in the original bailout with the manufactures 
that did not succeed. We have worked with them to try to get 
them included under TARP in some various ways to increase the 
size limits of the SBA. So we have a very strong interest in 
trying to assist minority automobile dealers who have been 
underrepresented in the industry for years. And now that they--
the one who were represented in the industry are finding 
themselves at a very, very difficult crossroads.
    I am interested in knowing, and I will address this 
question to Professor Skeel. What different outcome there would 
be in a regular bankruptcy proceeding that proceeded in the way 
you perceive Chapter 11 should proceed, what would be the 
consequence for the dealers, let's just deal with the dealers, 
then if we have time maybe you can address the suppliers and 
the other creditors. What would be the different consequences 
as you perceive it had there been a regular Chapter 11 
bankruptcy.
    Mr. Skeel. I think in my respects the consequences would 
have been similar. I think there would have been a 
restructuring of the dealerships, but I think it would have 
been more planned out and it would have been developed earlier 
and perhaps there would have been more discussion about which 
dealerships will be cut and which ones not.
    Mr. Watts. When would have had those discussions.
    Mr. Skeel. Presumably Chrysler and its dealerships. 
Chrysler or GM as well should have been talking to them before 
bankruptcy.
    Mr. Watts. I am not sure what process there would be in a 
regular Chapter 11 bankruptcy process. We make it sound like 
the regular bankruptcy process is when we have a choice we have 
to figure out what the choice is between. And I understand the 
potential consequences of gaming the system by setting up sham 
sales going forward for future bankruptcies. And that is 
something I guess we will have to deal with as a legislative 
body going forward, but I am not sure that your implication 
that somehow the dealers, the creditors, the other creditors 
who got this Hobson's choice presented to them as Mr. Grossman 
has testified about. I don't see a pleasant end game for any of 
them in a regular Chapter 11 bankruptcy.
    Mr. Skeel. Well, the first thing I would want to say in 
response is that with respect to the dealerships, this is a 
regular bankruptcy. I mean, one way to look at this is the 
government is picking and choosing who it wants to favor. And 
it is----
    Mr. Watts. That is the answer to a question, I am just not 
sure it is the answer to the question I am posing.
    Mr. Skeel. I think it is. I think the answer in terms of 
what the rights of the dealerships are and how they are treated 
is the same under this bankruptcy----
    Mr. Watts. Basically the answer then is the dealers were 
going to get really taken advantage of regardless of whether 
this played itself out the way this is playing itself out now 
or whether there wasn't this honeymoon deal that is in the 
process of being made.
    Mr. Skeel. The rules would have been the same. I think if 
the restructuring had begun earlier, it is quite possible fewer 
dealerships would have been cut. If Chrysler were in healthier 
shape when the restructuring took place, they wouldn't be 
thinking about cutting lots of dealerships.
    The rest of what I would say is I think the most effective 
way to protect dealerships, particularly minority dealerships 
going forward is to put pressure on Chrysler and to say this 
restructuring is not the end of the came. They are going to be 
a car company afterwards, they better have an equitable 
distribution of their dealerships.
    Mr. Watts. I think my time has expired. I am glad we got to 
an opportunity to hear some affirmative suggestions other than 
just take back your authority. When we take back our authority, 
then we have to have some responsibility to deal with it. We 
delegate to governmental agencies in virtually every aspect of 
government. And I guess I get a little impatient with the 
people who say we ought to take back all the authority that we 
have given to the Federal Reserve. I don't know that I would 
want these decisions made in a political context by the 435 
Members of this body or the 100 Members of the other body other 
than in the framework of giving them general guidance that we 
hope will lead to some kind of thoughtful results.
    Mr. Fein. May I respond to that?
    Mr. Watts. I am sure Mr. Lichfield has a response to it. He 
thinks we ought to abolish the Federal Reserve too.
    Mr. Fein. I'm Mr. Fein, that is all right.
    It is matters of degree and what is the extent of the 
delegation. It is one thing to delegate with----
    Mr. Watts. I appreciate it. My time has expired, Mr. 
Chairman. I am going to yield back and I have heard your speech 
before Mr. Fein and I am not arguing with you, I just--
everything in life is a matter of degree. I guess I agree with 
you on that.
    I think I am finished.
    Mr. Conyers. Well, if Mr. Fein insists on a response, I 
think the least we can do is hear what he has got to say.
    Mr. Fein. Thank you, Mr. Chairman.
    I want to say that it may seem like a platitude but matter 
of degree count in term of how much the responsibility for 
making these decision is given to those who are not politically 
accountable and can do whatever they want with that discretion. 
That is not the exercise of judgment by this body as to what 
the policy ought to be. It is something akin to saying let the 
IRS write the Internal Revenue Code and let it be fair. That is 
different than saying you have a 4,000 page bill and then the 
Internal Revenue Service can add additional regulations or 
gloss on it. And with regard to accountability and process, 
that is what democracy is about. The Federal Reserve Board is 
not only relatively secret, but these are members who are 
independent. You would want to say Mr. Watt, that we don't want 
political accountability for an institution that affects the 
jobs of tens of millions of people? That seems to me silly. 
That is what self-government means. That is critical to their 
entire lives. We want it to be political. You may make errors, 
but that means you get to decide your own fate. These people on 
the Federal Reserve Board, they sit there 14 years, they are 
independent, they can't be removed by this body whatsoever. I 
think that is a real concern. Thank you.
    Mr. Conyers. The Chair is pleased to recognize yet another 
Member from North Carolina. This time it is Howard Coble, 
senior Member of this Committee.
    Mr. Coble. Thank you, Mr. Chairman. Thank you for calling 
the hearing. Thank you all for being with us. I addressed these 
two questions earlier but I don't think either of you 
responded. Mr. Grossman, let me ask you this, what is the cost 
benefit realized by the factories of reducing the number of 
franchise dealers, A.
    And what savings is produced in eliminating Chrysler 
dealers with a 30-day notice as opposed to a 1-year notice?
    Mr. Grossman. Mr. Coble, according to independent 
automotive analysts, the automotive companies actually do spend 
a fair amount of money to service their various dealers. There 
are certain fixed costs that they face for every single dealer 
no matter the number of cars that that dealer sells.
    In addition, there is a question of focus, the amount of 
attention that an automaker can devote to any particular 
franchisee. An that attention is diffused when it has too many 
franchisees. There is also the issue of canalized sales when 
you have franchisees that are located in areas that are too 
near one another, there is the risk that those franchisees will 
compete against themselves in a way that is bad for the 
automaker, and that may be bad for the stability of that 
company and that brand.
    So I think the key answer to your question is a question of 
focus, it is a question of resources and it is a question of 
making sure that customers have the best experience that they 
can when they visit dealers.
    Mr. Coble. Thank you, sir.
    Mr. Henderson, what criteria was used to determine what 
dealers were sent termination notices, A and B what is the 
practical outcome are to those dealers who wish to appeal a 
termination letter.
    Mr. Henderson. Thank you, Mr. Coble, we have not gotten any 
clarity on what criteria was used. We have been raving those 
questions and Chrysler is giving indications that there have 
been a combination of factors that have to do with market 
share, location, facility and so forth. But as we look at the 
dealers on the assumed list and the dealers on the list that 
would not have their agreements assumed, there are very similar 
profiles with dealers on both lists. There is no clarify on 
that question.
    Mr. Coble. Now, I have been told that there was a 
disproportionate number of semi rural or small town dealers 
that were terminated; is that, in fact, accurate or do you 
know?
    Mr. Henderson. That appears to be the case that there is 
some disproportionate termination. What happens is that it 
makes it a lack of convenience for customers to be able to have 
dealers in their locality to be able to service their vehicles. 
And also it takes away some level of competition.
    If I may respond to Mr. Grossman, while there is some 
potential savings according to the manufacturer for eliminating 
dealers, dealers are the customers of the manufacturers, we buy 
cars. Less dealers typically is going to mean will mean less 
vehicles, it will mean less competition for consumers and the 
pricing will be less convenient for consumers in getting that 
car serviced.
    Mr. Coble. How about the rights of a terminated dealer if 
he wanted to appeal that, any thoughts on that?
    Mr. Henderson. According to Chrysler, there are no internal 
deal process. The process at this point is going to be 
objection that would be filed in the bankruptcy court, which is 
very expensive process and very difficult for dealers to embark 
upon.
    Mr. Coble. Thank you, Mr. Henderson.
    Mr. Nader, you responded very promptly to Mr. Smith's 
question regarding the unsafe at any speed, and I don't mean to 
speak for you but I suspect you would probably go an additional 
step and say to us that the deals that the auto task force have 
negotiated are equally unsafe at any speed, would you not.
    Mr. Nader. Well if you want to extend that metaphor. You 
can see the testimony here, there are safety consequences. 
There are health consequences. There are burdens on the 
taxpayer because more unemployed people will have to go on 
social welfare so it is a very sad situation. I have always 
been excessively sensitive to excessive congressional 
delegation, knowing full well you have got huge burdens on you, 
you can't micromanage. But what I think Bruce has been saying 
and others is that you are delegating basic policy decisions, 
basic policy decisions. I am old enough to remember the Dealer 
Day in Court Act that others did for the dealers to develop a 
better balance between dealers and auto companies. Those 
hearings were incredibly thorough, documented, detailed before 
the Congress then went to the Floor with the legislation.
    Mr. Coble. My red light has illuminated, so I yield back, 
Mr. Chairman. Thank you ladies and gentlemen.
    Mr. Conyers. Distinguished gentlelady from Houston, Texas, 
Sheila Jackson Lee.
    Ms. Jackson Lee. Thank you very much, Mr. Chairman. I want 
to thank the witness again and I thank the Chairman for 
yielding to me and sharing the Chairman's chair because the 
testimony from the position of that Chair seems to be intense. 
And you really do get it or you attempt to get it.
    Let me try to just recite some of the points that both Mr. 
Lester and Mr. Henderson made and it is startling and striking. 
I do want to acknowledge the work of many Members of this 
panel, meaning Members of the Judiciary Committee that have 
worked intently over the years. I would like to acknowledge the 
lessons that I received in meeting with the National 
Association Minority Automobile Dealers just recently or a 
couple of months ago in Houston and the strong arguments that 
were made and arguments that we tried to take to the table.
    And so here we are and I would just offer words such as 
brand elimination. The only distribution system that is in 
place to get from the manufacturer, the owner to the ultimate 
consumer, which is true, we need help now and the reduction of 
dealers certainly is reduction of wealth in the minority 
community. And one that I would add is that the dealerships, 
minority and otherwise are anchors in our community, they are 
the grounding of civicness, they are the Little League 
supporters and school supporters, the PTO supporters, the civic 
club supporters. And so I think this is more than a crisis.
    Mr. Henderson, you mentioned something I thought it as 
startling, that you tried to help, in this instance, Chrysler, 
by agreeing to buy vehicles that you may not have needed in 
your inventory. But as good citizens and good laborers, if you 
will, on behalf of your brand company, you stretched and stuck 
your neck out on the line. And this may have happened across 
America and this is tragic and disgraceful.
    It is disgraceful that you get this kind of thanks. Not 
that you extended yourself, but you get this kind of thanks. 
And certainly as the burden has been put at our feet, I don't 
believe and I know that Members of Congress did not intend to 
give unfettered control, but we wanted to be partners and get 
the team rolling, to get us back on our feet.
    Interestingly enough there is a little light at the end of 
the tunnel and the economy is turning at least as we look at 
the Dow. But what we have here I think warrants some kind of 
legislative fix. And so I want to pose my questions along those 
lines and ask quickly, though Mr. Fein has suggested that we 
have unburdened ourselves from our responsibility. I want to 
know besides the Constitution, do you think we need to rush in 
with a legislative fix? And I use as an example this issue of 
individual liability for the dealerships as they close and are 
left holding the bag on probably purchases that they made. Do 
we now come in and step along side of the bankruptcy proceeding 
and ask to protect certain creditors?
    Mr. Fein. It is certainly true that this body has authority 
by statute to override anything that a bankruptcy judge night 
be considering. Bankruptcy judge is acting under the delegation 
of the standards that this body enacted. So that makes quite 
sensible thing to do.
    In the railroad case, the Congress was acting, in some 
sense, in collaboration with the bankruptcy courts that were 
unable to fashion something that was viable and that seems to 
me quite appropriate decision for this body to make.
    Ms. Jackson Lee. I think it is more than appropriate. Mr. 
Grossman, what about a legislative fix, particularly in the 
issues of unwanted inventory so that the dealer may be now 
liable for a number of issues. The keeping of the fixed assets 
so that dealers that want to come back, so we would do a 
parallel action along side of the bankruptcy proceeding, 
meaning legislatively. Do we have to put all of our eggs in 
that basket? If, and I guess the question, the question of 
overriding the franchise laws which are allowed, or at least 
happening through the bankruptcy proceeding.
    Mr. Grossman. You are correct that State franchise laws are 
not applicable in a bankruptcy proceeding. I think the 
legislative fix you describe would have I think there are at 
least two concerns that it raises. One is that it will delay 
and impede the reforms necessary for General Motors and 
Chrysler to regain their competitive footing. We may wind up in 
a scenario where the two companies again are on the verge of 
insolvency or bankruptcy, despite the taxpayer that have been 
invested in them.
    Ms. Jackson Lee. So you are not looking for a fix.
    So Mr. Nader, these are consumers of sorts that you are 
talking about, even though an ultimate consumer may be the 
gentleman injured, plaintiffs now in proceedings, but also 
purchasers, but these dealerships. Is it just, say, from the 
moral representation of consumers, should we put our heads 
together on a legislative fix, if we are leaving dealerships 
holding the bag.
    Mr. Nader. I think Congress's role is to rearrange the 
equities, there are a lot of equities and inequities and that 
is way beyond bankruptcy court. I am not entirely unaware of 
the possibilities of remedies by the dealers if they are not 
faced with the bankruptcy of their parent, of their parent 
company, so to speak. Maybe that is what one answer you might 
be looking for. Do the existing contracts allow for a remedy 
absent any bankruptcy by Chrysler or GM, existing franchise?--
on the way you have been treated--it is pretty shabby 
treatment, wouldn't you say?
    Ms. Jackson Lee. They are left holding the bag.
    I will conclude by saying I think the issue of a non 
existing health policy, Mr. Chairman, for America is more at 
fault than to suggest that we are scapegoating labor unions who 
are trying to provide health care for their members. So I 
think, Mr. Nader, you have given us a sidebar opportunity of 
possibly looking at this fix based upon either contractual 
relationships or the moral compass that we all need to use. I 
yield back and I thank you for this. Certainly I believe the 
points that you have given are worthy of study and worthy of a 
legislative fix, and I look forward to hearing from you and 
working with you in the future. I yield back.
    Mr. Conyers. Thank you very much. I am always pleased to 
recognize the gentleman from Texas, Judge Louie Gohmert.
    Mr. Gohmert. And I am also pleased to be recognized by our 
honorable Chairman. Thank you, Chairman Conyers. Appreciate you 
all being here today.
    Mr. Nader you and I met about 36 years ago, you came to 
Texas A&M when I was there and I got to escortyou a little bit. 
Are you still getting 4 hours of sleep at night?
    Mr. Nader. I keep meeting people who have picked me up at 
airports. We should have an alumni club. It turns out, the 
present Secretary of Agriculture picked me up when he was a 
student at Hamilton College.
    Mr. Gohmert. It was a pleasure then and now. You are 
probably the most recognized consumer advocate in the world. 
And I am sorry I was late, we had another hearing that goes on 
at the same time, but what does this mean, this deal with 
Chrysler for consumer prices, safety, choices and that the UAW 
will now be an owner of both Chrysler and GM the way it is 
looking now?
    Mr. Nader. Well, as the testimony around me asserted, there 
are serious questions about people who have product liability 
suits what have been seriously injured, two of whom are in this 
room pursuant to a Chrysler bankruptcy. There are serious 
questions about whether the government's investment in Chrysler 
is going to lead to elevation of long delayed safety standards 
that the auto companies have been fighting. And there are 
really serious questions about the intermediate consumers which 
obviously are the dealers. I think you have got about 8 or 9 
days before you can turn this around and bring it back to 
Congress. Your tens of billions of dollars that you have 
already loaned out or are about to loan out, there is a 
reciprocity involved there.
    Mr. Gohmert. Well, you have been innovative in some of your 
approaches to try to advocate on behalf of consumers. Do you 
see a suit by you through the Federal Advisory Committee Act to 
try to prevent some of these sacrifices that appear to be in 
the making?
    Mr. Nader. You mean, the way the task force is structured? 
    Mr. Gohmert. Yes.
    Mr. Nader. It is very cleverly structured to avoid coming 
under the Federal Advisory Committee Act. It is basically run 
by existing high officials in the Administration and they have 
basically provided assistance in the form of the few people who 
are actually doing the operating work, and it is not called an 
advisory committee. Therefore, we can't demand representation 
in terms of the people on the advisory committee to represent 
the various stakeholders or a certain open records. All the 
other things that Ms. Claybrook, a public citizen, has worked 
very long and hard on, the Federal Advisory Committee Act.
    Mr. Gohmert. You had to be shocked that you weren't invited 
to be part of the Auto Task Force, I take it?
    Mr. Nader. I think it is very, very Wall Street-oriented. I 
don't want to stereotype Wall Street because it stereotyped 
itself in recent months, more than I could ever expect to.
    Mr. Gohmert. Now they are partners with the government, 
though, so it is a good thing, because the government and Wall 
Street have partnered, and now the government and the auto 
industry are partnering, and of course, insurance industry, we 
are partnering with them. It seems to have a theme I have heard 
of before in history that listed about 70 years before it was 
brought down. But let me ask----
    Mr. Nader. You mean in the corporate state, right?
    Mr. Gohmert. Yes.
    Mr. Nader. That is a very serious issue for Congress to 
have hearings on, because you just pinpointed a very serious 
giant step into the moral of the corporate state, that Franklin 
Delano Roosevelt warned us about in 1938 when he said, when 
government is controlled by private economic power that is 
fascism. Those are his very words.
    Mr. Gohmert. It seems like maybe Orwell had it wrong by 
about 25 years is the way it is appearing.
    Mr. Grossman, how can we possibly hope that giving the UAW 
major ownership in these companies could produce a successful 
bankruptcy or long-term lease structuring of these entities?
    Mr. Grossman. I think the answer is that we can't. The 
history of sorts of transactions is one that is filled with 
failures, that is filled with companies bouncing in and out of 
bankruptcy. I think the risk at that point is that taxpayer 
enormous investment in these companies. It will be entirely 
unrecoupable.
    Mr. Gohmert. Thank you, Mr. Chairman.
    Mr. Conyers. Please note I recognize the gentlelady from 
Los Angeles, Maxine Waters.
    Ms. Waters. I thank you very much, Mr. Chairman. I have to 
apologize for being in and out of the Committee. We have 
Secretary Donovan over in the Financial Services Committee on 
my section 8 legislation that is dealing with housing for all 
of these poor people in the country. But this is very important 
and I wanted to be back here.
    I have been working with Mr. Damon Lester for months now as 
he has walked these halls trying to get some attention to what 
has been happening with the minority auto dealers when we were 
spending the other $350 billion of the TARP money and trying to 
determine how they could be heard and what we could do to be of 
assistance, this is kind of disastrous here. I think everything 
has been said about the importance of dealerships to towns and 
communities and the economic value that they have.
    And I want to speak particularly to the minority auto 
dealers and the fact that we have been very proud that as 
African Americans have tried to build wealth in this country, 
that the minority auto dealers was at the top of the list of 
those who worked very hard and who brought jobs and 
opportunities into our community and helped us to build wealth 
and to stabilize our communities. Unfortunately all of that 
seems to be at risk at this point as we look at what is 
happening with the major manufacturers and the deals that are 
being cut in order to reshape them, reform them, or realign 
them or whatever is being done.
    There are two aspects of this that I would like to speak to 
and I hope that I can center in on what I consider two major 
problems. Number 1, there are those who would like to stay in 
business and would like to have some assistance, and would who 
would like to find a way to do that needing very badly to have 
some financial assistance. And then there are those who are 
ready to get out of the business, but they don't want to be 
left stuck with all of this liability, whether it is the 
inventory forced upon them by the manufacturers or related 
liabilities, all having to do with the management of those 
dealerships.
    I suppose the questions I have in mind are those, number 1, 
as they make decisions about what dealerships will be cut and 
those that will stay, what is the formula? How are the 
determinations made? Does anyone have that information?
    Mr. Lester. For Chrysler, as Randy Henderson already 
mentioned, there was no criteria has been made publicly. We 
reached out to the head of Chrysler, Jim Press, on several 
occasions already. I am now being directed to the public 
relations department, inquiring as to why and what was the 
rationale for the 789 termination dealer lists.
    For General Motors they have made it public that their 
criteria was based on sales, expectancy, customer service, 
profitability, and capitalization, as well as the number of 
vehicles that were sold per year, but for Chrysler there has 
not been any transparency at all yet. It has just been very 
quiet as far as how they should be accountable to these dealers 
now.
    Ms. Waters. Professor David Skeel, can't this information 
be compelled?
    Mr. Skeel. I would think so. Certainly in the bankruptcy 
court, there is a very, very high premium on disclosure and 
transparency. The dealers as creditors in the bankruptcy have 
the right to question the debtor, and I think they should be 
able to compel.
    Ms. Waters. And should do that. And additionally, if 
inventory was forced upon dealers that is creating a liability 
for them, should not that information be made available and 
documented for the bankruptcy court?
    Mr. Skeel. I would think so. That would be part of the 
claim that the dealerships in the bankruptcy case.
    Ms. Waters. And could not the bankruptcy judge make a 
determination that that is unfair liability and they should not 
have to assume it and that the manufacturers would have to pick 
up those costs to absorb those costs, whatever they are, could 
that not be a determination?
    Mr. Skeel. That is harder. The normal rule would not be 
that that is part of your claim in the bankruptcy case and it 
would be treated like the rest of your claim in the bankruptcy 
case. So getting the court to actually force Chrysler to pay 
the expense, it may be there is some argument that you could 
make along those lines, but that is a little bit harder. The 
information part is easier.
    Ms. Waters. And maybe I should not be asking you this, 
maybe I should be asking myself and my colleagues this. As the 
government considers the assistance that they are going to give 
to the manufacturers, could not a case be made that the 
liability costs be assumed in whatever TARP funding may be 
forthcoming.
    Mr. Skeel. Certainly something that could be considered.
    And one point that I would like to make for you all that 
has been made indirectly is the most important thing, in my 
view, is to separate what goes on in the bankruptcy court from 
what is done outside of bankruptcy. And things like 
guaranteeing the warranties, which I think was a very good 
idea, helping particular constituencies, those can be done 
outside of bankruptcy. Where it becomes pernicious is when 
those two things are put and the bankruptcy process is 
distorted. I think it is very important to keep those two 
functions separate.
    Ms. Waters. And let me just ask, as decisions are made 
about what dealerships should be cut and if part of those 
decisions are a consideration such as you have dealerships that 
are in close proximity to each other and that that is not 
viable, that they will not be able to support, could one raise 
questions about who determined where dealerships would be in 
the first place?
    Mr. Skeel. Yes, you absolutely can raise those questions. 
In the bankruptcy process, it is very hard to win that kind of 
an argument. There is a lot of deference to the company itself, 
to Chrysler in making that decision. But certainly the 
dealerships are entitled to know exactly why they made those 
decisions and what the basis for them is. And all of that can 
be raised in the bankruptcy court.
    Ms. Waters. Thank you.
    I guess what I am getting out of this, Mr. Chairman, if I 
may, is that we may still have a role to play in all of this; 
and that role has to do with negotiating with this 
Administration about what they are going to do to help ease the 
pain on these dealers.
    We have the TARP money. That money is going to be used in 
some shape, form, or fashion. And if the dealers could put 
together a wish list of how they can be assisted in this 
terrible time that we are in, whether that is to maintain or to 
exit, and that was presented by way of negotiation or 
legislation with this Administration, we may be able to be of 
some real help. Could you conclude that?
    Mr. Skeel. I think so. TARP is extraordinarily broadly 
worded; and so the companies that are funded through TARP, 
there is a lot of flexibility there.
    Ms. Waters. We can do whatever. We lost the battle to have 
control of the second $350 billion, as you know. It is all over 
in the Administration with a lot of flexibility, and that may 
give us an open window here by which to try and impact the way 
that that is appropriated.
    Mr. Skeel. It is certainly an option.
    Ms. Waters. Thank you, Mr. Chairman. I think that shines a 
little bit of light on what is possible.
    Mr. Conyers. Thank you so much, Maxine Waters.
    Before I recognize Bob Goodlatte, I want to point out that 
there is a chronological warp we are in. The 8 or 9 days will 
have run out by the time we come out of the week's recess. And 
so assuming that we were going to have the staff working on a 
legislative redirection of some of these issues, unless we got 
an extension of this expiration date, we would be doing some 
noble things, but it would be after the fact. And I would like 
to just open up to the eight of you if anybody sees a way that, 
if we chose to do this, we would have to get some permission to 
extend the time line and then begin to work on the legislation.
    I just wonder what you eight and Mel Watt and Maxine Waters 
respond, how would you all respond to this chronological fix 
that I think we are in.
    Mr. Fein. I think, Mr. Chairman, you can maybe get 
unanimous consent by legislation. Just freeze or hold in 
abeyance the situation so you have more than 8 or 9 days. 
Because that is not complex legislation.
    And another method of at least temporarily providing some 
protection would be to just pass simple legislation saying that 
the bankruptcy court cannot preempt certain State protection, 
consumer protection, dealer protection laws. It is very simple 
legislation, and then it automatically would kick in to provide 
some to the dealer and consumer protections that have been 
mentioned here.
    Mr. Nader. Mr. Chairman, I just might add that the obstacle 
is a June 1st guideline for $1 billion payment on GM bonds by 
the company. If the Chrysler precedent is teachable, the task 
force will make its report before the end of May, and they can 
be in bankruptcy court in 48 hours. So the $1 billion payment 
is going to be put before you as an obstacle, and I think the 
Administration can handle that with its TARP money. So that is 
an insuperable obstacle on June 1, and you can ask for more 
time. And short of a resolution, I think just a political 
communication to the White House by leaders of the House and 
Senate saying, wait, don't rush to the bankruptcy court; we 
have to look at this.
    Ms. Claybrook. I would also suggest, Mr. Chairman, if you 
can't get it done through the leadership, you may just want to 
send out a, hey, dear colleague, and see how many Members sign 
on. And if you get more than 218 Members in the House or 50 
Members in the Senate, you have got a majority that spells 
problems for the Administration if they don't listen to you.
    Mr. Lester. I think our President is the only one that can 
really do this thing immediately for us. At this point in time, 
as you already mentioned, the time, the clock is ticking. And 
these gentlemen back behind me, we don't have time to wait for 
any legislative action, particularly since you guys are in 
recess. At this point, our President is the only one who can 
mandate this and get this thing done immediately.
    Mr. Conyers. Let's turn now to Bob Goodlatte, who, in 
addition to being a senior Member of the Committee, was the 
past Chairman of the Agriculture Committee.
    Mr. Goodlatte. Mr. Chairman, thank you very much for 
holding this hearing. I hope that it has been timely, given the 
rush of events that we have here. And, quite frankly, I view 
this as an oversight hearing of the actions taken by both the 
Bush administration and the Obama administration that raise 
considerable questions regarding what is the appropriate role 
of bankruptcy in this process.
    Quite frankly, I did not support the bailouts last year. I 
felt that there was an appropriate role to be played. I find 
Professor Skeel's and the comments of others, including the 
President, that the Congress could play a role in guaranteeing 
the warranties so that companies going into bankruptcy could 
still sell cars to people and hopefully come out of a 
bankruptcy on the other side--but I am very, very concerned 
about the role that is being played behind closed doors in the 
dark of night to decide the fate of this bankruptcy before it 
ever gets to the fair judicial process that it is supposed to 
undergo. And if there are some alternations that need to be 
made because of the magnitude of these bankruptcies or because 
of the impact on consumers, then the Congress should be playing 
an aboveboard and clear role, and it should not be occurring 
out of the sight of the public and the people who are funding 
these bailouts and are going to suffer the consequence of this 
action.
    So with that having been said, Mr. Grossman, let me ask 
you, are you concerned that the Chrysler bankruptcy plan is an 
illegal sub rosa plan cooked up in the dark of night by the 
Auto Task Force of the Administration without any meaningful 
input from Chrysler's senior secured lenders?
    Mr. Grossman. There is a strong argument to be made that 
the sale, the sham sale, that has been put together by the 
Obama administration does indeed violate the Bankruptcy Code. 
That said, the way that the appeals process works within the 
bankruptcy courts it seems very unlikely that the sale would be 
overturned or in any way annulled. It does, of course, as I 
think many people on this panel have discussed, create a very 
serious precedent that could allow more and more of these types 
of sales to go forward, whether aided and abetted by the 
government or by managers of a corporation that are seeking to 
freeze out outside investors or indeed to loot the company.
    Mr. Goodlatte. People playing outside the scope of the law 
as it has been structured by this Congress over centuries.
    Let me ask you, Professor Skeel, can you briefly explain 
what a sub rosa plan is, why it is illegal, and whether you 
believe the Chrysler plan is a sub rosa plan?
    Mr. Skeel. To answer your last question first, I do believe 
it is a sub rosa plan. What a sub rosa plan is, what it means 
is a disguised plan, where this is, in form, a sale of assets. 
In theory, we are just selling Chrysler's assets to this new 
company. But really what we are using this sale to do is to 
decide who gets what. We are not just raising money for the 
assets. We are deciding who gets that--that Fiat gets some 
stock in Chrysler, that the employees get some stock in 
Chrysler, that the dealerships are not protected by this sale, 
that other people are not protected by this sale.
    So, in effect, what we have is a reorganization plan 
without going through any of the reorganization process, the 
right to negotiate the plan, the right to vote on it. So, yes, 
I do believe it is a sub rosa plan; and I do believe it is 
illegal.
    Mr. Goodlatte. We have been sitting here concerned about 
the speed with which events are unfolding with the inability of 
the Congress to act. But let me ask you also, and others may 
want to answer this as well, the sale procedures for Chrysler's 
assets provided for just over 1 week for potential bidders to 
put in a final offer for substantially all of Chrysler's assets 
with no due diligence or financial contingency. Does anyone 
believe that this is an absurdly short time period for a multi-
billion dollar transaction that was designed to do anything 
other than to preordain a bankruptcy plan that is being 
structured out of the sight of the public and before we are 
ever in the bankruptcy court somewhere in the corridors of the 
Administration?
    Mr. Skeel. I will start by saying, yes, I do think it is an 
absurdly short period of time. Short time period sales are 
sometimes appropriate if the assets are going to disappear 
suddenly or there are other extraordinary circumstances. A 
short time for a sale is not necessary here. We could have 
allowed much more time.
    Ms. Claybrook. I would like to say that when you have a 
very short period of time it means that the people who are less 
powerful don't have a voice because they don't have the time to 
get organized. If you have lawyers on your payroll, if you are 
normally involved in litigation, then you do have time.
    Mr. Goodlatte. And that is what a Chapter 11 reorganization 
is supposed to do. It freezes the situation as best you can and 
puts it in the court for a deliberative process to evaluate the 
assets, evaluate the rights of all of the parties involved and 
then come forward with the best plan in the judgment of the 
court, hopefully with the agreement of the parties, to be able 
to move forward and move this out of bankruptcy again and have 
the company survive and the employees survive and the consumers 
rights be protected and the cars that they purchased and want 
to have their warranties honored. Or, as Mr. Nader points out, 
the right to be protected if the car has been defective and 
want to have their rights protected in that process.
    All of that has to be carefully considered, and it ought to 
be done in a formal process under the rule of law, rather than 
have that all happen ahead of time and then drop down on the 
court and say this is what we expect to happen.
    Mr. Chairman, if I might be allowed one more question. Mr. 
Grossman, did the Troubled Asset Relief Program funds 
essentially to bail out Chrysler and General Motors violate the 
terms of the Emergency Economic Stimulus Act which only gives 
the Secretary of the Treasury the power to purchase troubled 
assets from financial institutions which are defined as, quote, 
any bank, savings association, credit union, security broker or 
dealer or insurance company, end quote.
    Mr. Grossman. I think the answer is that it does violate 
the terms of that Act. I think an automaker by anyone's 
estimation is not a financial institution. Under the 
Administration's logic, any corner restaurant that offers a tab 
to its customers would be a financial institution. I think that 
is ridiculous.
    Mr. Goodlatte. Well, Mr. Chairman, I have heard from many 
who were--I don't have any auto plants in my district, but I 
have a lot of auto parts manufacturing plants. I have many, 
obviously, auto dealers who I have heard from about this 
process. They believe that this is something that is not being 
decided by Chrysler; it is being decided by somebody somewhere 
in the Administration. And if there is anything that Congress 
can do to bring this to the light of day and restore an orderly 
process to it I certainly would be anxious to work with you, 
and I will bet many on my side of the aisle would be willing to 
work with you and others on your side of the aisle who have 
expressed concerns about where we have been brought to to this 
point.
    Mr. Conyers. Thank you, Mr. Goodlatte. Thank you very much.
    The Chair recognizes Bill Delahunt of Massachusetts, a 
Member of the Foreign Affairs Committee and himself a former 
prosecutor from Massachusetts.
    Mr. Delahunt. Thank you, Mr. Chairman.
    I would like to associate myself with the ending of the 
concluding remarks of the gentleman from Virginia. I think we 
have an obligation along the lines articulated by Mr. 
Goodlatte.
    But I think some of us are having difficulty understanding 
the basics. So I just want to have one of you walk me through 
the process. I have real process issues here, procedures. Now, 
I don't know who I could pick on. Mr. Fein I rely on on a 
regular basis. But in a typical Chapter 11 reorganization there 
is a plan, and the plan is either approved by the bankruptcy 
court or amended by the bankruptcy court after objections are 
filed and there are hearings. Am I correct?
    Mr. Skeel. Yes, that is mostly correct. The only 
distinction I would make is the bankruptcy court doesn't amend 
the plan. The bankruptcy court is meant to be a referee. So the 
bankruptcy court can hear objections on a plan, agree with the 
objections if they are correct, and then say to the parties, 
you need to go back and do this over; this does not square with 
the bankruptcy laws.
    Mr. Delahunt. Okay. So we are talking about a referee here.
    Now, we have this situation where one of the stakeholders, 
obviously a significant stakeholder, is the American public, 
the taxpayers. Government funds are here. Now, I have heard Mr. 
Nader and other panelists talk about accountability and 
delegation. Tell me if I am wrong. Is this particular process, 
since the government is, let's say, the centerpiece or the 
major stakeholder in this, given the bailout money, this 
Committee specifically, because we have jurisdiction of 
bankruptcy, has oversight. And I think that is what we are 
doing today. Mr. Nader, I hear you reference 8 or 9 days to go. 
That doesn't give us very much time.
    Mr. Nader. On your first point, which is the responsibility 
of the government, it is essentially--the moment a major 
company comes to Washington and asks Washington to save it, as 
General Motors did, it is a political process and a 
congressional responsibility. So anybody who says, well, we 
don't want to politicize this, you have crossed that Rubicon. 
It is a political responsibility with radiating concerns way 
beyond the General Motors headquarters in Detroit and 
communities all over the country.
    Mr. Delahunt. I guess what I am saying, Mr. Nader, is that 
we do that--we might have--you or others would argue or suggest 
that the delegation--I think this is Bruce Fein's point, too--
is we have delegated too much.
    I guess what I am saying is when we passed a Bankruptcy 
Act, I guess one could say that was delegation and conferred 
upon the bankruptcy court certain powers. But I guess what I am 
saying, because of the unique nature or the unusual nature of 
this particular reorganization, the government has a different 
role. And what we do here is to exercise--Congress exercises 
its oversight responsibility to ensure--I think you used the 
term, Mr. Nader--that the equities are there. I don't think it 
really requires us to pass new legislation. Help me.
    Mr. Nader. I think it does. Let me tell you. I will give 
you an example.
    The task force has a very narrow focus, and it is secret, 
and it is not representative, but it has a full authority of 
the President to, right now, as we speak, dictate to Chrysler 
and General Motors certain things like closing down dealers.
    Mr. Delahunt. Let me just ask you about the task force. 
That is an executive branch----
    Mr. Nader. But there are no standards. You set no standards 
for it. Even for the independent--yeah, that is the point. 
There are no congressional standards. It is a two-tier 
delegation ending up in a secret negotiation.
    Mr. Delahunt. But I guess what----
    Mr. Nader. Just to go to your point. For example, the task 
force has not informed us how it is handling General Motors' 
assets and unrepatriated profits in China. Now, for example, if 
General Motors says, well, we don't have money to pay the $1 
billion on June 1st and the task force says, yeah, are we 
entitled to accept that on trust? What is the asset base and 
the unrepatriated profits, which are enormous in China?
    Mr. Delahunt. I guess what I am saying--I am not 
necessarily disagreeing with you. What I am saying is our next 
step in the process would be to call, to summons in or invite 
in the task force to this Committee to explain the process and 
how they concluded what decisions they made.
    Mr. Nader. Exactly. Before they rush to bankruptcy court.
    Mr. Conyers. Will the gentleman yield briefly?
    Why don't we rush into 1600 Pennsylvania Avenue and get 
this thing worked out and bring a bipartisan delegation?
    Mr. Delahunt. Well, Mr. Chairman, whatever you say. I know 
Mr. Gohmert would go. I know Mr. Goodlatte would be there. 
Darrell Issa, you know he would be there.
    Mr. Conyers. Well, what about Bill Delahunt?
    Mr. Delahunt. You know, I am just a lieutenant in the 
Conyer's army. Between trips overseas, I would be happy to 
accompany you.
    But I just kind of wanted to understand this conceptually. 
Mr. Fein.
    Mr. Fein. Mr. Delahunt, I think what could be done is, 
instead of having the bankruptcy judge be the referee, as we 
discussed who is ordering the priorities, the equities, you 
could require that the plan be presented to the Congress which 
has 60 or 90 days to vote on it. So it is not oversight. You 
are deciding whether the priorities are correct or not, which--
and it doesn't have to be in every single bankruptcy. It could 
be where the government also has invested its own funds. It is 
not just a bystander. Or the size of the particular level that 
makes the equities far more significant than in a tiny case so 
you are not bombarded with these countless occasions. We are 
always told, well, these companies are too big to fail. Well, 
maybe they are too big to get bankruptcy judges to get them out 
and you have to decide that as well.
    Mr. Delahunt. Could I have an additional 30 seconds, Mr. 
Chairman?
    I am beginning to think that we should have a new standard 
in terms of our antitrust, our marketplace, and that is if it 
is too big to fail it never should have got there in the first 
place. Because I think we really do put at risk our economy. 
And who ends up getting tagged with the bill? It is the 
American taxpayer. And it diverts us away from a free market.
    If it is too big to fail, then you no longer have a--in my 
judgment, or at least in my limited economic perspective, that 
is not a free marketplace. That is not a marketplace that is 
working.
    I yield back.
    Mr. Conyers. Thank you very much, Mr. Delahunt.
    The Chair is pleased to recognize the gentleman from Ohio, 
Jim Jordan.
    Mr. Jordan. Thank you, Mr. Chairman. I thought Darrell was 
next, but I appreciate it.
    Mr. Conyers. Wait a minute.
    Mr. Jordan. I spoke too soon.
    Mr. Conyers. Now that I am looking at the gentleman from 
California----
    Mr. Issa. Thank you both.
    Mr. Conyers. Darrell Issa.
    Mr. Issa. Thank you, Mr. Chairman.
    When I was born in Cleveland, Ohio, I never knew how 
important my Ohio roots would be to me.
    Mr. Chairman, I would ask unanimous consent to include in 
the record articles from The New York Times, The Wall Street 
Journal, and The Financial Times.
    Mr. Conyers. Without objection, so ordered.*
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    *Note: The information referred to was not submitted for inclusion 
in the record.
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    Mr. Issa. Thank you.
    I would like to go down a fairly narrow track, but I think 
one that may not have been covered here. Professor Skeel--and I 
think the minority auto dealers may very well find this 
unexpectedly pleasant. From a bankruptcy standpoint, the monies 
that the American people put in to--let's just take Chrysler 
for a moment--those monies are, in a sense, monies that were 
outside a bankruptcy. In other words, they were put in under 
terms that, if not for those monies, these companies would, 
both GM and Chrysler, would have already been bankrupt. In 
other words, these are like debtor-in-possession funds, even 
though they weren't put in under those terms. Don't they have 
that sort of color to them, in anticipation of insolvency we 
rushed in?
    Mr. Skeel. Absolutely. In fact, I would go a step further 
and say they are debtor-in-possession funds. The government is 
a debtor-in-possession financier even in a formal sense.
    Mr. Issa. So I am going take the next step for a moment. 
Because I think the auto dealers, both GM and Chrysler, are 
getting a raw deal. And as a person that grew up in the 
industry I have got a concept I want to run by you as a 
professor knowledgeable with what we could do in bankruptcy. If 
in fact there but for the dollars all the dealers would have 
closed, then no dealer has any right to its franchise, is that 
correct, in abstract terms?
    Mr. Skeel. In a sense, yes.
    Mr. Issa. And in a bankruptcy all the franchises could be 
voided on day one, right?
    Mr. Skeel. That's right. The way it would work is Chrysler 
would terminate the agreements. It is known as rejecting an 
executory contract.
    Mr. Issa. So if we do A and B, then C would seem to be that 
all the dealers on some proportional basis have an equal right 
in new contracts, new franchises, assuming for a moment, as is 
planned, they are going to be issued for no dollars.
    Now, if Chrysler said, we are going to void all these 
things and we are going to go out and look for dealers and 
raise money, that would be a different story. But since they 
have nothing in their plan that is going to bring in new 
dollars, wouldn't it be fair for all of the dealers, including 
the many dealers being closed, some of them minority dealers, 
to say that they have an equal right to the common new 
dealerships, even though some are being given and some are not?
    Mr. Skeel. As a matter of equity, you can make that 
argument. As a matter of bankruptcy law, that is not going to 
work. The bankruptcy law rule is that Chrysler gets to decide 
which dealerships to keep and which not to keep. So to the 
extent you are making an equitable argument, it may be a 
powerful argument. It is not a bankruptcy argument.
    Mr. Issa. But back to the bankruptcy point, you said none 
of the dealers have a claim.
    Mr. Skeel. Well, they do have a claim.
    Mr. Issa. Well, okay. Let me rephrase that. None of the 
dealers have a right to keep their dealerships.
    Mr. Skeel. Right.
    Mr. Issa. And they can all be voided, and they would just 
be unsecured creditors. Given that situation, I am going 
hypothecate something. Chrysler and GM should in fact in 
bankruptcy in their plan void all the contracts and require 
people to bid value to be franchise dealers again.
    In other words, there is a pot of money, of value that GM 
and Chrysler are not looking to which the corpus has an 
obligation to seek. To the extent that they waive that for some 
legacy reason, fairness, whatever, or to the extent that the 
DIP financier is waiving his own funds--which we are doing, we 
are going to forego our own funds--we in a sense buy that deal. 
We say, you can't go out and charge more.
    If you make those logical arguments, that in fact nobody 
has a right, you absolutely could and should try to seek new 
monies for whoever wants those valuable franchises, whatever 
the amount are, because there is certainly going to be a lot of 
people with empty dealerships looking for a business 
opportunity and willing to pay new money to not have an empty 
building. To the extent that they forego that, they have to 
forego it for a reason; and to the extent that we, the 
taxpayers, are giving--literally giving money into this deal, 
is it not reasonable for those of us here that represent the 
taxpayers to ask for that equity?
    And is there anything in bankruptcy law that would prevent 
essentially--and I will just throw out an abstract. For each 
car you sell, you get a share. The sustaining dealers, the ones 
that are chosen to continue, have X amount of shares, but in 
order to buy their dealership they essentially have to find the 
rest of the shares, which means they have to make whole these 
other shareholders who do not get their dealers open.
    From a bankruptcy standpoint, there is nothing prohibiting 
it. From a standpoint of the people who are literally giving 
money into a deal, there is no problem.
    And, back to my original question, which is the only one I 
am going ask here, if they do not do something like this, if 
something is not done to equalize this, then why in the world 
shouldn't we, the taxpayers, expect in order to have the 
maximum wholeness they void all the contracts and resell their 
franchises if there is a net value that would go to the 
creditors?
    Mr. Skeel. Again, you can make this argument. It is 
Chrysler's decision whether to do that or not. You can make an 
argument they----
    Mr. Issa. But Chrysler has a fiduciary obligation to its 
creditors to maximize that value.
    Mr. Skeel. That's right.
    Mr. Issa. And is there any way that anyone can say that if 
you voided all the contracts you couldn't go out and sell new 
dealerships for more than $1?
    Mr. Grossman. Mr. Issa, if I may, in a traditional 
bankruptcy, where a plan is proposed and creditors rights are 
taken seriously----
    Mr. Issa. Not this one, but in a traditional one.
    Mr. Grossman. That is the sort of proposal that would be on 
the table and that the company would have a possibility of 
executing. Because they would be taking their creditors' rights 
seriously. That is not this bankruptcy.
    Mr. Issa. Not yet.
    Mr. Grossman. The Obama administration has done something 
very different.
    Mr. Lester. For our standpoint, the issue still remains of 
access to capital. We can do a fire sale today, and the dealer 
still needs to get adequate working capital to survive. We can 
do a dollar buy-out, we can do a penny stock buy-out, but the 
issue is the credit markets as it relates to dealerships across 
this country today are not lending to automobile dealers.
    So we are still--no matter what value you want to place on 
this scenario, having access to capital is the problem. And 
then we are going to create a scenario where those that have is 
going to be versus those that have not that don't have, and the 
deep pockets will always win. So that balance is still going to 
be off scale because of the fact----
    Mr. Issa. I understand that the companies who do not have 
access to capital and are small dealers and are scheduled to 
not be renewed, they presently are getting zero. And even if we 
said you could stay in business, you would have to go find 
money, and it is not likely to be easy to find.
    What I am saying is, in an ordinary bankruptcy where this 
kind of money has come in and we are looking at the equities, 
is there any basis for the current deal that is on the table, 
which is we pick winners and losers, we tell the losers tough 
luck, and we don't actually exercise any recognition of the 
value given for those who get to keep their franchises for free 
versus those who lose them regardless?
    More than anything else, Chairman, that seems to be one 
of--we have lot of anomalies that may or may not be fixed in 
bankruptcy. I have taken my time to ask of this one because I 
am confounded to believe that people are simply told, you lose 
and you get no credit, but the people who get to continue being 
dealers, multi-million dollar, actually enhance the value, pay 
nothing for the enhanced value they are getting of their 
competitor down the street being closed out.
    I cannot--even though I am as conservative as the day is 
long, I cannot understand how that equity of closing your 
competitor and giving you the business doesn't have a value 
that needs to be equalized, particularly since we, the 
taxpayers, are giving billions of dollars in this transaction.
    Mr. Conyers. Would you be willing to present this argument 
on Pennsylvania Avenue?
    Mr. Issa. Absolutely. As long as we have got an American 
car to ride down the street to, I will go with you, Chairman. 
And it can be one of those made in America by any tag name.
    Mr. Conyers. Oh, gosh.
    Jim Jordan, Ohio.
    Oh, I am sorry, Brad Sherman, California.
    Mr. Sherman. Thank you, Mr. Chairman.
    I want to start off by mentioning the comments of two 
people who are no longer here. First, Mr. Goodlatte mentioned 
that there is a real question whether TARP money can be used to 
bail out auto dealers. I point out that this House passed a law 
that was thought to be necessary to give the Secretary of the 
Treasury the right to do that with the TARP money.
    I voted for that, because when I looked at all the ways 
they could use the TARP money, bailing out the auto dealers 
seemed to be among the better. And the law didn't pass the 
Senate. And the Treasury acted as if the law had passed the 
Senate, thus disempowering and making useless the Senate, which 
seemed to be a wonderful idea. But at least when we all voted 
for that law it was with the assumption that it was necessary.
    I should point out that there was discussion of evading the 
law--not evading, structuring around the law by having TARP 
give the money to GMAC or some other financial institution in 
return for--well, you basically have the bank buy stock from 
General Motors and then sell it to TARP or to the Treasury; and 
then we would have been buying a troubled asset, a/k/a stock in 
General Motors, from a financial institution.
    Also, Professor Lynn LoPucki--I believe is the correct 
pronunciation--made the point, Mr. Chairman, about how forum 
shopping in bankruptcy undermines not only the bankruptcy 
system but the financial services system. Because whenever you 
make a loan you have to ask what happens if the company goes 
bankrupt or at least has trouble. And I think he did an 
excellent job of outlining why we should be getting rid of 
forum shopping.
    Professor Skeel--and I don't know if your background 
encompasses bankruptcy law.
    Mr. Skeel. It does.
    Mr. Sherman. I could see why a judge in Delaware would 
really want the business because he could help support his 
whole community. It would be significant to the local economy. 
But why would a judge in New York City whose economy is not 
supported by the bankruptcy law business do violence to the law 
just to land some more cases? Most of the district judges I 
know don't want more cases. Why does the bankruptcy court in 
New York want to do everything possible to bring in more cases?
    Mr. Skeel. Well, it is dangerous to have me channeling Lynn 
LoPucki, because I don't agree with Lynn about many of his 
arguments in this area. Although I think we do agree on this as 
to--I don't think that forum shopping is worrisome, as Lynn 
LoPucki does.
    But I do agree with him on why judges might be interested 
in having the cases. Having one of these cases--I am not sure 
Chrysler is a good example--but having WorldCom or Enron, it is 
very exciting if you are a bankruptcy judge, and it is sort of 
in all of your career you might get two or three cases like 
this. So if you have an opportunity to have Enron or WorldCom 
or some other big case, it is exciting for you as a judge.
    Mr. Sherman. Got you.
    Mr. Henderson, I am trying to figure out why every article 
I read about GM and Chrysler says they would be much better off 
if they got rid of half their dealers or a third of their 
dealers. This strikes me as odd.
    I mean, Sony could have worked things out so that I could 
only buy a Sony TV in 5,000 places around the country. They are 
happy to have 50,000 places sell me a television. And that 
creates competition, which means there is less markup, which 
means either Sony can charge more and I pay less and the 
middleman--you being the middleman--in the automobile industry 
gets less.
    So why is it thought--I mean, I can see why if I was an 
auto dealer I would want the three auto dealers closest to me 
all shut down. But why would General Motors or Chrysler feel 
that they would benefit? How do they save money if they have 
only six dealers in L.A. County instead of nine dealers in L.A. 
County?
    Mr. Henderson. Mr. Sherman, I think that their argument is 
around a term called throughput. They believe that the more 
units solid per facility, the stronger those dealers will be. 
The more those dealers will be able to invest in their 
businesses, the more they will be able to compete against other 
franchises. That is their argument.
    Mr. Sherman. So their theory is that if you could make 
another hundred bucks a car for every car you sold you would 
make your showroom nicer. There would be the gourmet teas, not 
just the Lipton available for those of us who don't drink 
coffee.
    Mr. Henderson. That is part of their argument, yes, sir.
    Mr. Sherman. On the other hand, if you have got dealers 
three miles in each direction, you are going to have to cut the 
price of that car by another hundred bucks.
    Mr. Henderson. That is correct. It would present a more----
    Mr. Sherman. Don't give me the fancy tea. I want the 
hundred bucks.
    Is there somebody selling cars in the United States that 
has as their model, let's try to have lots of dealers and each 
one will sell only 500 cars or 1,000 cars? Or is it generally 
accepted in the business it is somehow great to have dealers 
that do 5,000 cars a year? I am making those numbers up. I 
could be off as to what is the difference between a small 
dealer and a big dealer.
    Mr. Henderson. There are arguments on both sides of that 
issue, and they have been ongoing for some time. And there are 
markets that dealers will be the first to agree that could 
stand to have less dealers.
    Mr. Sherman. Well, the dealers would, because you can jack 
up the price. And you may or may not then invest more money in 
the dealership. You may just invest more money in your vacation 
home.
    Mr. Henderson. Absolutely. The question becomes----
    Mr. Sherman. Back when this was a profitable business and 
you all had vacation homes.
    Mr. Henderson [continuing]. As it relates to a bankruptcy 
how that process is accomplished. Is it accomplished through 
market attrition or a dealer buying out and paying fair 
compensation or is it accomplished by just the stroke of a pen 
that allows people's wealth to dissipate?
    Mr. Sherman. Is there anyone else with expertise in the 
auto industry that can opine as to whether GM or Chrysler is 
actually making itself healthier by getting rid of dealers?
    Ms. Claybrook. I would like to comment on that, Mr. 
Chairman.
    I have dealt with many auto dealers over the years, and 
there are favored auto dealers and there are unfavored auto 
dealers by the factory, as they call it. And if there is an 
auto dealer who is a bit of a troublemaker, who complains a 
lot, who doesn't do their warranty work as well, who claims too 
many warranty claims, those dealers they would just as soon get 
rid of.
    This is an opportunity, particularly in the Chrysler case, 
where there is no standards, it is highly discretionary among 
Chrysler, to make their choices. And I don't know how much of a 
role that is playing in this, but I will tell you that it is a 
subject of conversation all the time at the factory level.
    Mr. Sherman. I mean, I can see them wanting to get rid of 5 
or 10 percent of their dealers who do bad warranty work or 
whatever. But I can't imagine you would want to get rid of a 
third of your dealers for that. Are there that many doing bad 
warranty work?
    Ms. Claybrook. No, no, no. As long as they have this wide 
discretion. So they are going do get rid of the ones they don't 
want, and then they are having to deal with the government 
saying they want to get rid of more of them so that they are 
slimmed down.
    But I am just saying that one of the factors probably is 
the factory wants have the discretion to make the choice about 
who to keep and who not to keep.
    Mr. Sherman. I would say it benefits consumers to have as 
many competitors as possible not only to compete to sell me the 
car but then when I want to get the car serviced I would like 
to take it someplace pretty close.
    Mr. Nader, do you have any comment on this? Are consumers 
benefited? No one has focused on consumers more than you have. 
Do consumers benefit by----
    Mr. Nader. Of course. If you are in the position of someone 
who wants to have a car serviced or buy a car, do you want to 
travel 10 miles, 15 miles? Do you want to travel 7 miles 
through a congested city or do you want one in your 
neighborhood? Already there are far less dealers than there 
were 20, 30 years ago. Take a look at Washington, DC.
    Mr. Sherman. Are there far less total dealers or just fewer 
domestic and more foreign auto dealers?
    Mr. Nader. No, no. Overall, overall. Your neighborhood 
dealer is almost extinct in terms of traveling three or four 
blocks for a dealer.
    The other thing is you are less likely to repair your car 
if you have to take more time out and go to the dealer. That is 
why there is legislation here in Congress to allow equal access 
by independent repair shops, because there aren't that many 
dealers. In the rural areas, they are being shut down; minority 
areas, they are being shut down. So for safety, convenience, 
and competition, the fewer dealers, the price is going to be 
going up. The Washington Post had an article on that very 
recently. So all to more dealers.
    Mr. Sherman. So it is bad for the consumers, I have got all 
the dealers complaining about it, and I can't get anybody on 
this august panel to tell me how it makes more money for the 
manufacturers.
    Mr. Grossman, you are raising your hand. How is putting the 
folks to your right out of business going to help these 
companies survive? Or just some of them, not all of them.
    Mr. Grossman. Well, I don't presume to know which dealers 
should be in business and which ones should not in particular. 
But I would note that the most powerful automotive retailer 
chain in the United States, the most powerful sales force, is 
widely considered in the industry to be Toyota's. Toyota's 
dealers have a throughput, on average, of about 1,100 vehicles 
per year. Many General Motors and Chrysler dealers sell as few 
as 50 or 70 cars per year. There are fixed costs that are 
associated with addressing every single dealer, and for many of 
those dealers----
    Mr. Sherman. What are these enormous fixed costs of dealing 
with a smaller dealer?
    Mr. Grossman. There are marketing costs.
    Mr. Sherman. There are marketing costs. What does that 
mean?
    Mr. Grossman. It means that they do joint marketing. For 
example, they may place ads in newspapers, on television, in 
the radio.
    Mr. Sherman. But a small dealer gets very little of that 
money, I mean, proportionately. If you only sell 50 cars----
    Mr. Grossman. Right. Proportionately, a small dealer will 
get less of that money. But, at the same time, the expense of 
creating those advertisements, creating those radio spots is, 
to some extent, a fixed cost.
    Mr. Sherman. Or it could be borne by the dealer. I can't 
imagine that there is a dealer about to be put out of business 
that wouldn't say, fine, leave me in business and I will design 
my own ads, or, hell, I will even just do my own advertising. 
This is not a situation where they are turning to some dealers 
and saying we are going to reduce your cooperative marketing 
budget. We would get a lot less angst from auto dealers if they 
said, well, we have got to do advertising on our own than what 
we hear from the dealer.
    Mr. Lester.
    Mr. Lester. There is absolutely no validity to a shrinkage 
of a dealer body that will show the viability of a 
manufacturer. As Mr. Nader pointed out, historically, there are 
less dealers than there were maybe 50 years ago; and that has 
been based on natural attrition. A dealer who just makes his 
own decision on when he or she decides to go out of business, 
that should not be dictated or demanded from our government or 
via the Auto Task Force.
    The Auto Task Force and I have had an opportunity to sit 
before them on several occasions, took a clean-sheet-of-paper 
approach and decided to use the model of Toyota that had very 
few dealerships across the country with the thought that their 
model of a successful dealer should also fit within the model 
of GM and Chrysler. That in and of itself is a model that may 
work for Toyota.
    It may not work for GM and Chrysler, who have historically 
been in those neighborhoods who get their car vehicles 
serviced, and to now have these consumers with these 
terminations with these dealerships closing to now be 
inconvenienced, to have to travel 10, 15, 20 miles to be able 
to sit 2 hours to get an oil change where they are accustomed 
to getting oil changes in 30 minutes. So it is not a valid 
point on a fixed cost----
    Mr. Sherman. I will agree with you. If you are starting to 
market cars for the first time in the United States you might 
very well say, oh, copy Toyota, that seems to be working for 
them. But if you already have dealers with goodwill all over 
the country, it should take more than Toyota envy to get you to 
close them all down.
    With that, I will yield back.
    Mr. Conyers. Thank you, Brad Sherman.
    Jim Jordan, Ohio, you are the last Member to question the 
panel.
    And then any member of the panel that wishes to make a 
closing comment, we would welcome it before we adjourn the 
hearing today.
    Mr. Jordan. Thank you. Thank you, Mr. Chairman.
    Last fall, when we were in the midst of this bailout fever 
that got ahold of Congress, whether you are talking the 
financial industries or the auto industry, I remember in the 
midst of the debate about the car czar and everything else, the 
headline in The Wall Street Journal, ``Do You Want a Car Built 
by Congress?''
    And it is actually worse, as Mr. Nader has pointed out. The 
headline should read now: Do You Want a Car Built by 
Bureaucrats? Because it seems to me that is where we are at.
    And I want to ask the gentleman here in the dealership 
business. This is from the press, at least what our office got 
from the Department of Treasury. Do we know if any of these 
individuals have, as Mr. Sherman just said, any expertise in 
the auto industry? Treasury.
    Secretary Geithner; Diana Farrell, Deputy Director of 
National Economic Council; Gene Sperling, Counsel to the 
Secretary of Treasury; Jared Bernstein, Chief Economist to the 
Vice President; Andrew Montgomery, Senior Advisor Department of 
Labor; Lisa Heinzerling, Senior Climate Policy Counsel to the 
EPA; Austan Goolsbee, Staff Director/Chief Economist to the 
Economic Recovery Advisory Board; Dan Utech, Senior Advisor to 
Secretary of Energy; Heather Zichal, Deputy Director, White 
House Office of Energy and Climate Change; Joan DeBoer, Chief 
of Staff, Department of Transportation; and Rick Wade, Senior 
Advisor, Department of Commerce. Do these individuals have any 
expertise on the manufacturing side or on the dealer side?
    Mr. Lester. None.
    Mr. Jordan. Does anyone else know if they have any 
expertise in how car manufacturing or car dealership businesses 
operate?
    Mr. Grossman. The Wall Street Journal actually did a survey 
of the members of the Automotive Task Force and discovered that 
a substantial portion of them don't even own cars.
    Mr. Jordan. Mr. Chairman, I think Mr. Delahunt's suggestion 
earlier--which I know Congressman Gohmert, as well as others--
to have the task force come here would be great. I would love 
to ask them some questions.
    Just for the record, Mr. Lester or Mr. Henderson, is it 
your testimony--and I have heard conflicting testimony on this 
from various sources over the last week. Is it your belief that 
it is the task force making the decision about which 
dealerships stay in business and which don't, or is it Chrysler 
and GM making the decision and then getting the thumbs up from 
the task force?
    And, frankly, it may be the same difference. But just for 
the record, which is it? A or B?
    Mr. Lester. What we have been told by the task force is 
that they have no decision-making process between General 
Motors and Chrysler in the decisions that they have been 
making. It is our assumption that we think that they actually 
are pulling the strings of General Motors and Chrysler and 
directing them in the way that they want to be directed to see 
this outcome.
    Mr. Jordan. Mr. Henderson.
    Mr. Henderson. What we have been told by Chrysler is that 
the task force has been directing their large, drastic, quick 
reduction of the dealer body as part of the bankruptcy.
    Mr. Jordan. Well, that is sort of contradictory. Are you 
saying that it is starting with the task force and then going 
to the manufacturer?
    Mr. Henderson. It starts with the task force. The task 
force is not making the decisions on the specific dealers but 
the process of doing a large dealer reduction.
    Mr. Jordan. Is the task force saying, we want X number, 
this number, now GM and Chrysler get to that number. Is that 
going on? Are they making the determination on the----
    Mr. Lester. On the number? No, I think that number was 
coming from the manufacturers. I think the task force did not 
make an individual selection based on who stays and who goes, 
but I think the task force demanded that the manufacturers 
adhere to what they put in their viability plans last December 
19th.
    Mr. Henderson. Again, it is an acceleration, Mr. Jordan. 
The plan of reducing and consolidating dealers has been on the 
table at Chrysler for a number of years, but it has been 
dictated by the market, and people were being compensated 
fairly for their franchises.
    Mr. Jordan. Mr. Gross, if I can just sort of change--just a 
general question. And this is a guy who thought we never should 
travel down this road, this bailout road, voted against every 
single one of them, and thought it was the wrong approach 
because of the very mess we are in right now and the fact that 
we put this kind of taxpayer dollars at risk and what we are 
doing to the debt and everything else.
    But to use again the words that Mr. Nader used, when do you 
believe we crossed the line? Crossed the Rubicon, I believe is 
the word used earlier. Was it when we started the bailout with 
the auto industry last fall? Was it when the President of the 
United States told Rick Wagner to take a hike, he now decides 
who runs companies in this country, not the stakeholders, not 
the board? Was it when we did the first TARP bailout?
    I mean, in your judgment--or, frankly, anyone can jump in 
there, I guess, if they want. But, Mr. Grossman, in your 
judgment, when did we cross this what I believe is a very 
dangerous line in this country?
    Mr. Grossman. I think that line was crossed about 3 to 4 
days after the passage of the TARP legislation. That was the 
point when Secretary Paulson acknowledged that the original 
plan for the TARP to purchase troubled assets would not be 
followed and that the government would do something completely 
different. And I think that was an indication--and it should 
have been a clear notice to Congress--that the legislation that 
had been passed was something that gave pretty much 
unprecedented discretion to the Treasury and to the executive 
branch.
    Mr. Jordan. All right. Thank you, Mr. Chairman.
    Mr. Conyers. Any closing observations?
    Judge Gohmert.
    Mr. Gohmert. I have just appreciated the comments--Mr. 
Jordan, Mr. Sherman, panel members, Mr. Lester--your comments 
about the dealers and how that really helps the manufacturers 
to put people out of business. But I have been hearing 
specifically of one dealership where $2 million was paid to the 
former dealer to buy the dealership, been paying down on it, 
owe a million and a half still, and all of a sudden they are 
told by some group that met behind closed doors they are going 
to take that and give it to somebody down the street.
    I mean, what happened to contract law, what happened to 
bankruptcy law, what happened to secured creditors, all these 
things? If we continue down this course without getting back on 
track to the rule of law and the law of contracts and the 
bankruptcy law, then I am concerned that we degenerate to a 
third-world nation where some king says, oh, you are more 
favored as a duke today, so I am taking this one's land and 
giving it to you. It seems where we have gone, and I think it 
is up to this Committee to see that we don't stay there, we get 
back on track.
    So I very much appreciate the hearing, and I very much 
appreciate your input, and any in the future in writing is 
certainly welcome. Thank you very much.
    Mr. Nader. If I may say, Mr. Chairman, the contemplation 
that most delighted me, and I think some people here, was your 
statement that there might be a bipartisan journey to 1600 
Pennsylvania Avenue very quickly before it is too late.
    Mr. Conyers. Like tomorrow.
    Mr. Nader. Yes. And I think the bipartisan aspect is very 
important. I think some of the things that Congressman Delahunt 
was talking about would be supported by a lot of conservatives 
and vice versa.
    Mr. Conyers. Could Judge Gohmert help make it more 
bipartisan?
    Mr. Gohmert. Yes, absolutely.
    Mr. Conyers. Thank you.
    Mr. Lester. I want to definitely echo what Mr. Nader said. 
We have no time to waste.
    As dealers, just the amount of stress and the amount of 
stress on these dealers' employees from the Chrysler side that 
know they are on that termination list with no place to go, 
with no health care is just tragic. And to give these dealers 
an opportunity to survive and a chance to survive because they 
were surviving already even with the low economy is very well 
within this merit. And I think you guys going to the White 
House and demanding that the President act now because we don't 
have time to wait.
    Mr. Fein. Mr. Chairman, I would like to add a couple of 
examples which amplifies on the lawlessness of the attitude 
that is so alarming.
    It was Secretary Paulson--and this is even before the TARP 
funds were authorized--was bailing out Bear Stearns and he was 
asked, well, what authority did you have? And he said, none 
whatsoever, but I learned in this town if you lead everyone 
will follow. And it was Mr. Paulson who got these bankers 
around a table and said, even if you don't want the funds, you 
develop preferred stock so we can buy them. A coercion of the 
type that I think Mr. Grossman referred to with regard to 
getting the senior creditors to take a subordinate role.
    That is dangerous, that mentality. I mean, what do you mean 
to be so cavalier? We didn't have any authority. Then you 
should go to Congress and ask for it.
    Mr. Conyers. What about Paulson calling in the leaders of 
the Congress and laying down those three sheets of paper: one, 
I want more power than any Treasurer has ever had; two, I want 
$700 billion, and I want it fast; and, three, I don't want it 
reviewable by the Congress or the courts.
    Ms. Claybrook. Mr. Chairman, I would just like to say that 
the auto dealers are a tragic case, and I completely agree with 
everything that has been said here. But I don't want the record 
to close without saying that the individual consumer, the 
individual consumer that has been harmed by a defective 
product, the individual consumer who is likely to be killed or 
injured because there are not safety standards in these 
vehicles, they are the ones whose voices are rarely heard. And 
I hope that when you do go to the White House--and I urge you 
to do that as well--that you will be sure to bring those cases 
to their attention.
    Because the liability that these consumers have the 
potential to secure, to protect themselves in the future is all 
they have; and many of them are so badly injured they can't do 
anything else except to survive on those funds.
    Thank you.
    Mr. Conyers. We might want to make an expedited transcript 
of this record available to the White House.
    Mr. Ditlow. Mr. Chairman, if I may, I am very much 
concerned that at the end of the day this task force and the 
bankruptcy will create what looks like a financially viable 
corporation by getting rid of liabilities, focusing and cherry-
picking the best assets, but will it sell cars? I don't think 
it is going to do that.
    Because you have to have a consumer who has confidence that 
if I buy a lemon, if I am in a crash, I have a right that I can 
exercise. No one wants to be in a crash. No one wants to buy a 
lemon. But consumers want to know that they have a right. And 
this reorganization doesn't do that.
    And, furthermore, from a dealer viewpoint, the consumer 
wants to buy a car from a dealer that they know and trust, 
someone in their neighborhood; and it doesn't even give them 
that. So it may have a good economic tune, but it is not going 
to be an organization that is going to sell cars.
    Mr. Grossman. Mr. Chairman, this issue is important because 
the fake bankruptcies of Chrysler and soon, apparently, General 
Motors are a microcosm of the abrogation of the rule of law 
that I think threatens our freedom and prosperity. I commend 
you for holding this hearing and thank you for having me 
testify.
    Mr. Conyers. The Chair notices the presence of other 
dealers and nonprofit organizations that have been working 
along with us, and we particularly appreciate the stamina of 
the eight of you to be here as long as we have been here.
    So we thank you all and adjourn this hearing.
    [Whereupon, at 4:40 p.m., the Committee was adjourned.]

                            A P P E N D I X

                              ----------                              


               Material Submitted for the Hearing Record

Prepared Statement of the Honorable Daniel Maffei, a Representative in 
   Congress from the State of New York, and Member, Committee on the 
                               Judiciary

    Thank you, Mr. Chairman for holding this hearing, and I thank our 
witnesses for being here, especially on such short notice. While I am 
glad that we are holding this hearing today, I hope that we can explore 
this issue further in future hearings as well. This is obviously an 
important issue, and we need more time to fully understand the matter 
at hand.
    As I'm sure we are all aware, Chrysler and GM have begun to 
restructure their business model by drastically reducing their dealer 
networks. The closing of these dealerships will have a significant 
impact on local communities and will have a ripple effect on all the 
related businesses that depend on them. If these closings go into 
effect, we could possibly see 150,000 more people out of work. This is 
unacceptable in good economic conditions, and it is completely 
intolerable during a time of financial crisis. This goes beyond CEOs to 
hard working Americans across the country fighting to survive this 
recession.
    I think it is important to ask how the closing of hundreds of 
dealerships will be financially beneficial to these two auto companies. 
This is a question that I just cannot seem to answer. I have recently 
requested that the President's Auto Task Force help Congress get 
answers on why this is happening.
    Both GM and Chrysler accepted TARP money, so their restructuring 
plans should come under congressional oversight. There has been an 
utter lack of transparency in the means by which Chrysler and GM have 
chosen to reject dealers' franchise agreements. If there are too many 
auto dealers in the market, then maybe some do need to close, but the 
closings need to be justified. Trimming the dealer network is a 
situation that either needs to be done using very specific, very 
transparent criteria, or it needs to be done by the market through 
attrition and consolidation. At the very least, I think the Task Force 
should step in and slow the reduction, so communities can gradually 
absorb the jobs being cut.
    I would hope that the automakers reconsider their decision and 
really think about the damaging effects that this will have on local 
communities. I look forward to the testimony from our panel. Thank you, 
Mr. Chairman, I yield back.

                                

 Prepared Statement of the Honorable Trent Franks, a Representative in 
   Congress from the State of Arizona, and Member, Committee on the 
                               Judiciary


















                                

       Prepared Statement of the Honorable Nick J. Rahall, II, a 
       Representative in Congress from the State of West Virginia

    Mister Chairman, first, please let me thank you for holding this 
important hearing. As you know, the state of the American auto industry 
is of crucial concern to all of us. Second, I want to express my 
sincere appreciation for allowing me to offer my opinion on this issue.
    I want to express my grave reservations with the recent 
announcement by Chrysler and General Motors to cut nearly 1,800 
dealerships nationwide. I am very concerned about the harmful impact it 
will have on local communities, as well as the future market-share of 
American car manufacturers.
    Such a drastic reduction of dealerships will be devastating to 
communities. Car dealerships are an important economic engine. As you 
know, they provide high paying jobs and significant tax revenue for 
local governments. In my home state of West Virginia, franchised 
dealers account for over $3 billion in sales, $165 million in sales 
taxes, and approximately $75 million in titling fees for the highway 
fund.
    It is not clear how each dealership was chosen for closing or if 
cutting such a number of dealerships will even have a significant 
impact on improving the manufacturers' viability. Dealers generate more 
than 90 percent of manufacturer revenue. A rapid reduction of 
dealerships undercuts that revenue while doing nothing to address 
concerns about production and innovation.
    In closing, I urge transparency and openness regarding the manner 
in which these dealerships have been chosen, and I ask that you pass 
along my opinion that the Presidential Auto Task Force revisit the 
current strategy as it relates to such a large number of dealership 
closures.
    I believe that dealerships, especially in West Virginia, can be 
part of the solution to improving the long term solvency of our 
nation's auto industry.
    Thank you for your consideration and, again, thank you for allowing 
me to comment on this important topic here today.

                                

  Material submitted by the Honorable Steve King, a Representative in 
Congress from the State of Iowa, and Member, Committee on the Judiciary




























































































                                

 Letter to the Honorable Steven Rattner, Counselor to the Secretary of 
       the Treasury, submitted by the Honorable Daniel Maffei, a 
  Representative in Congress from the State of New York, and Member, 
                       Committee on the Judiciary














                                

          Material submitted by Ralph Nader, Consumer Advocate













                                

  Prepared Statement of Jeremy Warriner, submitted by Joan Claybrook, 
                   President Emeritus, Public Citizen






                                 
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