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





         RAMIFICATIONS OF AUTO INDUSTRY BANKRUPTCIES (PART II)

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

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                   COMMERCIAL AND ADMINISTRATIVE LAW

                                 OF THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 21, 2009

                               __________

                           Serial No. 111-54

                               __________

         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
                                 ------                                

           Subcommittee on Commercial and Administrative Law

                    STEVE COHEN, Tennessee, Chairman

WILLIAM D. DELAHUNT, Massachusetts   TRENT FRANKS, Arizona
MELVIN L. WATT, North Carolina       JIM JORDAN, Ohio
BRAD SHERMAN, California             HOWARD COBLE, North Carolina
DANIEL MAFFEI, New York              DARRELL E. ISSA, California
ZOE LOFGREN, California              J. RANDY FORBES, Virginia
HENRY C. ``HANK'' JOHNSON, Jr.,      STEVE KING, Iowa
  Georgia
ROBERT C. ``BOBBY'' SCOTT, Virginia
JOHN CONYERS, Jr., Michigan

                     Michone Johnson, Chief Counsel

                    Daniel Flores, Minority Counsel












                            C O N T E N T S

                              ----------                              

                             JULY 21, 2009

                                                                   Page

                           OPENING STATEMENTS

The Honorable Steve Cohen, a Representative in Congress from the 
  State of Tennessee, and Chairman, Subcommittee on Commercial 
  and Administrative Law.........................................     1
The Honorable Trent Franks, a Representative in Congress from the 
  State of Arizona, and Ranking Member, Subcommittee on 
  Commercial and Administrative Law..............................     2
The Honorable John Conyers, Jr., a Representative in Congress 
  from the State of Michigan, Chairman, Committee on the 
  Judiciary, and Member, Subcommittee on Commercial and 
  Administrative Law.............................................     3
The Honorable Lamar Smith, a Representative in Congress from the 
  State of Texas, and Ranking Member, Committee on the Judiciary.     5
The Honorable Daniel Maffei, a Representative in Congress from 
  the State of New York, and Member, Subcommittee on Commercial 
  and Administrative Law.........................................     6
The Honorable Howard Coble, a Representative in Congress from the 
  State of North Carolina, and Member, Subcommittee on Commercial 
  and Administrative Law.........................................     7
The Honorable Henry C. ``Hank'' Johnson, Jr., a Representative in 
  Congress from the State of Georgia, and Member, Subcommittee on 
  Commercial and Administrative Law..............................     8
The Honorable Melvin L. Watt, a Representative in Congress from 
  the State of North Carolina, and Member, Subcommittee on 
  Commercial and Administrative Law..............................     9
The Honorable Darrell E. Issa, a Representative in Congress from 
  the State of California, and Member, Subcommittee on Commercial 
  and Administrative Law.........................................    14
The Honorable Sheila Jackson Lee, a Representative in Congress 
  from the State of Texas, and Member, Committee on the Judiciary    15
The Honorable William D. Delahunt, a Representative in Congress 
  from the State of Massachusetts, and Member, Subcommittee on 
  Commercial and Administrative Law..............................    15

                                WITNESS

Mr. Ron Bloom, Senior Advisor, U.S. Department of the Treasury
  Oral Testimony.................................................    16
  Prepared Statement.............................................    19

          LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

Letter submitted by the Honorable Melvin L. Watt, a 
  Representative in Congress from the State of North Carolina, 
  and Member, Subcommittee on Commercial and Administrative Law..    11

                                APPENDIX
               Material Submitted for the Hearing Record

Response to Post-Hearing Questions from Ron Bloom, Senior 
  Advisor, U.S. Department of the Treasury.......................    59

 
         RAMIFICATIONS OF AUTO INDUSTRY BANKRUPTCIES (PART II)

                              ----------                              


                         TUESDAY, JULY 21, 2009

              House of Representatives,    
                     Subcommittee on Commercial    
                            and Administrative Law,
                                Committee on the Judiciary,
                                                    Washington, DC.

    The Subcommittee met, pursuant to notice, at 11:10 a.m., in 
room 2141, Rayburn House Office Building, the Honorable Steve 
Cohen (Chairman of the Subcommittee) presiding.
    Present: Representatives Cohen, Conyers, Delahunt, Watt, 
Maffei, Lofgren, Johnson, Franks, Jordan, Coble, Issa, and 
King.
    Also present: Representatives Jackson Lee and Smith.
    Staff present: (Majority) James Park, Counsel; Adam 
Russell, Professional Staff Member; and (Minority) Daniel 
Flores, Counsel.
    Mr. Cohen. This hearing of the Committee on the Judiciary, 
Subcommittee on Commercial Administrative Law will now come to 
order. Without objection, the Chair will be authorized to 
declare a recess of the hearing. I will now recognize myself 
for a short statement.
    With our hearings today and tomorrow, we will continue to 
explore the ramifications of the automobile industry 
bankruptcies. Back in May, the full Judiciary Committee heard 
testimony from a wide spectrum of viewpoints, most of which to 
some degree, took issue with the plans of the presidential task 
force for the auto industry for restructuring Chrysler and 
General Motors.
    Today is the opportunity for the task force to answer 
critics of its plan. One issue that has raised considerable 
concern with Members of Congress, on both sides of the aisle, 
is the treatment of automobile dealers in the Chrysler and GM 
bankruptcy processes.
    As part of its restructuring, there were 789 dealerships 
that were eliminated by Chrysler, giving in effect the dealers 
less than a month's notice. Similarly, General Motors plans to 
wind down and then close 2,500 of its 6,300 dealerships, 
representing 40 percent of its dealerships. That is a lot of 
jobs in our communities and in America.
    The affected auto dealers contend their stores are not a 
cost to either General Motors or Chrysler. The dealers assert 
that GM and Chrysler benefit from having more dealers not 
fewer. The car dealers also contend that GM and Chrysler select 
the dealerships for termination by using an arbitrary selection 
process.
    I am particularly concerned about the impact these have on 
minority dealers, who I fear will suffer disproportionately. In 
my district, Mr. John Roy, the owner of a Chrysler dealership 
in South Haven, Mississippi, but a resident of my district, was 
the only African American Chrysler dealer within a 300-mile 
radius around Memphis.
    He sold cars not only in Tennessee but in Missouri, 
Arkansas and Mississippi. Over many years he built a reputation 
for high quality customer service. He is one of only two 
Chrysler dealers in the Memphis area to receive an elite five 
star rating for customer satisfaction with Chrysler.
    He was also number one in sales for the Memphis 
metropolitan area for Chrysler. Notwithstanding all those facts 
and his outstanding business acumen, his dedication to 
outstanding performance over the years as a loyal Chrysler 
dealer, Chrysler decided to terminate his franchise. To me, it 
is unconscionable that Chrysler would treat a successful and 
loyal dealer in such a manner.
    While I understand the task force had no role in selecting 
particular dealerships for closure, I would like to know to 
what extent the task force considered the impact of widespread 
dealership closures on the economy and on communities around 
the Nation and on the minority community that had been held 
back for so many years in this industry as well as others, but 
this industry especially.
    Another issue of some concern to Members is the treatment 
of those with tort claims against the old Chrysler and General 
Motors. Totally new system, central to the reorganizations of 
Chrysler and GM was the sale of their viable assets, newly 
created entities, pursuant to Section 363 of the Bankruptcy 
Code.
    These new entities become the new Chrysler and General 
Motors. The sales were approved free and clear of liabilities 
including claims of accident victims, victims of defective 
products and present asbestos claims.
    The end result is the tort victims can recover little or 
nothing for their injuries because they can only assert their 
claims against the limited assets of the old GM and the old 
Chrysler, which is negligible. I would like to know the task 
force plans for ensuring that tort victims receive just 
compensation for their injuries, which they should and have in 
other particular situations like this.
    I thank Mr. Bloom for appearing before the Subcommittee 
today and I hope his testimony will be enlightening. I am sure 
it will be. I now recognize my colleague, Mr. Franks, the 
distinguished Ranking Member of the Subcommittee for his 
opening remarks.
    Mr. Franks?
    Mr. Franks. Well, thank you, Mr. Chairman. Welcome, Mr. 
Bloom. Mr. Bloom, it has been claimed by some that all your 
auto task force ever sought was viable General Motors and a 
viable Chrysler. But sir, I simply do not see the evidence 
pointing to that being true.
    Viable companies aren't made by delivering ownership of 
them to the union whose unrelenting contract demands and 
unbending work rules drove them headlong down to the road to 
bankruptcy in the first place.
    Viable companies don't slash and burn the rights of the 
secured bond holders knowing that the issuance of new corporate 
bonds is bound to be a key in their future survival. Viable 
companies don't ransack their dealerships based on criteria 
that seem to range from arbitrary at best to overtly political 
at worst.
    Viable companies don't eagerly sign up for CAFE standards 
that can only force them to make small cars Americans don't 
want for the nonexistent profits that don't follow. Viable 
companies aren't the product of a President who says he doesn't 
want to run auto companies and then fires the CEO and lets his 
auto task force run them instead.
    Mr. Bloom, it is my view that what the President and the 
auto task force sought was not viable companies but pliable 
companies, companies that could be converted into shells with 
which the Administration could shake down investors, undermine 
constitutionally protected property rights and pass large 
portions of the companies to the control of the United Auto 
Workers Union.
    All of this, to date, has been accomplished. So my question 
for you today rhetorically at first is, why and how did you not 
see that the Administration pursued its short-term political 
goals, and as it was doing so it was devastating the long-term 
future of our bond markets?, bond markets on which the 
Administration must rely upon to finance the overwhelming debt 
is putting upon the American people?
    Did you not see that the American people would be outraged 
at the Administration's transparent manipulation of these 
companies would be simply to put the bankruptcies to gift wrap 
them for the union?
    Did you not see that the lawlessness of what the task force 
was doing as it put together deals would be shredding the 
Bankruptcy Code? For the past 8 years, President Obama and 
others like him allege that the Bush administration was 
lawless.
    A return to lawfulness was their pledge. But this 
Administration that lawlessly gives imaginary constitutional 
rights to foreigners who seek to attack Americans, this is the 
Administration that lawlessly deprives American citizens and 
investors of their contractual rights, rights that are the 
bedrock of America's economy and their prosperity.
    This is the Administration that lawlessly is sowing the 
seeds of America's economic ruin. But Mr. Bloom, I will just 
say that, you know as I have said before, that the foundation 
of this economy is not all what we as conservatives just point 
at as competition.
    It is trust. It is the belief that those who would put 
forward capital investment can trust their government to 
enforce contracts as they promised and this Administration has 
done everything but that, and I hope the American people are 
watching. I hope they wake up in time, I am not sure they will.
    With that, Mr. Chairman, I yield back.
    Mr. Cohen. Thank you, Mr. Franks.
    I now would like to recognize the distinguished Chairman of 
the Committee for an opening statement, Mr. Conyers.
    Mr. Conyers. Thank you, Chairman Cohen. I am happy to be 
here today. I didn't know I would have to rise in defense of 
the Administration, the United Automobile Workers, the 
bankruptcy courts and I don't know who else is lambasted. You 
give me options.
    Well, it is generous of you. I will probably need more than 
5 minutes, but all I am going to do is straighten out one thing 
because I had some other points I wanted to make. For you to 
think that the UAW had so many concessions, I would like to 
make you feel a little bit better.
    They gave up so many concessions that their leadership was 
wrongly criticized because every time they went in to 
negotiations with the admonition that you guys are going to 
have to come up with more, it was the union that gave up more 
pensions, more sick care, more working conditions, reducing 
staff.
    You know, those weren't executives that were laid off. The 
people that lost their job, my dear friend, were working 
people. UAW didn't sit down and say, ``Let us cut out some 
locals and let us send some plants overseas.'' They didn't want 
to do that.
    So for you to think that they won big prizes there was a 
lot of resistance in the automobile systems. And how do I know, 
because all three American automobile companies are 
headquartered in Detroit and that was how I know that.
    So maybe you will feel a little bit better as a result of 
finding that out and maybe you will hear some more things at 
this hearing that will make you think about what it is we are 
doing. We are in for a tough time, and I think that your 
misunderstanding of how those negotiations went, well we will 
all help you feel a lot better when this hearing is over with.
    Now, there is one problem I have that I hope comes into the 
discussion, not necessarily with our distinguished first 
witness. But why do we get so much resistance from the 
amendment that one of our colleagues, Mr. Maffei and Obey and 
LaTourette all have passed, that they were opposing this 
amendment, an effort to try to get the dealers a better deal?
    And by the way, it wasn't just the nearly 800 auto dealers 
that got this rude awakening. It was also about 1,700 Chrysler 
dealers. There were also 1,700 General Motors dealers and some 
of them were importuned to take additional inventory and then 
the next day they got a telegram saying their dealership was 
being closed down.
    And when they tried to return the additional cars, they 
said no you took them now. That is on your watch. So this 
should be very helpful because I really enjoy working with 
Trent Franks and, just to get the record straight, now will be 
very helpful for both him and myself.
    And I will yield to him if he wants me too.
    No? Okay, I turn my time back.
    Mr. Cohen. Thank you, Mr. Chairman. I appreciate your 
comment. I would like to take Mr. Franks' defense. He didn't 
say anything about the Detroit Lions at all.
    Mr. Conyers. That was too easy a shot and he is a 
gentleman. He wouldn't do that.
    Mr. Cohen. The next Member who seeks recognition on this, 
the distinguished Ranking Member of the full Committee, the 
gentleman from San Antonio, Texas, Mr. Lamar Smith, and you are 
recognized.
    Mr. Smith. Thank you, Mr. Chairman. And I just want to warn 
the Chairman of the full Committee that he may want to make his 
same comments after I finish my statement as well because they 
are very similar to Trent Franks.
    Mr. Chairman, I am increasingly troubled by the actions of 
the Administration and the GM and Chrysler bankruptcies. 
Through these and so many other actions, the Administration is 
taking us from morning in America to mourning for the American 
way.
    The GM and Chrysler bankruptcies are a major reason why. 
They have been the leading edge of the Administration's war on 
capitalism. From the auto bankruptcies to financial 
institutions, to government-run healthcare, the Administration 
is staging a government takeover of much of the private sector.
    Whether it is taxpayer-funded bailouts or shady deals 
behind closed doors and the auto bankruptcies, the 
Administration's solution is to bully businesses into 
government-run deals that benefit political allies. These deals 
are funded by unprecedented government spending and tax hikes 
on American families and businesses.
    The auto task force's actions did not aim to produce viable 
companies. They aim to advance the Administration's political 
agenda and reward the Administration's political friends. The 
auto task force trampled the rights of secured creditors and 
other investors then swept them aside.
    It then delivered company ownership to the UAW, its 
faithful supporter. The union now owns 55 percent of Chrysler. 
It also owns 35 percent of GM When the government sells its own 
stake in GM, surely it will turn the union's share into a 
majority share.
    The Administration clearly sees these as political gains 
for itself but what have been the gains for the American 
people? America has not gained but has lost much. Through the 
auto task force actions, particularly its destruction of 
secured creditor's rights, the Administration has severely 
undermined the rule of law.
    It has struck a devastating blow to the integrity of the 
Bankruptcy Code and contract law. It has shaken the confidence 
of investors and America's willingness to honor laws that 
protect creditors. The protection of creditors has made America 
the gold standard for investors from overseas.
    After the Administration's actions in these bankruptcies, 
the American standard is looking more like fool's gold. These 
actions could hardly come at a worse time. The Administration 
has pushed America deeper into debt.
    The GM and Chrysler bankruptcies have helped to reveal the 
Administration's way of doing business. This is the 
Administration of the bait and switch. The Administration said 
it wanted to spend taxpayer money only to produce viable 
companies.
    Instead it spent the money to increase the size of 
government, politicize the economy and reward union patronage. 
Vice President Biden said, ``We have to go spend money to keep 
from going bankrupt.''
    That is the kind of illogical thinking that has perpetuated 
the recession and led the Administration to take over private 
companies.
    I thank you, Mr. Chairman, and I will yield back.
    Mr. Conyers. Well, wait a minute.
    Mr. Smith. And I will yield to the Chairman of the full 
Committee first.
    Mr. Conyers. Well, all I want to do is associate with all 
the remarks that I discussed with Mr. Franks, I apply to you.
    Mr. Smith. I understand, Mr. Chairman.
    Mr. Conyers. Just to save time.
    Mr. Smith. I understand. I will yield back to the 
Subcommittee Chairman.
    Mr. Cohen. Thank you. We have a difference of opinion here. 
One side thinks this is a war on capitalism and the other side 
thinks it is a surgery to try to protect against Wall Street 
inflicted suicide on capitalism. Anybody, who on this side 
wants to make----
    Mr. Maffei, you are recognized, sir.
    Mr. Maffei. Thank you, Mr. Chairman. If it is all right 
with the Chairman, I am going to actually speak about the topic 
of the hearing today. I want to thank Mr. Bloom very much for 
coming. For a century, the American auto industry has been a 
vital pillar of our economy, providing well paid jobs to hard 
working middle class Americans who are the foundation of this 
country.
    My grandfather was a plant manager at a General Motors 
factory in Syracuse, New York. That plant closed in the early 
1990's and now almost all of the auto and parts manufacturing 
facilities in upstate New York are gone, lost as part of past 
restructuring efforts.
    In the most recent of the multiple restructuring attempts 
by GM and Chrysler, Federal assistance was granted first by the 
George W. Bush administration. I do want to remind my 
colleagues that I know this was 7 months ago, but it was the 
George Bush administration at the end of 2008 that first 
granted this Federal assistance. There was no vote by Congress 
on this policy then and there has not been since.
    As 2009 began in an effort to ensure long term viability of 
these companies, President Obama appointed an auto task force 
to oversee the restructuring process. The task force reviewed 
and actively worked with Chrysler and GM during their 
reorganization.
    Yet the Congress and the American public were left in the 
dark as to how the task force, then led by Steven Rattner, 
reached its conclusion, and I think that is the underlying 
problem. There simply has not been very good communication 
between the President's auto task force and Congress.
    The decisions were implemented without the auto 
manufacturers or the task force presenting evidence publicly or 
even privately to Congress, that some aspects of this 
reorganization would actually benefit the auto companies 
financially.
    Included in this reorganization was the closing of hundreds 
of auto dealerships around the country, including several in my 
home area of central New York. However, there has been very 
little transparency into how these dealers were closed or how 
these closings, excuse me, will benefit GM and Chrysler today 
or down the line.
    Then to make matters worse, many of these dealers were able 
to produce evidence that they had been successful, sometimes 
even by the same standards that GM and Chrysler were purporting 
to use. And there was no dealer appeal process for Chrysler, 
and at the time it seemed like a sham appeal process with GM
    At this point I would like to make it clear that I believe 
that Congress has no interest in running the day-to-day 
operations of these companies nor does the Obama 
administration. Yet, with so much taxpayer money invested, it 
is our responsibility to provide adequate oversight.
    We in Congress did not ask for this responsibility, but 
once public funds were involved, we cannot ignore it. We don't 
want to hurt the auto manufacturers in their restructuring 
efforts moving forward, but auto dealers are indeed a big part 
of our local community and the national economy. They employ 
about approximately 50 people each and they need to have a seat 
at the table as well.
    In short, we don't just want a bailout for the auto 
industry. We don't want a bailout for the auto industry to 
become a washout for the auto dealerships.
    Thank you very much, Mr. Chairman.
    Mr. Cohen. Thank you.
    We switched from the gentleman from Syracuse to the 
gentleman from North Carolina that passed Syracuse in the NCAA, 
Mr. Coble.
    Mr. Coble. Thank you, Mr. Chairman for calling the hearing. 
I have two other meetings, Mr. Chairman. I probably won't be 
able to stay for the entire hearing. Mr. Bloom, good to have 
you with us. My colleagues, as we all know, automobile dealers 
generally are the leaders in their respective communities.
    I mean, they sponsor the Little League teams. They sponsor 
Boy Scout, Girl Scout efforts. They lead the way in responding 
to causes of charity, to aid the impoverished and now, 
unfortunately, some of these dealers are going to find 
themselves perhaps in the impoverished ranks along with their 
many employees.
    Mr. Bloom, as you probably know, many dealers have 
testified to Congress that they can discern no logical 
principle upon which retained dealers were separated from 
terminated dealers. And some have said, I am not alleging this, 
but some have alleged that partisan politics may have reared 
her head in distinguishing between the terminated and those who 
were retained.
    If you know anything about that, I would be glad to hear 
from you. You may not know anything about it. If the 
termination of dealers, in fact, was not based upon any legal 
or economic principle, I would like to know on what it was 
based.
    And furthermore, I would like to know, Mr. Bloom, if you 
know if the auto task force played a role in the decisions to 
terminate dealerships and if such a role was involved, what was 
it? These are questions that have nagged at me for some time. 
Again, I thank you for being here.
    Mr. Chairman, thank you for calling the hearing and I yield 
back my time.
    Mr. Cohen. Thank you, sir. I appreciate your statement. Is 
there any other Member on the Democratic side?
    Mr. Johnson, the distinguished gentleman from Georgia and 
the Subcommittee Chairman of the----
    Mr. Johnson. Courts and Competition Policy----
    Mr. Cohen [continuing]. And I was thinking of antitrust. 
Thank you.
    Mr. Johnson. All right. Thank you, Mr. Chairman. And I 
would want to thank you for holding this week's very important 
hearings on the ramifications of the auto industry 
bankruptcies. We have talked about shared sacrifice over the 
past year.
    In fact, almost every criticism of the handling of the 
restructuring of GM and Chrysler is met with the response that 
shared sacrifice is required. No one expected the restructuring 
of these great American companies to be painless, and certainly 
it has not been.
    But exclaiming that bankruptcies require sacrifices from 
all parties involved does not answer the fundamental question 
of whether or not parties to these bankruptcies have been 
treated fairly. There is a significant difference, Mr. 
Chairman, between making a sacrifice and being sacrificed.
    And it seems to me that significant numbers of automobile 
dealers have been sacrificed without just cause, without 
explanation and without any available resource, and if left to 
their own devices, the automobile manufacturers would try to do 
the same thing to their workers who are the backbone of this 
economy.
    So when the taxpayers are called upon to bail out the 
industry to the tune of billions upon tens of billions of 
dollars, then the taxpayers have a right to regulate how these 
companies operate, the amount of bonuses that they give out to 
their top executives for being mediocre at best, the rewards 
that the executives get for having absolutely no vision about 
the future and also the lack of social responsibility
    That every leader in every industry should consider not 
just their own profit but what impact do our decisions have on 
the future of this country and its people and the world, as a 
matter of fact, because global warming is happening.
    And you know, this was foreseeable; many people tried to 
deny it but at this point, only those who have their heads 
firmly implanted I guess I will say in the soil, would not 
dispute the effects of how automobiles contribute to the global 
warming problem.
    And so workers should be able to organize and we shouldn't 
blame the unions for getting us to this point. Blame is on the 
financial services industries and on the automobile 
manufacturers for failing to have vision about the future. The 
chickens have come home to roost.
    And I intend to explore through the hearings today and 
tomorrow the treatment of our Nation's automobile dealers. GM 
and Chrysler have set the wheels in motion to close thousands 
of dealerships across the country.
    No one knows why certain dealerships have been chosen for 
closure while others have escaped this fate. Minority-owned 
dealerships and their communities are being disproportionately 
impacted. And both GM and Chrysler seem to have abandoned their 
stated commitments to increase and retain the number of 
successful minority dealers in the United States, again, social 
responsibility.
    In many communities, and especially in minority 
communities, automobile dealers play an integral role in the 
community. They provide essential services, and they serve as 
critical economic engines.
    These closures will be devastating. Instead of having a 
dealership that is easy for consumers to access so that they 
can purchase cars, now we have, you know, if allowed to 
continue, we will severely restrict the number of buyers of 
automobiles because they can't go 50, 60, 70 miles to a 
dealership to purchase a vehicle.
    And if Toyota is right down the street from them, where do 
you think they are going to go? And so it is a mindless, 
ridiculous concept to shut down the dealerships. I have got a 
dealership in my district that once employed over 100 people 
and those people were local people, contributing to the 
economy, and now they have about 13 and this is because of the 
war on dealers, on automobile dealers.
    I don't what the intent of this decision by the automobile 
manufacturers would be or I don't know what they intended to 
accomplish, but certainly I support the congressman and he is 
just a freshman but Congressman Maffei, and I know you.
    I am just--mind slips some time. I support your bill that 
would rectify this wrong. And it is not too much to ask that GM 
and Chrysler fully justify their decisions to impose the 
hardships associated with dealer closures promptly and 
publicly.
    I want to thank also Mr. Ron Bloom for your public service 
with this presidential task force on the automobile industry. 
Once again, I want to thank the Chairman for scheduling these 
hearings and I look forward to hearing from the witnesses over 
the next 2 days, and I yield back the balance of my time.
    Mr. Cohen. Thank you. Without objection, other Members' 
opening statements will be included in the record.
    Would you like to make a statement, sir? I didn't mean--
thank you, Mr. Jordan. Thank you.
    Mr. Bloom, thank you for participating in today's hearing. 
Without objection----
    Mr. Delahunt. Mr. Chairman, the Chair of the Committee.
    Mr. Cohen. Thank you. That is why I have a Vice Chairman to 
help me on such things.
    I would like to recognize the gentleman from North 
Carolina, Mr. Watt, I didn't recognize him. Thank you, Mr. Vice 
Chairman for----
    Mr. Watt. I will be very brief, Mr. Chairman. I just wanted 
the Committee to know that while a number of the Members of our 
Subcommittee and Committee were imagining conspiracies that 
were taking place in this sector of our economy, some of us 
were out there actually trying to help the dealers.
    And so I wanted to submit for the record, ask unanimous 
consent to submit for the record, a letter that we addressed to 
the chairman of the Federal Reserve and the acting 
administrator of the U.S. Small Business Administration and the 
secretary of the Treasury back on March 26, 2009 requesting 
that the Administration consider taking some steps to assist 
the small and minority dealers, who, even before bankruptcy was 
being contemplated, were experiencing severe economic 
distresses.
    We suggested that the Administration consider an adjustment 
of SBA's size criteria. We suggested that they allow floor plan 
loans to be guaranteed by the SBA.
    We suggested that they enact a support program similar to 
the Auto Supplier Support Program that they had just approved, 
and we suggested that they waive the AAA rating requirement for 
automobile loans under the term asset-backed securities lending 
facility that was under the Financial Services Committee's 
jurisdiction and was included in the legislation that we 
passed, or authorized at least, in the legislation we passed.
    And a number of these steps have been actually taken by the 
Administration and I didn't want us to lose sight of the fact 
that while all of the criticism was taking place and the 
conspiracy theories were being dreamed about, that there was 
some actual work being done by some of us to try save some of 
these dealerships.
    And I hope we don't, in the context of these hearings, lose 
sight of one question that I hope Mr. Bloom will address is 
whether we are making some progress in saving the domestic 
automobile industry. It is one thing to look back and criticize 
everything that has been done, but we have an obligation, in my 
estimation, to also look at what progress, if any, is being 
made and I hope we don't lose sight of that.
    And since all of the statements up to this point had been a 
little conspiracy oriented and negative, I thought I would at 
least ought to try to put a little balance on these statements. 
With that I appreciate the Chairman yielding me a little bit of 
time since I was here early for this hearing, and I yield back 
to the Chair of the Subcommittee.
    Mr. Cohen. Thank you, Mr. Watt. Were there any statements 
you wanted introduced in the record without objection?
    Mr. Watt. The letter dated March 26, 2009.
    Mr. Cohen. Without objection, it will be entered in the 
record.
    [The information referred to follows:]
    
    
    
                               __________

    Mr. Issa. Mr. Chairman?
    Mr. Cohen. Yes, sir, Mr. Issa, you seek recognition?
    Mr. Issa. Yes I do.
    Mr. Cohen. You are so recognized for an opening statement.
    Mr. Issa. I would like unanimous consent to put my full 
statement into the record.*
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    *At the time of the printing of this hearing, the Subcommittee had 
not received this information for the record.
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    But as I sit next door where we are with the special I.G. 
for the TARP, it was irresistible to go back and forth and to 
include in what I believe this hearing has to concentrate on.
    And that is the whole question of whether or not both the 
TARP and, Mr. Bloom, I realize that you are brand new to the 
job, but we are certainly going to need to ask you questions 
like, with $3.8 billion simply waived, forgiven on the sale 
of--the DIP financing money was that forgiven when Chrysler was 
sold while other assets weren't?
    We are going to have to ask why is it that when a General 
Motors dealership in my district has their franchise taken 
away, even though they are outperforming a competing one, with 
it is not taken away the several million dollars they owe to 
GM's financing arm for the purchase of that franchise?
    And I hope that you can shed some light on how when in fact 
franchises that had real value had them taken away through 
government fiat. Ultimately the government made the deal and 
codified the deal and the courts have upheld it and yet, 
companies which had assets taken away and given to the 
competitor across town, have not had the liabilities given at 
the same time. And it is one of the great questions.
    Today we are seeing auto dealers around the country, 
everyone on the dais having them, who were top performers, who 
performed better than the companies across town that were given 
their franchises and effectively given all their business, and 
now they are finding themselves with personal guarantees.
    So after they take what is left of a company, basically the 
real estate on the dealership, they have taken the franchise 
away. That real estate is devalued because there is nothing 
else you can do with it, and there is no brand name under which 
you can, they are being gone after personally.
    So I hope today when, essentially under your predecessor's 
watch, billions of dollars were simply given away of TARP money 
in the transaction of moving Chrysler to a foreign owner, that 
you can also answer the question of how we are going to bring 
some effective justice to the employees and owners of those 
franchises, who through no fault of their own, and quite 
frankly through no precedent under which they were being denied 
State franchise rights and the rights that they would normally 
have been granted to at least be compensated for the taking.
    This is not like Chrysler and GM were renting facilities. 
Chryslers and GMs had an asset developed by these people that 
was simply being given to somebody else without any 
predetermined basis and showing of need.
    So I hope today, in addition to all the other questions 
that you are prepared to answer how you are going to bring some 
fairness to the process after the fact when your predecessor 
certainly didn't bring fairness to the process during it.
    With that, I thank the Chairman and yield back.
    Mr. Cohen. Thank you, Mr. Issa. Was government fiat a 
double entendre?
    Mr. Issa. Yes, the government fiat of selling to Fiat, and 
by the way, just in case we are wondering, I really would like 
to see where that great technology that Fiat's going to bring 
to Chrysler is because I personally own two Dodge vehicles that 
has the great technology of Mercedes, and the last time I 
checked in Europe, Fiat doesn't quite equal Mercedes when it 
comes to technology, Mr. Chairman.
    Mr. Cohen. And I have an Alfa that has been in my garage 
for 3 years.
    Mr. Issa. And that is the best place for it, you know that.
    Mr. Cohen. Mr. Delahunt, you are recognized, sir.
    Mr. Delahunt. I thank the gentleman--I am going to yield to 
Mr. Watt as much time he may consume.
    Mr. Watt. No, I am reacting to what Mr. Issa said more than 
anything because he made it sound like Mr. Bloom is brand new 
to the job. He is not. And it reminded me that through an 
oversight on my part, I failed to acknowledge that right after 
we sent this March 26 letter that I have submitted for the 
record, Mr. Bloom was on the job at that point, and I had a 
discussion with him late at night.
    He was working, trying to work through some of these 
issues. I had a phone conversation with him and I wanted to 
publicly appreciate him for going beyond the regular business 
day and having that conversation with me about some of the 
proposals that we had submitted.
    I will yield back.
    Ms. Jackson Lee. Mr. Delahunt, would you yield just a 
minute to me? Mr. Delahunt, will you yield just a minute? I 
will be very brief.
    Mr. Cohen. I don't think we can do that. We have to limit 
it to Members of the Committee, Subcommittee.
    Ms. Jackson Lee. I don't think there is a Committee rule.
    Mr. Delahunt. I will yield 45 seconds to the lady from 
Texas.
    Ms. Jackson Lee. I thank the gentleman. Let me thank the 
Committee for holding this hearing. Mr. Bloom, thank you. I 
engaged, we didn't finish our conversation but I do thank you. 
I just want to lay on the table a question that I hope we can 
all come to, the Administration and the Congress, how can we 
help the automobile dealers?
    How can we work with the manufacturers to make them whole, 
to place them back in their community, to keep the jobs and to 
make them the viable, economic engines that they are? I think 
if we can work together on that, we will be moving this 
country's economy forward.
    Thank the gentleman, and I yield back.
    Mr. Cohen. Thank you.
    Mr. Delahunt. And reclaiming the time, and I will be very 
brief. I will just simply echo the sentiments of the gentlelady 
from Texas. And I think the concern that you are hearing here 
is that every Member of Congress has within his district 
several dealerships.
    And I think it was the gentleman from North Carolina, Mr. 
Coble, who indicated that it isn't just about a business, it is 
about a vital piece of the community because it is the car 
dealer that is the face of GM or Chrysler or whatever company 
because historically, those dealerships have played a 
significant role in the life of every community and I think 
every Member on this panel will testify to that.
    And I think the gentlelady is correct when she requests 
your guidance and possibilities to, you know, bring a fair 
measure of justice to the auto dealers. You know, transparency 
is important. There have been significant complaints about 
transparency.
    The gentleman from California, Mr. Issa, talks about 
government fiat. Well, I don't know if the government was 
sitting in in the creditors' meetings. That just simply isn't 
the case. Understanding that there has to be shared sacrifice 
here, but everyone is entitled to a full explanation of the 
rationale for decisions that are made.
    And with that, I yield back.
    Mr. Cohen. Thank you, sir.
    If there are no further statements, we will proceed with 
Mr. Bloom and we thank you for participating. Without 
objection, your written statement will be placed into the 
record, and we have asked that you limit your remarks to 5 
minutes.
    There will be a lighting system, green, go, yellow, you are 
down to the last minute and red, you are supposed to be 
concluding. The Subcommittee Members will be permitted to ask 
questions, but also subject to the 5-minute limit after you 
conclude.
    I am pleased to introduce our witness, Mr. Bloom, Senior 
Advisor to the Department of the Treasury, heads the 
presidential task force for the auto industry, previously 
special assistant to the president of the United Steel Workers 
based out of Pittsburgh since 1996. And prior to that he was an 
investment banker, graduate of Wesleyan University, received 
his MBA from Harvard Business School.
    Thank you, Mr. Bloom, for being here. And will you proceed 
with your testimony, and let us know if we are going to 
continue to be able to see the USA in our Chevrolet?

            TESTIMONY OF RON BLOOM, SENIOR ADVISOR, 
                U.S. DEPARTMENT OF THE TREASURY

    Mr. Bloom. Members of the Subcommittee, thank you for the 
opportunity to testify before you today. On behalf of the Obama 
administration and its auto task force, I am here to report on 
the restructurings of General Motors and Chrysler.
    As you know, the new GM and the new Chrysler have recently 
emerged from bankruptcy and are now operating as independent 
companies. While this process has been very difficult, it has 
resulted in two great American companies being given a new 
lease on life and has kept hundreds of thousands of Americans 
working.
    During the bankruptcy proceeding, every affected 
stakeholder had a full opportunity to have his or her claim 
heard and every creditor will almost certainly receive more 
than they would have had the government not stepped in.
    I want to make clear from the outset that this is a 
position that neither the President nor his Administration 
invited. Only a few months ago, both of these companies came to 
the government in a state of complete insolvency, facing almost 
certain liquidation without government support.
    Despite this, President Obama made a decision that he could 
only responsibly justify providing additional taxpayer dollars 
if the companies fundamentally restructured their businesses, 
which meant real and painful sacrifices from all their 
stakeholders, from workers and retirees to dealers, suppliers 
and communities.
    In addition, the President gave his auto task force a clear 
directive, to take a commercial approach to these 
restructurings and refrain from intervening in the day-to-day 
decisions of the companies.
    He did this because the long-term viability of these 
companies and their ability to repay the government investment 
would be seriously undermined if the government became involved 
in individual business decisions.
    In only a few months, both companies have achieved a degree 
of restructuring that many thought impossible. After proceeding 
through open bankruptcy processes, they have now emerged 
stronger and more capable of competing as global companies.
    The companies are now being run by their management teams 
under the direction of new independent, world class boards of 
directors. As is appropriate given these developments, the task 
force will be shifting its focus to monitoring the taxpayer's 
investment as we move forward.
    As is the case whenever a company as large and 
interconnected as GM or Chrysler is fundamentally restructured, 
the costs in economic and human terms are substantial. However, 
completely avoiding these costs would have required an 
unacceptably large amount of taxpayer resources.
    For both companies, this meant substantial sacrifices from 
all stakeholders, sizable reductions in their workforces, plant 
footprints in dealer networks, significant reductions in the 
claims of secured and unsecured creditors, significant 
concession on compensation and benefits for active employees 
and healthcare benefits for retirees and leaving behind a 
variety of unsecured claims, including on product liability and 
worker's compensation, a decision the companies made on a 
commercial basis.
    I know that several of you and your colleagues have raised 
particular issues with different aspects of the restructurings, 
all of which I am happy to discuss here today. Before turning 
to your questions however, let me say a brief word about 
automobile dealers.
    The Administration understands the importance of supporting 
America's dealers during this period of crisis and has taken 
steps to ensure financing for dealers at this time. Indeed, had 
the President not stepped forward, GM and Chrysler would have 
liquidated. All of their dealer franchise agreements would have 
been terminated and just about all of their dealers would have 
failed.
    Instead, as a result of the President's commitment, both 
new companies are now in a position to move forward with a 
substantial majority of their dealer networks intact. As was 
the case for plant closings, brand consolidation and other 
business matters, the task force was not involved in the 
specifics of the companies' dealer consolidation plan, nor in 
any individual decisions about affected dealerships.
    However, the companies have presented a commercial case for 
their overall plans, which is supported by the overwhelming 
majority of independent industry experts and which we believe 
is necessary. There is no question that this process has been 
difficult for some dealers.
    But I think it is important to recognize that the 
sacrifices being made by the small minority of dealers that are 
being wound down in this process stand alongside the 
substantial sacrifices being made by thousands of workers, 
retirees, creditors and communities across this country.
    This explains one of the Administration's primary concerns 
with the amendment to the financial services appropriation and 
other legislation on dealers. It could set a dangerous 
precedent, raising substantial legal concerns to attempt 
intervention into a closed judicial proceeding on behalf of one 
of these stakeholders.
    It could also jeopardize taxpayer returns as private 
capital markets, which will be the future investors in these 
companies and purchasers of the government shares, may be 
loathe to participate where there is ongoing uncertainty about 
the rules of the game.
    I understand that several Members have raised concerns 
about the dealer restructuring process, and while specific 
questions are best posed to the companies themselves, we have 
played and will continue to play a role in helping facilitate 
this communication and ensuring that the process is open and 
transparent.
    In a better world, the choice to intervene would not have 
had to occur. But amid the worst economic crisis in three 
quarters of a century, the Administration's actions avoided a 
devastating liquidation and put a stop to the long practice of 
kicking hard problems down the road.
    While difficult for all stakeholders involved, these 
transactions provide GM and Chrysler with an extraordinary 
second chance, and a very real opportunity to succeed and 
prosper in the years ahead. Thank you.
    [The prepared statement of Mr. Bloom follows:]
                    Prepared Statement of Ron Bloom



                               __________

    Mr. Cohen. Thank you, Mr. Bloom.
    We will now have questions, and I will yield myself 5 
minutes to ask. First, when we started this hearing, you came 
up to the panel and were kind enough to express some thoughts 
to some Members and some of that was very optimistic on the 
automobile dealerships, the automobile company's success as 
General Motors. Can you share some of that with us so that we 
have some positive ideas?
    Mr. Bloom. Yes, I think there is some good news. I think it 
is much too early to speak definitively about whether or not 
these restructurings will indeed succeed. But as we examine 
General Motors and as we examine Chrysler, we believe and 
continue to believe, that with this difficult and painful 
restructuring the companies can succeed.
    I think I mentioned to you that, for example, General 
Motors has in the last few years released some cars that are 
very popular among the American people that have received 
numerous accolades in the automotive press by objective 
outsiders.
    The Malibu was the car of the year. The new Chevy Camaro, 
which has been released recently is selling quite well, appears 
to be very popular. So we believe these companies are 
positioned for success, but obviously the implementation of 
these plans is still going to take a lot of hard work ahead and 
we intend to be monitoring that closely.
    Mr. Cohen. Do you believe Cash for Clunkers is successfully 
going to spur new automobile sales?
    Mr. Bloom. We are quite hopeful that the Cash for Clunkers 
Program will have its intended effect, which is to boost sales 
of new cars by inducing people to turn in older, less fuel 
efficient cars. Yes, we are very hopeful it will succeed.
    And while it is a given amount of money in a particular 
period of time, hopefully if it appears to be a success, 
Congress will consider expanding it in the period ahead.
    Mr. Cohen. Let me ask you this. On the question of the 
dealerships and the particular one I mentioned in my area, Mr. 
Roy in South Haven, outstanding dealer, top flight, give me the 
logic or the understanding or should there have been some or 
can there be some consideration given to a successful minority 
dealer?
    Mr. Bloom. Well, obviously by the opening statements, and 
as I tried to indicate in my remarks, obviously the situation 
confronting dealers is one that is occupying a lot of attention 
and many Members of Congress have reached out to us directly to 
speak about this. I am not in a position to give you a chapter 
and verse about a particular dealer. I am certainly happy to--
--
    Mr. Cohen. How about just a general thing about a minority 
dealer who does great and gets recognized?
    Mr. Bloom. The fundamental reality facing the companies and 
their dealer network was the following. By all measures, these 
companies had far too many dealers relative to the number of 
cars they were selling.
    As for an example, the average Toyota dealer sells almost 
four times as many cars as the average Chevrolet dealer. And 
all outside experts that we consulted, and we obviously came to 
our independent decision, but we did listen to a lot of voices.
    All those voices agreed that this over dealer-ing, this too 
large dealer network was placing a burden on the companies in 
terms of their long-term ability to succeed. Having too many 
dealers erodes the brand equity and therefore the company's 
ability to get a fair value for its product for all of its 
dealers and therefore eventually for the company as well.
    And so the decision was made, and it was not our decision 
specifically about exactly which dealers would be eliminated, 
but we did press the companies to say, ``You have to do a lot 
of things to become more profitable.''
    ``You have to rationalize your plant network. You have to 
get concessions for your hourly employees. You have to reduce 
your level of interest payments on your debt. You have to take 
many, many difficult, hard steps that put many, many people 
into a very difficult circumstance and that included the 
dealers.''
    And so the company came forward with a program to 
substantially rationalize their dealer network. We wanted to 
assure ourselves, and we did assure ourselves, that that 
program was based on objective criteria and the companies have 
then gone and they have implemented that program.
    We believe that that program, not by itself but as part of 
these other steps, was a critical part of positioning these 
companies for future success.
    Mr. Cohen. Let me ask you this because my time is about to 
expire. I understand you are trying to do rational, objective 
basis and all, did that not in fact discriminate against in an 
inordinate manner minority dealers who might have gotten into 
the game late and had areas that weren't as necessarily as 
affluent historically as the nonminority dealers?
    Mr. Bloom. We were concerned about that issue. The data we 
saw, particularly from Chrysler, but GM as well, showed that in 
fact there was not a disproportionate impact on minority 
dealers. That said, we have met with the Minority Dealers 
Association.
    We have met with the company. The companies have assured us 
they are committed to their minority dealer programs where they 
are trying to increase their minority dealer representation, 
and we intend to monitor that progress well.
    I would also add that the SBA Program, which member Watt 
spoke about earlier, in some respects was not--while not 
targeted to minority dealers, was targeted at the smaller 
dealers, and that program was modified to permit it to do auto 
dealer financing, and that program is underway as well.
    Mr. Cohen. Thank you.
    I now recognize the Ranking Member of the Subcommittee, Mr. 
Franks, for 5 minutes.
    Mr. Franks. Well, thank you, Mr. Chairman. Mr. Chairman, I 
made a point earlier that bankruptcy law over the years and the 
process has always given great deference to secured lenders, 
and of course there are a lot of reasons for that.
    But one of the most important reasons is that when someone 
makes a secured loan they have confidence that the government 
will enforce that and that is the basis of being able to make 
loans sometimes in challenging circumstances like in the 
Chrysler bankruptcy.
    Now, under the Chrysler bankruptcy, the secured lenders, 
the secured creditors of Chrysler got 29 cents on the dollar. 
These were secure. That is a very unusual situation. Usually in 
a bankruptcy, they are paid 100 percent and then the unsecured 
lenders are--the remainder of the assets are split up among 
them.
    But in this case, very unusual, they got 29 percent on the 
dollar for secured. Now, the unsecured, UAW, the unsecured I 
think the UAW was owed around $20 billion in all, got 55 cents 
on the dollar and the ownership of Chrysler to which the 
secured creditors were probably entitled.
    And now this turns lending expectations in the future 
upside down, and it literally changes the Bankruptcy Code to 
where nobody knows what it means. And if the airlines go into 
bankruptcy in the future or face some of these same kinds of 
crises that the auto industry, we are going to rue the day that 
we tossed law aside and justice aside for the sake of political 
expediency.
    And I think that sometimes all too often justice is 
sacrificed in the name of expediency in this place, but in this 
particular situation, it is going to have a very real 
consequence on the future bond market. So Mr. Bloom, let me 
shift gears and talk to you a little bit about that Chrysler 
bankruptcy.
    Tom Lauria, counsel for Perella Weinberg, has stated that 
your predecessor, Steve Rattner, threatened Perella Weinberg 
that the Obama administration, ``With the full force of the 
White House Press Corps would destroy its reputation if it 
continued to fight,'' the auto task force's proposed 
shortchanging of secured Chrysler creditors.
    Let me ask you a series here, did you witness that? Did Mr. 
Rattner ever discuss that with you? Did Mr. Obama ever discuss 
it with you? Did Rahm Emanuel ever discuss it with you? Did any 
other White House or auto task force official ever discuss it 
with you?
    And I will stop there and ask you among those, did any of 
those individuals, did you witness that or any of those----
    Mr. Bloom. I would be happy to answer that specific 
question if you would like. I could address your opening 
comment, as well, if that is helpful.
    Mr. Franks. Well, answer the question.
    Mr. Bloom. As to your specific question, since this matter 
was the subject of an extensive court proceeding, I, in fact, 
discussed this matter extensively with Mr. Rattner, and the 
simple fact is it never occurred. No comment of that nature was 
ever made by anybody associated with the auto task force.
    Mr. Franks. So you openly deny that? All right, I 
appreciate----
    Mr. Bloom. Absolutely, categorically deny it.
    Mr. Franks. That is a straightforward answer, Mr. Bloom, 
and I appreciate it. So let me----
    Mr. Bloom. And if you would like, I can comment on your 
statement about turning bankruptcy law on its head but----
    Mr. Franks. Sure, that would be fine.
    Mr. Bloom. All right. I think I would respectfully disagree 
with your view, Congressman, and let me try to explain it this 
way. First, the treatment of the secured creditors was approved 
by the bankruptcy court. It was approved in an extensive 
decision by Judge Gonzales, who went on at great length to 
determine that, in fact, this was absolutely ordinary course 
treatment.
    There was no turning of the law on its head. Judge 
Gonzales' decision was upheld by the court of appeals in a 
unanimous ruling and the Supreme Court saw no reason to 
intervene in the process, so in fact there was no turning of 
the law on its head.
    A judge, whose job it is to ensure that bankruptcy law is 
upheld, had no problem whatsoever with the treatment of the 
secured creditors and Chrysler. The secured creditors in 
Chrysler made a business decision to take 29 cents in cash as 
opposed to their two other options. One, is they could have 
moved to try to have the company liquidated.
    They choose to believe, and I think they were right, and 
the judge, in fact, affirmed this point as well that the 29 
cents they received was far greater than they would have 
received in liquidation, which is, in fact, the task necessary 
to meet it.
    Number two, they could have, and we made clear to the 
lenders, we were perfectly prepared to have them as what is 
called credit bids for these assets and become the owner of 
them and then they could have done with them as they chose. 
They could have chosen to run the assets or again they could 
have liquidated.
    They chose not to take that option as well. We had a 
commercial arm's length negotiation with these banks. It was a 
difficult bargain as all bargains in this situation were, and 
it resulted where it resulted.
    Mr. Franks. Mr. Bloom, I am out of time. Do you think this 
has ramifications for future bond lenders?
    Mr. Bloom. No. I think, in fact, the bankruptcy court 
indicated this was in fact ordinary course treatment. I do not, 
sir.
    Mr. Franks. If you are a bond lender I think you would have 
a different perspective.
    Thank you, Mr. Chairman.
    Mr. Cohen. Thank you, Mr. Franks.
    Mr. Conyers?
    Mr. Conyers. Thank you very much, Chairman Cohen. I was 
going to refer my good friend Mr. Forbes to the bankruptcy 
committee that handled, Mr. Franks, I was going to refer this 
subject of bankruptcy to another Subcommittee on Judiciary but 
you are a Member of the Subcommittee that handles bankruptcy.
    So we have got lawyers up and down the back row here that 
can help you appreciate that what happened was not out of the 
course of the usual procedure. Now, I haven't heard this stated 
yet, but the Chrysler appeal is still pending in the United 
States Supreme Court. Does that make you feel any better? Some, 
okay, we are getting there.
    Now, the whole idea is that they approved this agreement at 
the lower level, but they did not dismiss the continuing appeal 
by Chrysler and probably a great number of secured creditors 
who would probably like to join in and be heard at that 
hearing. So this was not out of the usual course of events.
    It is an unusual situation and, you know, as one who has 
some knowledge of the labor movement in the automobile 
industry, they made great concessions on hourly wages. That was 
not something that President Gettelfinger had any pleasure in 
taking back to his union to be approved, and they did approve 
it, but they weren't taking over.
    And finally, just remember the auto industries came to the 
government. We weren't looking for companies' takeover. They 
were going out of business. They were desperate. They came and 
fortunately this Administration took a whole lot of concern, 
and they realized that to let the automobiles, two of the 
largest go under would not be worth it. It would be better for 
them to work out this agreement of creating new companies.
    Now, maybe these other two dealers that were saved should 
have done what the Ford Motor Company did. They refused. They 
declined. They didn't want any part of it and so everybody had 
an opportunity to do that. They came to us on bended knee 
literally trying to stay in business.
    And sure it was tough and sure they had to give up a lot of 
things but what about the workers that gave up their jobs? What 
about the plants that closed down? And I am investigating 
whether some of those factories moved overseas, which is going 
to leave me thinking about the North American Free Trade 
Agreement in a new light. So I just want you to feel as well as 
you can as a valuable Member of this Committee.
    Mr. Franks. Would the gentleman yield for 1 minute?
    Mr. Conyers. Sure.
    Mr. Franks. I just, I guess, because I take the gentleman's 
points and I appreciate the sincerity of it, but you still 
remain in a situation here where secured lenders got 29 cents 
on the dollar, unsecured lenders, in the case of, or unsecured 
creditors in the case of UAW were 55 cents on the dollar.
    I realize everybody lost things and a lot of jobs were 
lost, but if this becomes the norm, secured lending will 
disappear and jobs will disappear far more than what has 
happened here, and it is a precedent Mr. Chairman.
    So that is--I thank you for yielding.
    Mr. Conyers. Mr. Bloom, how should I answer that to make 
him feel better?
    Mr. Bloom. I am not sure I can him feel better but I can 
try to answer it again. It is in fact quite common for secured 
lenders to not be fully paid out in a bankruptcy. That is, 
unfortunately, there are many companies whose wherewithal is 
simply smaller than their secured loan, number one.
    Number two, the idea that unsecured creditors of one sort 
of another receive a different treatment, again, is very common 
in a bankruptcy. For example, in the Chrysler bankruptcy is it 
true that the UAW had their health care benefits dramatically 
modified but not completely eliminated.
    But the suppliers to these companies had their debts paid 
in the ordinary course. Why, because it was a commercial 
decision by the company to maintain relationships with their 
supply base because you can't make cars without having steering 
wheels.
    The companies also decided to continue to honor the 
warranty claims of prior owners of their cars. Why, because on 
a commercial basis, the last buyer of a GM or Chrysler car is 
the most likely candidate to be the next buyer.
    So the companies made a whole series of commercial 
decisions and their relationship with the UAW, which as people 
who know about it know is based on a very, while professional, 
a very arm's length, sophisticated relationship. They extracted 
all from the UAW that they felt possible.
    And that was the basis on which that deal was done, and 
likewise their treatment of the secured lenders. So I believe, 
again, and I think the courts have affirmed this that this was 
in fact while it was much larger, while it was done under a 
microscope, this was, in fact, ordinary course treatment.
    Mr. Cohen. Mr. Conyers, do you yield?
    Mr. Conyers. Yes sir, I return.
    Mr. Cohen. Thank you, Senator.
    Mr. Conyers. Thank you for your generosity.
    Mr. Cohen. All right, Mr. Jordan, do you seek recognition?
    Mr. Jordan. Yes.
    Mr. Cohen. You are recognized for 5 minutes.
    Mr. Jordan. Thank you, Mr. Chairman.
    Mr. Bloom in your opening statement you said that GM and 
Chrysler are operating as independent companies. You said that 
you were instructed as a member of the auto task force to 
refrain from intervening in the day-to-day decisions of these 
companies. Do you really believe those two statements?
    Mr. Bloom. Yes.
    Mr. Jordan. Well, let me ask you this. How do those 
statements square with the series of events and facts that we 
have seen play out in the last several months? How do they 
square with the fact that President Obama fired Rick Wagoner?
    How do they square with the fact that the government task 
force, the taxpayers, have a 60 percent equity stake in GM, 
control the majority of the board? How do they square with the 
fact that 2 weeks ago in an interview Fritz Henderson said he 
is on a ``short leash'' when it comes to running General 
Motors?
    How do those statements square with the fact that Barney 
Frank, as reported in the Wall Street Journal, can call up Mr. 
Henderson and get special treatment for a facility in his 
State? How do they square with the facts that Mr. Franks 
brought up where you have Mr. Lauria an attorney, a Democrat 
attorney, who stated publicly that he is willing to testify to 
threatening treatment his client got from the White House?
    Let me put it in this context as well. Over the last 6 
weeks, I have sat through hearings that question Mr. Ken Lewis, 
that question Mr. Ben Bernanke, questioned Mr. Hank Paulson 
about the treatments Ken Lewis and Bank of America got in their 
acquisition of Merrill Lynch, the threats and the intimidation 
and, frankly, in my judgment, the deception they received from 
members of our government in that dealing.
    So to me it just--when you walk through these series of 
events and I will even say this, I remember the Sunday night 
before General Motors was going to announce, file for 
bankruptcy. We were on a conference call. Maybe some of the 
Members of this Committee, I assume Mr. Conyers was on that 
same conference, or maybe our Chairman.
    In the intro to that conference call, Mr. Sperling, made 
this statement, he said, ``We will only get involved in 
decisions with General Motors if they are a, quote, `major 
event'.'' And so Mr. Rattner spoke, Mr. Sperling spoke, and it 
was time for questions and several Members got on and this and 
that, in fact the speaker was on the conference call, majority 
leader Hoyer was on the conference call.
    I believe maybe Mr. Conyers spoke. And finally I asked a 
question to Mr. Sperling, ``You said in your opening statements 
you only get involved if it is a major event.'' I said, ``Can 
you define `major event' for me because it is going to be 
pretty major tomorrow in Mansfield, Ohio when they shut down a 
facility in our district.''
    It is going to be pretty major for the 1,200 families who 
are impacted by that. I said, ``Can you define `major 
events'?'' And he said, ``Congressman we don't really have a 
working definition.'' And he gave a couple of examples, but 
what that told me was it can be any darn thing you guys want it 
to be.
    And so, again, I am nervous and I want--I guess I will 
finish with this question and let you respond. Are you at all 
nervous about the unprecedented involvement we are seeing from 
the government in the auto industry, in the financial industry, 
and if some people have their way, coming soon to every family 
across this country in the health care industry?
    Mr. Bloom. I think I will avoid answering the back two 
parts of your question. I have no comment on the health care 
industry or the broader financial industry. My responsibility 
is to work with the auto task force on the automobile industry, 
so I will try to be responsive to you there.
    I think it is a legitimate concern to wonder about whether 
or not the government will intervene. I think it is a 
legitimate concern. That is one of the reasons why we are here 
today and candidly why the Administration was urging that the 
deal relative to the dealers not be passed because that is 
exactly the sort of intervention that we think is exactly what 
these companies don't need.
    Let me try to respond to at least some of the points you 
made. I have made a note or two but I didn't jot them all down. 
I said already and I don't know how to say it more clearly that 
we--the statements attributed to Mr. Lauria are not true.
    Now, I don't know what else to say about it. Mr. Lauria has 
not, in fact, come under oath, and so continuing to raise 
some--I don't have another answer other than no.
    Mr. Jordan. Okay, fine.
    Mr. Bloom. Relative to your comment about Mr. Frank, again, 
I can speak for how the task force operated, and the task force 
did not say to General Motors that the plant in Mansfield, 
Ohio, which you are speaking about, should or should not be 
closed.
    What the task force said to General Motors was, ``You have 
too much capacity. You have more plants than can justify given 
the numbers of cars you sell. In order for a high fix cost 
company to be successful it has to align its capacity with its 
demand.'' And so the----
    Mr. Jordan. Yes it is, when you got the final plan, let us 
say what you said was accurate then. You get the final plan 
from GM that they said, ``Okay. We are closing plant A. We are 
keeping plant B open. We are going to hold on plant C.'' Did 
you give the thumbs up or thumbs down when you get the final 
plan?
    Mr. Bloom. No, no, we did not. What we gave is a thumbs up 
or thumbs down on the overall plan. Did we believe or did----
    Mr. Jordan. Same difference.
    Mr. Bloom. No, I am trying to answer your question. Did we 
or did we not believe that that the overall plan created the 
possibility of a viable General Motors? The answer is yes. It 
required plant closings. But whether or not the plan----
    Mr. Jordan. No but here is the point----
    Mr. Bloom [continuing]. Whether or not the plan----
    Mr. Jordan [continuing]. At some point you had to, as the 
auto task force, sign off on the plan that had facilities, 
manufacturing facilities, around this country being closed.
    Mr. Bloom. That is the inevitable result of a company 
shrinking its footprints.
    Mr. Jordan. So how can you stand there and say----
    Mr. Bloom. Plants to be closed.
    Mr. Jordan [continuing]. We didn't decide which--I mean 
there is----
    Mr. Bloom. Because we didn't decide which plant would 
close?
    Mr. Jordan. And you expect American people to believe that 
when in fact it was the government who told Rick Wagoner to 
take a hike, it is the government who has 60 percent equity 
stake in the company. It is the government who appoints the 
majority of the board.
    It is the government who has Fritz Henderson on a ``short 
leash'' and this is his testimony or this is his statement, and 
you expect American people to believe that the auto task force 
is not running General Motors?
    Mr. Bloom. What I said was, ``The auto task force is not 
running General Motors. We are not running it. It is being run 
by its management and an independent board of directors.'' If 
you have ever met Mr. Whitaker, who will be the chairman of the 
board of this company, an exceedingly successful private sector 
individual with impeccable independence and credentials, I can 
assure it is his intention that the board will operate as an 
independent board and will direct the affairs of the company 
and will be a very challenging taskmaster for the management.
    What we will do as the shareholder is we will refrain from 
intervening in the board's business or the company's day-to-day 
operations. We have reserved, and this is part of the record, 
we have reserved the right to vote our shares up or down on the 
directors but we will not be intervening in the day-to-day 
operation of the company. We didn't during the restructuring 
process and we won't in the future.
    Mr. Jordan. Thank you, Mr. Chairman.
    Mr. Cohen. Thank you, Mr. Jordan.
    I now recognize the gentleman from Cape Cod.
    Mr. Delahunt. I am going to defer for the moment to the 
gentleman from North Carolina, Mr. Watt, because I just walked 
in and I have been unable to get a drift of the questions, so--
--
    Mr. Cohen. Mr. Wattsis recognized and the gentleman from 
Cape Cod will bw known from hereafter as Mr. Congeniality.
    Mr. Watt. He certainly will be known as a good friend of 
the gentleman from North Carolina for deferring. I don't know 
about Mr. Congeniality, but he has been my friend for a long 
time and that is consistent with our friendship. Mr. Bloom, I 
first of all wanted to thank you for the comments about looking 
forward about what you project.
    I know you don't have a crystal ball about what is out 
there ahead, but this is at least reassuring to know that you 
believe, and the task forces believes and the board and the 
companies believe, that these automobile participants are 
moving in the right direction.
    Let me ask a couple of specific questions. In order to 
implement the Cash for Clunkers legislation there are some 
regulations required. Can you give us a status report on how 
those regulations are proceeding and when we anticipate it 
because I guess nobody can really do anything with that program 
until the regulations are filed?
    Mr. Bloom. Allow me, Congressman to get back to you with a 
very specific response that I know in general people are 
working as quickly as possible and I believe that the hope is 
to have the program fully operational by the end of the month, 
but let me, if I may, get back to you later today with a more 
precise answer.
    Mr. Watt. Great. Perhaps you will want to get back to me as 
part of that answer with the answer to the next question too 
because one of the concerns I have heard expressed by the 
dealers and sales people. Actually, it is not the dealers that 
have expressed it in any formal way but sales people that I 
have talked to are friends of mine.
    They are concerned that this Cash for Clunkers thing is 
going to really drive a lot more people to foreign 
manufacturers than to the domestic manufacturers. There is 
nothing in the legislation, I don't believe, that really 
prefers domestic manufacturers over foreign manufacturers.
    I guess, I mean I know enough about it to know there really 
is no foreign made car or domestic made car. The content of all 
these cars is kind of mixed up with international. But I am 
wondering in response to them whether there is anything--is it 
possible to do anything that would weight this program more 
towards, in the regulations, to weight it more toward rewarding 
domestic manufacturers?
    I guess we blurred the lines even more with the merger that 
got approved with Fiat and Chrysler, so you can get back to me 
on that, too. The final question I wanted to raise I raised 
with you off the record.
    There are a number of people who, it seems to me in my 
conversations with them, are kind of in a deferred purchase 
mode similar to the position they were in when substantial 
advancements were being made in digital technology, sound 
equipment, you know, the next thing.
    And a lot of people perceived that over the next 2, 3, 5 
years the whole automobile industry and the technology is going 
to change and improve so much, you will get a lot more 
efficient cars, and they are reluctant to get into the market.
    Is there anything we can do to address that by maybe 
suggesting a program that would empower the dealers or the 
manufacturers, I guess, to take these cars that are being 
produced now or facilitate recycling those, even the ones that 
are being bought today, probably 2 years from now will be out 
of date, at least a lot of us hope they will be out of date 
because of advances in technology.
    Mr. Bloom. Well, a couple things. First, just my colleague 
hands me a note, the final rule will actually be issued later 
this week and we hope the program will be up and running 
shortly after that, so that is the answer on the Cash for 
Clunkers.
    I think our view and we have talked to a lot of experts and 
looked at a lot of survey, there are a lot of reasons why 
people aren't buying cars today. Our judgment is the key 
reasons candidly are a very bad economy where people are afraid 
of losing their home and their job, et cetera and obviously the 
President is doing everything he can to get that piece moving 
and the lack of financing.
    And again we have done tremendous things from the 
investment in GMAC to the utilization of the TALF program, 
almost $26 billion dollars of retail auto financing has been 
done through the TALF. So we are doing a lot of things, I 
think, Cash for Clunkers among them to stimulate overall 
demand.
    We haven't particularly picked up that issue. I mean 
technology continues to move quickly in the industry, and I 
think that is a good thing. Cars are getting better every year. 
We don't candidly see a step change in the next 4 years, but we 
absolutely see continuing improvement. But let us look at that 
issue and we will certainly consider whether that particular 
problem could be remedied.
    Mr. Watt. I think the gentleman.
    I yield back.
    Mr. Cohen. Thank you, sir. Who seeks recognition on the 
democratic side?
    Gentleman from Mass?
    Mr. Delahunt. Thank you, Mr. Chairman. Could you outline 
for us what would have, in your judgment and the judgment of 
those in the industry, particularly given the economic 
realities of the past 2 years, 1\1/2\ years, what would have 
happened if the Administration had not acted in the way that it 
did?
    Mr. Bloom. Obviously, the future does not reveal its 
alternatives, but I think a fair estimate is that both of these 
companies would have gone into what are conventionally called 
an uncontrolled bankruptcy. There would not have been any 
debtor in possession financing, so the case would need to have 
been converted fairly quickly to Chapter 7 liquidation.
    In Chapter 7 liquidation, I think small bits and pieces of 
both of these companies might have been purchased. Possible 
someone would have bought a little piece of Jeep, possible 
someone would have been interested in parts of GMC.
    I have no way to estimate the amount the liquidation value 
of Chrysler. The entire company was analyzed at $1 billion. The 
liquidation value of General Motors, by its experts, was valued 
at, I think, $6 or $8 billion, so tiny, tiny fractions of their 
overall companies would have been saved. Just about the entire 
audit----
    Mr. Delahunt. But it would have been cannibalized?
    Mr. Bloom. It would have been eliminated. Just about the 
entire auto supply base would have found itself quickly in 
bankruptcy. There are not auto suppliers who--all auto 
suppliers supply all the auto companies.
    Mr. Delahunt. Have there been any projections that have 
credibility in terms of what would have--what kind of impact it 
would have had in terms of lost jobs?
    Mr. Bloom. I am not----
    Mr. Delahunt. On the vertical, if you will?
    Mr. Bloom. I am not aware of a single point estimate, but I 
think it is safe to say that the failure of these companies 
include the suppliers, include all the dealers, include all the 
ancillary suppliers, would have been many, many hundreds of 
thousands.
    Whether it would have gotten into the millions I don't 
know. We did not do a single point estimate. We looked at many 
scenarios but I think, you know, devastating is the only word 
that can be used for the consequence, which is why I think the 
President decided to step in.
    Mr. Delahunt. You know, I think we all hope for growth in 
terms of these two new companies now and Ford seems to be 
surviving well. In fact, I talk about new technology. I just 
have been driving a Ford Fusion. It is truly remarkable.
    Mr. Bloom. Cool car.
    Mr. Delahunt. I mean, you know, 40 miles to the gallon. 
This is the future. But as we see growth, hopefully, in terms 
of the new alignment of automobile manufacturers are you aware 
have there been any discussion that those that were terminated, 
I am talking the dealerships now, would they be given any 
priority if a business decision was made in terms of expansion?
    In other words, those that are terminated I think out of 
just fairness ought to be at the play and I guess my question 
is it is obviously very speculative because we don't know if 
there is going to be growth, but presuming that there is, is 
there an opportunity for, if you are aware, for these auto 
dealers who have been terminated to receive some sort of 
priority?
    Mr. Bloom. The issue of whether or not in the case of a 
future expansion the auto dealers who might still be interested 
in becoming franchisees for GM and Chrysler has been a matter 
that has been discussed between the NADA, the dealers 
association, and both of the companies.
    The auto task force has played a role in facilitating those 
dialogues. Some of them have in fact included Members of 
Congress. And I think in the context of a non-legislative 
solution to this situation, I think that is a matter that we 
would expect to be discussing.
    Mr. Delahunt. Thank you, Mr. Bloom.
    Mr. Cohen. Mr. Maffei or Mr. Johnson, either or both.
    Mr. Johnson?
    Mr. Johnson. Thank you. All right I just did the same thing 
with my senior as well but----
    Mr. Cohen. You mean in terms of seniority don't you?
    Mr. Johnson. Yes, that is correct.
    Mr. Cohen. Okay, thank you.
    Mr. Johnson. Even though you have more gray hair than I do, 
but I had to look at your driver's license to determine who is 
the oldest but I do have my suspicions about that. Mr. Bloom, 
GM and Chrysler have decided that they had too many dealers. 
What was the rationale for that conclusion?
    Mr. Bloom. Well, the companies, again, in comparison to 
their successful competitors, particularly the transplants, 
have again as I said earlier almost four times as many dealers 
per car sold as their most successful competitors.
    And their business judgment was that that dealer network 
erodes their brand equity over time, puts all the dealers into 
competition to be cutting prices opposed to trying to maintain 
value, hurts resale values of the cars because whenever you 
sale a car at too low a price you hurt the ability of the car 
to maintain value at resale.
    And so like a whole series of consequences, which as I said 
earlier outside experts we consulted with, universally agreed, 
was bad for the company.
    Mr. Johnson. Well, let me say that----
    Mr. Bloom. We accepted that broad conclusion. We then 
tasked the companies with coming up with a specific plan as to 
how to rationalize their dealer networks and that is what they 
did.
    Mr. Johnson. Let me ask this question then. Isn't it a fact 
that the automobile dealers purchase the automobile as soon as 
the roll off of the assembly line?
    Mr. Bloom. That is correct.
    Mr. Johnson. And they finance those purchases through 
either their own lending sources or through lending programs of 
the manufacturer?
    Mr. Bloom. The companies actually provide financing for 
period of time and then the dealer takes over the financing 
costs, but certainly over time if the car stays on the lot for 
a while, yes, it is the dealer who is securing the financing 
for it.
    Mr. Johnson. Doesn't it make sense that more dealers would 
purchase more cars and have them available for the public to 
purchase----
    Mr. Bloom. Right the problem is when you have too many 
dealers or none of the dealers are selling the necessary number 
of cars----
    Mr. Johnson. Well, then how could you choose and select 
which dealers to close?
    Mr. Bloom. We didn't choose.
    Mr. Johnson. Because that is----
    Mr. Bloom. But I can tell you how the companies----
    Mr. Johnson [continuing]. I know of some that were top 
dealers.
    Mr. Bloom. I appreciate that people have been approached by 
particular dealers who believe they were not treated fairly. 
And as I said we have encouraged the companies and I believe 
they have complied with this in all times to provide 
transparency to individual dealers when they believe that the 
process was not fair to them.
    But I can tell you the criteria for instance that General 
Motors used. It was sales. It was customer satisfaction. It was 
capitalization. It was profitability, four objective measures.
    Mr. Johnson. None of which----
    Mr. Bloom. Of the dealers----
    Mr. Johnson [continuing]. Seemed to be logically consistent 
with having vehicles available to the public in locations that 
are accessible to----
    Mr. Bloom. Convenience is clearly an important factor.
    Mr. Johnson [continuing]. And also the number of people who 
were let go because the dealerships were closing, you know, I 
mean we are trying to create jobs here to pull us out of this 
economic debacle, which was caused by lack of regulation in the 
financial markets.
    So we are trying now to create jobs for the American people 
where they can go out and purchase a new car. And by the way 
when they purchase a new car under the Cash for Clunkers 
situation are there, you probably don't know this, but fuel 
efficiency standards or are we just going to go from one 
inefficient fueled vehicle to another like say the muscle cars, 
the Camaros, and I love Camaros. I own one.
    Mr. Bloom. You should check out the mileage on the new 
Camaro. It is substantially ahead of the mileage on the old 
one.
    Mr. Johnson. Well, I am happy to note that.
    Mr. Bloom. The Cash for Clunkers program does have a 
specific regulation and it was in the law sorry, in the 
legislation that requires that the car you trading against have 
better mileage than the car you are trading in.
    Look convenience is clearly and important factor but there 
are other factors and if the dealers undercapitalized, if he is 
not selling a good number of vehicles, if he doesn't 
maintained----
    Mr. Johnson. Well, the reason why he is not adequately 
capitalized is because the manufacturers closed out the lines 
of lending opportunities.
    Mr. Bloom. The manufacturers didn't close out the lending 
opportunities. The lending opportunities were hurt by the 
overall decline in the economy. There is no question that the 
loss of jobs for dealers is a very serious problem, but the 
question is, what is the alternative? And as we evaluated it 
the alternatives were two.
    One we could have let the companies liquidate and as I 
tried to respond earlier to Congressman Delahunt's question I 
think the comparison between that and what has happened is 
astronomical. The second thing we could have done is we could 
have insisted that these companies honor every one of their 
promises. We could have insisted they lay off no employees.
    We could have insisted they pay their bond holders in full, 
their secured creditors in full, and their dealers in full. The 
problem with that solution is it would have cost the taxpayers 
a multiple, a serious multiple of the already very substantial 
investment that was made.
    So we tried to choose a middle ground where we invested the 
necessary capital to revitalize the company but honestly not 
more than we had to do because these are taxpayer dollars and 
we wanted to minimize the investment and we obviously want to 
try to get the investment back.
    Mr. Cohen. Would the gentleman yield sir? Just a minute.
    Mr. Johnson. Yes, I will ask one question before I yield.
    Mr. Cohen. I asked----
    Mr. Johnson. I want to know why the illustrious Rick 
Wagoner was let go of his responsibilities at GM, and if you 
could keep it very short so I could yield to my friend Mr. 
Delahunt.
    Mr. Bloom. I will keep it short. I will keep it short. I 
think the judgment was made that Mr. Wagoner had done many good 
things and worked very hard but that he was not the best person 
to take the company forward in the difficult circumstance it 
was facing.
    Mr. Johnson. All right. Thank you, sir.
    Mr. Delahunt. You reference I think, I thank the gentleman 
for yielding, you reference Mr. Bloom a multiple. Would you 
give us an estimate of that multiple?
    Mr. Bloom. Well, it is hard----
    Mr. Delahunt. I know it is a range, and I know you cannot 
be precise, and I am----
    Mr. Bloom. Certainly in the case of General Motors, if all 
of the claimants were to be made completely whole, the Obama 
administration committed roughly $30 billion to the DIP 
financing. I think you could expect that number to have at 
least doubled.
    Mr. Delahunt. So rather than $30 billion, the taxpayer 
would have been on the hook for more----
    Mr. Bloom. More than $60.
    Mr. Delahunt [continuing]. Than $60.
    Mr. Bloom. More than $60.
    Mr. Delahunt. And this course was not taken?
    Mr. Bloom. Right. That course was not taken.
    Mr. Johnson. Mr. Chairman, I yield back the balance of 
whatever time I have left.
    Mr. Cohen. Thank you.
    That gives us time to recognize Mr. Issa here.
    Mr. Issa. For such time as I may consume I trust? Thank 
you, Mr. Chairman.
    Mr. Bloom, earlier, you know, I was congratulating you on 
your new position and giving you a little bit of a pass for the 
sins of the past even though you were there. Perhaps that was a 
mistake. So let me go through a couple of things. First of all, 
quite frankly why was it in the taxpayer's best interest to 
forgive the money that we put into DIP financing, $3.8 billion?
    Mr. Bloom. I assume you are speaking about Chrysler?
    Mr. Issa. Chrysler.
    Mr. Bloom. Yes, the $3.8 billion was actually not all 
forgiven in the case of the DIP. That was an original estimate 
based on the bankruptcy going for 60 days. The bankruptcy, in 
fact, went for 42 days, so a much smaller amount was forgiven, 
less than half of that and a lot of that will in fact be 
recouped by the nature of the loan we made.
    The loan has various features that include essentially 
incremental fees and other features that will allow us to 
recoup. In fact, just about all that money if the company 
succeeds. In addition, the government owns 8 percent of the 
common stock of the company and has warrants to purchase 
additional stock in the company, so we are actually hopeful if 
new Chrysler succeeds that just about all of the $8 billion 
that in total was committed by the Obama administration can, in 
fact, be returned.
    Mr. Issa. Why was it that we took 8 percent in warrants and 
the UAW got 55 percent? Why wouldn't the go forward investment 
of workers who had no statutory claim, why wouldn't theirs be 
warrants? Wouldn't that have been more appropriate and equally 
enticing to people to stay with the company and make it 
succeed?
    Mr. Bloom. Let me try to answer that. First thing, the UAW 
didn't receive any stock in the company. The holder of the 
shares, the 55 percent I believe you are speaking about, is 
held by an independently managed trust called a VEBA whose 
responsibility it is to write heath care for the roughly 
150,000 Chrysler UAW represented retirees.
    So the UAW right now----
    Mr. Issa. Right, wasn't that, in fact, a normal in 
bankruptcy claim, which would have had not standing ahead of 
debt?
    Mr. Bloom. If there had been a liquidation of Chrysler----
    Mr. Issa. No, ahead of our----
    Mr. Bloom [continuing]. No, I am----
    Mr. Issa [continuing]. $3.8 billion of our DIP financing, 
our DIP?
    Mr. Bloom. Yes, well, and again our DIP financing as I said 
was converted into partly the exit facility, which as I 
explained we hope to fully get back. The UAW had a pre-petition 
claim but in addition, in order to operate Chrysler, it was 
necessary to reach a labor agreement with the UAW because, in 
fact, if people don't come to work you can't make cars.
    And so a very----
    Mr. Issa. So what discount did you get in return for that 
55 percent? What discount did you get in negotiations?
    Mr. Bloom. Well, the value of that 55 percent at this point 
in time is actually quite low. The company's equity value 
today, sitting as we sit, is quite modest.
    Mr. Issa. Mr. Bloom if you don't mind, because you were 
there.
    Mr. Bloom. I am trying to answer your question.
    Mr. Issa. Please answer the question.
    Mr. Bloom. I was trying to.
    Mr. Issa. No, I don't care how low it was. What value did 
you get in the UAW contract because you were----
    Mr. Bloom. We made a----
    Mr. Issa [continuing]. The asset went to retirees. I want 
to understand what you got in the contract of people who wanted 
jobs and our $3.8 billion in other funds gave them the ability 
to still have a job.
    Mr. Bloom. What we got was substantial concessions in the 
active workforce about $7 an hour of reduction in the hourly 
compensation of benefits package as such that at this point the 
Chrysler----
    Mr. Issa. And----
    Mr. Bloom [continuing]. Hourly employees are paid 
essentially the same as the transplant employees, which had 
been the admonition in the original Senate bill which was not 
passed back in December.
    So the sacrifices, which were envisioned at that point in 
time were in fact more than done by the UAW and a very large 
obligation to pay retiree insurance claims was also 
substantially reduced such that a note for $4.6 billion, not a 
cash payment, as well as this amount of stock, which may or may 
not be worth something in the future was part of an overall 
bargain that was made with the UAW.
    Mr. Issa. And I am completely supportive of all the--if 
Chrysler turns around these will be paid.
    Mr. Bloom. Yes.
    Mr. Issa. My question on behalf of the stockholders here is 
and I would like you to follow up in writing if you would, I 
don't think we have time to go back and forth here, is simply 
in the preference why we did not give ourselves the most 
immediate and guaranteed returns and give others a stake in the 
upside but less immediately guaranteed and in particularly the 
stock versus warrant, preferred debt, and so on, so if you 
would answer that in writing.
    Because I have one more question for you which is in this 
liquidation we gave no consideration to the injured parties in 
this case. The car dealer, A, who had his asset taken away from 
him and given to car dealer, B. Are you willing to on a go-
forward basis to look for positive win-wins, insist that the 
auto companies look for opportunities in which some reasonable 
recognition of these losses to these dealers who had their 
asset taken away from them, their growing concern, often 
profitable growing concern?
    That includes the residual inventory they have in the way 
of, you know, their facilities with all this fine equipment, 
designed specifically for Chrysler, designed specifically for 
GM Are you willing to do that as part of your go-forward, if 
you will, car czar project? Because in my district I have 
people who are still being asked to pay on buildings and assets 
and so on that they bought from the car company when in fact 
the asset they bought was taken away from them. They still want 
the liability paid.
    And in their case they are not being given any kind of if 
there is a future expansion will they get a benefit from it, do 
they have the right to be preferred if in fact a new dealership 
is opened somewhere in America in the foreseeable future, and 
in the case of certain assets they are holding they are neither 
being given debt relief nor even a preferred position to 
liquidate those.
    Mr. Bloom. I am not the car czar. I think I would answer as 
follows----
    Mr. Issa. Okay.
    Mr. Bloom [continuing]. In the case of Chrysler----
    Mr. Issa. Today I know the car czar actually has no 
official authority.
    Mr. Bloom. Doesn't exist.
    Mr. Issa. You have real authority and real ability.
    Mr. Bloom. I will try to answer your question, sir. 
Chrysler has made provision and has already agreed that it will 
buy, it has purchased in fact, just about all the cars from its 
terminated dealers. This may----
    Mr. Issa. Mr. Bloom my time is limited. It is not about 
cars. It is about all the other assets used to----
    Mr. Bloom. I was getting to that.
    Mr. Issa [continuing]. Represent a growing concern.
    Mr. Bloom. I was getting to that.
    Mr. Delahunt. Mr. Chairman, I ask unanimous consent that 
Mr. Issa be given as much time as necessary for Mr. Bloom to 
fully answer the question.
    Mr. Issa. Thank you.
    Mr. Bloom. Chrysler has also agreed to repurchase the parts 
and the special tools from all their dealers and they are in 
the process of doing that. Regarding your question about the 
preference, I think answered earlier that we have had 
discussions with Members of Congress, with the companies, and 
with the NADA, relative to whether or not something along those 
lines could be discussed.
    Again, as I said in the context of the non-legislative 
solution I think we are prepared to play a role in facilitating 
those continued dialogues.
    Mr. Issa. Okay. And I guess the only follow up anecdotal 
comment because I feel like what you told us was very good, 
non-legislative. I think it begs the question of whether or not 
we should empower legislative solutions both, not just a sense 
of Congress, but in fact something with some teeth in it that, 
so that in fact this unprecedented taking from one dealer and 
being given to another can be resolved at least more fairly 
than it is.
    Mr. Bloom. I would just observe and again I guess we are 
going to disagree. I don't think this is an unprecedented 
taking. Both bankruptcy courts have passed upon this as an 
absolutely ordinary course basis and I think I articulated 
earlier that the Administration believes that the legislation, 
the specific legislation, that is being considered, is going to 
make the situation worse not better.
    But with that said, we always believe that dialogue is 
valuable and on the specific issue you raised which is 
preference in the future, that is an item that has been 
discussed and I would hope we could continue to discuss it.
    Mr. Issa. But when I say unprecedented, I beg the 
indulgence, pre-empting State franchise laws allowing 
agreements made with companies who had nexus in a State to 
simply be set aside into a one size fits all with no 
consideration and no ability of a consideration between the 
gainer, not Chrysler, but a particular Dodge dealer and the 
loser, another Dodge dealer, that pre-emption of any recourse, 
any place for those dealers to go.
    And by the way, sometimes the dealer that was a winner here 
and a looser there, we are not questioning that it might have 
had to have been done, but it does appear as those it was done 
in a way to pre-empt all the other possible considerations 
including an interparty right of, wait a second, I lost 200 
cars a year, you gained 200 cars a year. What am I getting for 
that? Those parties don't even have the ability to seek 
recourse from each other do they?
    Mr. Bloom. To my knowledge they don't, but I am not an 
expert on the State franchise laws in your State. If they 
believe they were wronged under State franchise laws presumably 
they have recourse. In the bankruptcy court, which is where 
this was approved, it was approved as not being either illegal 
or certainly not unconstitutional, so that is the way and we 
obviously agree with the decision of the judge and the appeals 
court who upheld it.
    Mr. Issa. Well, I thank the Chairman for his indulgence and 
I certainly think the courts have made mistakes. Again I think 
back during World War II and the Japanese internment everyone 
thought it was okay from a court standpoint until long after 
the war.
    And I think this is going to go down as something that 
could have been done better, now has been codified, but in fact 
I don't think this body has done speaking as to the fairness to 
the parties that have been injured while we have been trying to 
bail out the auto companies.
    I thank the Chairman and yield back.
    Mr. Cohen. Thank you, sir.
    Mr. Maffei, do you seek recognition?
    Mr. Maffei. Yes, Mr. Chairman.
    Mr. Cohen. Five minutes, or as much time as Mr. Delahunt 
wants you to have.
    Mr. Maffei. Yes.
    Mr. Delahunt. Again I recommend that the gentleman have as 
much time as he needs.
    Mr. Cohen. Easy for you to say.
    Mr. Maffei. Thank you again, Mr. Bloom for appearing here 
today. I am just trying to get some clarification. Is it the 
Administration's position that the companies would have been 
liquidated had the current dealer networks been maintained even 
if all the other reforms had been made?
    Mr. Bloom. I can't speculate on a hypothetical as to what 
would have happened if one piece of the puzzle hadn't been done 
the way it was done. There was a comprehensive plan put forward 
to save the company. All the stake holders were asked to 
sacrifice. They all did and we think it is positioned the 
company for success.
    It is always possible to imagine one more penny, what one 
more straw in the camel's back. I don't know which straw or 
other straw might have done. I know these were completely 
failed enterprises in need of dramatic restructuring and that 
is what we tried to effectuate.
    Mr. Maffei. I think part of the problem that we are having 
is that, you know, when you take a more conventional retailer 
that is trying to sell more products, obviously, to sell more 
products they have more stores.
    So they would create a whole store network, which would 
hopefully sell more products. If because of economic conditions 
or because of the products, they just aren't that popular, the 
stores stops selling as much then they would in fact have to 
close stores, but that is because they pay the people and they 
pay the employees in the stores. They pay the rents or the 
mortgages for the stores. They pay the inventory.
    In this case you have dealers. The dealers pay the 
employees in their stores. They pay the rent and the mortgage. 
They pay the inventory. They pay even substantially the 
advertising costs and a lot of other things.
    And it is very unclear to us even after all this time and 
debate what exactly the disadvantage is to the company. So, I 
mean, you said earlier in this hearing by all measures these 
companies had far too many dealers relative to the number of 
cars they were selling. Says who?
    Mr. Bloom. Well, says all the comparative data with other 
dealer, with other more successful companies.
    Mr. Maffei. Like Toyota and Honda, so----
    Mr. Bloom. Every other single successful company and says 
all the outside experts we consulted, and says us based on our 
judgment of looking at the facts.
    Mr. Maffei. I mean, can you give me an actual--can you----
    Mr. Bloom. I will tell you on Toyota, Toyota sells roughly 
four times as many--the average Toyota dealer sells roughly 
four times as many cars as the average Chevy dealer.
    Mr. Maffei. But the correlation doesn't mean causation.
    Mr. Bloom. I agree.
    Mr. Maffei. So I am trying to figure out like what--why is 
there a--other than we just looked at other companies and sort 
of seen this. What is the reason why it costs the companies so 
much money----
    Mr. Bloom. What I tried to explain is that----
    Mr. Maffei [continuing]. Yes.
    Mr. Bloom. I will try again and if my explanation isn't 
satisfactory I apologize. When you have too many dealers, none 
of the dealers can achieve the kind of quality of service, the 
modern equipment that is needed, the advertising revenue that 
is needed, all of those things come with scale.
    And so if you have a whole series of under-scaled dealers, 
then all the dealers are putting forward to the consumer a face 
that is less good than the competition's face, and at the end 
of the day, the consumer has to choose between a Toyota or a 
Honda, a GM, a Ford or a Chrysler.
    Mr. Maffei. And there is no advantage----
    Mr. Bloom. And what we want to do, and what GM wants to do, 
and I guess the other point I would try to make is I don't 
assume that the companies are right about anything they do. We 
obviously are critical of everything they do. On the other 
hand, I think it is logical to assume that their effort here 
was to become more profitable and nothing else.
    There was no other motive. Now, that doesn't mean they are 
right. It might be that having four times as many dealers as 
everyone else is a good business judgment. We disagree with it. 
But the only possible motive for the companies wanting to 
reduce their dealer network was to become more profitable, 
because they were hugely unprofitable.
    And as a matter of justifying taxpayer investment, they 
wanted to try to become more profitable. So they are only 
motive could be the same motive that we would all have for 
these companies, which is that they be successful.
    Mr. Maffei. I share that motive and I appreciate your 
answer, Mr. Bloom. I don't necessarily agree with it though. I 
don't know why we would necessarily assume that there couldn't 
be, possibly be other motives involved with the auto companies 
any more than we would assert that there were. I just don't 
know how we would ever know that.
    Mr. Bloom. I can't----
    Mr. Maffei. Obviously----
    Mr. Bloom. I don't know what I don't know.
    Mr. Maffei. Yes.
    Mr. Bloom. I don't know what other motive----
    Mr. Maffei. No, I am not saying you should, I am just 
saying that is, I do think that that is a leap of faith and to 
a certain extent I think that the auto task force, you know, 
all these experts and these measures are fairly vague and I do 
think that they decided to or that they bought the auto 
company's argument that a Toyota or a Honda-like model was a 
better one.
    But for decades we got along well without----
    Mr. Bloom. By the way, it is an argument the NADA agrees 
with. I mean, the only issue that has ever been under debate 
with the NADA is the speed of the reduction in the dealer 
network.
    Mr. Maffei. Now, my----
    Mr. Bloom. So I haven't found anybody yet, and maybe I will 
learn something and I am always happy to learn, but I have 
found nobody who doesn't think that an over-dealered network 
produces a drag on the company's ability to be successful, but 
I am certainly open to learning new facts.
    Mr. Maffei. Thank you, Mr. Bloom.
    Thank you, Mr. Chairman.
    Mr. Cohen. Thank you. I would like to ask you a couple of 
questions, sir. First of all the issue about dealerships, you 
are saying that dealerships and the number is a drag on the 
business, is that correct?
    Mr. Bloom. Yes.
    Mr. Cohen. Was that determined by the labor unions that 
have been the object of scorn from some on the other side 
claiming that they are responsible for the problems with 
General Motors and Chrysler or was that the decision of the 
management?
    Mr. Bloom. The labor union had absolutely nothing to do 
with the discussion regarding the size of the dealer network or 
what the appropriate actions would be. That was a discussion 
between us and the management.
    Mr. Cohen. And some people have said that the reason people 
buy or are more likely to buy foreign cars than American cars 
is because foreign cars get better gas mileage. Was the 
determination to have cars that got not as good of fuel 
efficiency as Japanese cars the decision of the labor unions or 
the decision of management?
    Mr. Bloom. Those sorts of decisions, I think, are normally 
the decisions of management.
    Mr. Cohen. And some said that the reason why people would 
buy Japanese cars is because they were, and European cars is 
they were more durable and better able to survive impacts. Was 
the design of those cars the decision of labor or the decision 
of management?
    Mr. Bloom. I think, normally, those would be management 
decisions.
    Mr. Cohen. What did management do right?
    Mr. Bloom. Well, I think that obviously the companies 
failed, so there is plenty of blame to go around. But I do 
think it is fair to note, and let me talk about GM for a 
minute, that in the last half dozen years, the company has, in 
fact, taken many very good and positive steps to rectify its 
long-term problems.
    There have been a series of innovative contracts negotiated 
with the union even before this that had reduced labor costs 
and eliminated benefits to make them more competitive. The 
company had been starting to produce much better cars.
    If you look at the quality surveys, J.D. Power, the other 
independent agencies, they will tell you that on new car 
quality, a significant part of the GM fleet measures up very, 
very well against any other competitor in the marketplace.
    I think the problem was they were simply not moving quickly 
enough, and so we felt, in order to justify taxpayer 
investment, that the things that they were doing needed to be 
done far faster and more significantly.
    But I think the company's broad strategic direction that it 
undertook half a dozen years ago was generally in the right 
direction. It just wasn't as significant enough, as change-
oriented enough, didn't involve as many of the difficult 
sacrifices that unfortunately were required to bring the 
company to position for profitability.
    Mr. Cohen. I haven't been in the new car market for a long 
time. I have five vehicles. My newest one is a 2000, and it is 
leap years newer than my other cars. But as I think I recall, 
American cars, in general, were equal to or cheaper than 
European cars. I kind of looked at a Lexus one time and they 
were a lot more than it would cost me to get a Chevrolet or a 
Ford or whatever.
    Is that accurate to say that American cars were----
    Mr. Bloom. I think that----
    Mr. Cohen [continuing]. Not more expensive than European 
cars?
    Mr. Bloom. I think you got to be careful to compare an 
apple to an orange. I mean, clearly, you know, a BMW or a 
Mercedes costs the consumer more than a Chevrolet, but there 
are Cadillacs that are closer in price to BMWs.
    I think the issue that the car companies have faced is 
like-to-like, so in other words a car that would be viewed as 
competitive, a Malibu versus a Camry, which was a typical 
comparison that over time, because of many, many factors, the 
dealer networks among them, the companies were not able to 
receive the same kind of value for their car in the marketplace 
because of a variety of consumer concerns.
    Now, again, pointing to a good thing on GM, the Malibu is 
selling at essentially the same price point as the Camry today. 
That, unfortunately, is not true for most of the fleet, but it 
is true for part of the fleet. So I think, simply saying, you 
know a BMW costs more than a Chevrolet, I don't think that is a 
fair comparison but I think you are on to an important point.
    The erosion of brand equity over time was a very 
significant concern, were like-to-like, both of these companies 
were not able to receive the same value in the marketplace 
because the consumer wasn't willing to pay it.
    And in the end, you know, the consumer is the decider. And 
with that problem in mind, again, that to us was a big sign of 
how significant the restructuring needed to be.
    Mr. Cohen. Compare the salaries of General Motors and 
Chrysler executives with those at Nissan and Toyota for me.
    Mr. Bloom. The compensation arrangements regarding the 
senior executives at the transplants are not as readily 
available as they would be relative to GM. But I would say 
this, because they are a TARP recipient, the companies will be 
subject to the executive compensation restrictions that are in 
the law and in the regulation. Special Master Feinberg will be 
reviewing their compensation.
    Mr. Cohen. Let me draw back a little bit, I was talking 
about the salaries of the old GM.
    Mr. Bloom. Oh, I don't have good data on that.
    Mr. Cohen. Would it be fair to say that the chief execs at 
General Motors and Chrysler earned a lot more than the folks 
did at Toyota and Nissan?
    Mr. Bloom. I think chief executives, you know, across in 
different countries generally aren't paid the same. I think 
that could be true but I don't honestly have data on that 
subject. As----
    Mr. Cohen. It is true, and I don't think the union----
    Mr. Bloom. It certainly could be true but, again, our focus 
has been forward. There is blame to go everywhere and so what 
we try to ask ourselves is what can we do to get these 
companies profitable going forward.
    And on executive compensation there are going to be very 
specific restrictions that the companies will face and they 
will abide by the law and by the regulations under the guidance 
of the Special Master.
    Mr. Cohen. Let me, with Mr. Delahunt's permission, go an 
extra minute. Does----
    Mr. Delahunt. Without objection, got a new system up here.
    Mr. Cohen. General Motors has worked out I believe the 
situation with the Tort claims, is that correct?
    Mr. Bloom. I mean, there is an understanding relative to GM 
about product liability claimants going forward, that if you 
are hurt in an accident in a GM car from here forward you would 
be able to----
    Mr. Cohen. What about Chrysler?
    Mr. Bloom. The situation with Chrysler is not the same. 
That has not been worked out.
    Mr. Cohen. Why is there a difference?
    Mr. Bloom. Those were commercial decisions that the 
companies made. And again, we asked ourselves are these 
reasonable commercial approaches? Chrysler took one approach. 
GM took another. I think there are pluses and minuses to both 
of the approaches in terms of how they will be perceived in the 
marketplace.
    And again, and just--we chose not to get in and say to GM 
because Chrysler did it this you got to do it this way. These 
are very different companies. They are in very different 
circumstances and the management came to us, again, with an 
overall plan that we tried to certify whether or not it had a 
good chance of achieving viability. But we did not say, because 
GM did it this way, or because Chrysler did it this way, GM has 
to do it that way.
    Mr. Cohen. You don't think that the task force maybe should 
have some reason to look after the people that are injured in 
Chrysler, if there are, hopefully there will be none, but if 
there are----
    Mr. Bloom. No, I think tragically it is impossible to think 
there won't be. And look, it is a very difficult situation. 
There are many, many people in a bankruptcy situation who are 
treated badly. There is no way to sugar-coat that. Again, our 
alternative was to do nothing and nobody would get anything or 
to open a checkbook that I think everyone would agree would be 
endless, so very difficult decisions were made.
    It is obviously heart-rending to hear about a product 
liability victim. It is terrible to hear about a dealer. It is 
terrible to take an auto worker who put 27 years on the line 
and tell him he is losing his job. None of those give anybody 
involved, at least on our side, and I believe the company's, 
too, the slightest bit of satisfaction.
    The only thing that gives us satisfaction is a hope and a 
belief that we have saved these companies and given them the 
chance to succeed. But I am not going to try and suggest that 
there aren't terrible stories about people who thought they had 
commitments that are not going to be able to have them honored. 
That is a fact.
    Mr. Cohen. Thank you, sir.
    Mr. Franks seeks recognition?
    Mr. Franks. Well, thank you, Mr. Chairman. Mr. Chairman, I 
know that we have already touched on the bankruptcy situation 
quite a lot, but let me just point out that you know Ford 
declined the bailout.
    You know some of us, myself included, voted against the 
bailout early on because we could kind of sense from history 
that whenever government gets a hold of things and comes in and 
tries to run things that the disaster that follows is 
predictable, and certainly I think we have only seen the tip of 
the iceberg here.
    But Ford declined a bailout because it was able to find a 
$23 billion secured loan and it put all its assets up for that. 
And if this had occurred before Ford did this, there is no way 
Ford would have gotten a loan like that. We would have Ford in 
bankruptcy as well.
    And we are portending a lot of bankruptcy down the road and 
I am afraid more government takeover. And I am just wondering 
when this all happened, did the auto task force ever consider 
the adverse impacts for labor law and enforcement against the 
UAW when the UAW and U.S. government went partnership in 
Chrysler?
    I mean, you know, you have got--GM is another example. The 
government owns 60 percent of GM Now, I got to ask you, some of 
this is rhetorical, Mr. Bloom, but the chaos that is going to 
follow here, is anybody going to buy General Motors' cars in 
the American public? Are they going to buy Chrysler's cars when 
they know that government is running the situation?
    Mr. Bloom. Well,----
    Mr. Franks. I think you are going to see a huge change in 
the market share between Ford if the Obama administration and 
the UAW don't conspire to wipe them out as well.
    Mr. Bloom. Just a couple of points. First thing, the UAW is 
in no way, shape or form running either of these companies. 
These trusts hold non-voting shares. They both have the right 
to select one person to sit on the Board of Directors. That is 
the entire influence that the UAW or the trust has on the 
management of the company.
    Relative to government ownership, again, the alternative 
was liquidation and our judgment was that liquidation would 
have been far worse. But I certainly appreciate that you think 
a bailout was the wrong idea, and therefore I assume a 
liquidation you think would have been superior----
    Mr. Franks. Well, I would absolutely----
    Mr. Bloom. The question of whether or not the American 
people will buy cars from these companies is yet to be known. 
But so far, in the period since Chrysler emerged and since GM 
emerged, although GM has just been out a few days, but during 
the pendency of their bankruptcy when the American people knew 
that the plan was to have government ownership, GM and Chrysler 
sales have been holding up quite well. But----
    Mr. Franks. I am going to yield just briefly here to Mr. 
Jordan, but let me just go on the record and predict that the 
market share between Chrysler, Ford and GM as it was prior to 
all of this is going to be dramatically different in the future 
because the American people are going to not think that 
government is better at building cars than Detroit was.
    In fact, a lot of Detroit's problems were because of 
government policy in a great deal. They told them how to build 
cars in the first place, but time will tell that. There are two 
kinds of people that predict the future, those who don't know 
and those who don't know that they don't know. So I understand 
and I can't--but I am going to go on record and make my 
prediction anyway.
    And to suggest that the only ideal, only possible 
alternative was liquidation, I think it flies in the face of 
history. A lot of the major car companies we had including I 
think two out of the three big ones that we have now were at 
one time in a crisis situation, and private sector came in and 
did something and they survived.
    The private sector always makes these decisions better than 
government and if we take it in reverse look what happened when 
the government owned the telephone companies, it was a 
disaster. And we went the other way and we passed that off to 
private sector and I can get my Web site on my Blackberry today 
and it is 3 cents a minute instead of what it would be at $3 a 
minute.
    There are a lot of examples but I don't have time to go 
through them all. But Mr. Bloom, I don't envy you, sir. You are 
in the middle of a mess that God only knows how it will 
ultimately turn out.
    With that I yield to Mr. Jordan. He is much more eloquent 
than I am.
    Mr. Jordan. I don't know about that, but I thank the 
gentleman for yielding. And I too appreciate the role that Mr. 
Bloom is trying to fill. You know in my first round you went 
through I think some great lengths to talk about how you are 
not involved in certain decisions about plant closings, 
dealership closings, et cetera, you know, even though you got 
rid of the previous CEO, even though we have a majority 
ownership in the company and control the majority of the board.
    And I, like Mr. Franks, has been against this whole bailout 
road that this country and this government has traveled down. I 
think it is just wrong. But the question that comes to mind is 
why not? Why weren't you involved in more of the decisions?
    If in fact the American taxpayer is on the hook, if in fact 
we control of the majority of the board, if in fact you thought 
it was appropriate to get rid of the former CEO, if in fact GM 
had to go in to bankruptcy like we know they did, they must 
have been doing something wrong, why in the heck not?
    And to a previous question, you said you don't assume, I 
think this is a direct quote from you, you don't assume the 
companies are right on any decision they come to, so it seems 
to me you are trying to have it both ways. On one hand, you 
want to weigh in on some decisions but not on others.
    And so my question to you is which is it and where do you--
or not where do you--where will you, as the new leader, where 
will you draw the line? Is it going to be the same thing Mr. 
Sperling told me and others on that conference call when it is 
a quote ``major event'' but he can't define it?
    Mr. Bloom. Yes, I think----
    Mr. Jordan. Where does the line--where do you draw the line 
and what is your definition?
    Mr. Bloom. The line is that we were involved in helping to 
finance a restructuring and insisting that the companies come 
up with a business plan to become profitable or to give them 
the possibility of becoming profitable and we were quite 
involved in analyzing that, but not dictating the details of 
it. In terms of our behavior going forward----
    Mr. Jordan. Yes, but doesn't that----
    Mr. Bloom. In terms of our----
    Mr. Jordan. But let me just say this real quick. Doesn't 
that seem contradictory, because you know obviously again the 
company did something wrong or they wouldn't have been in this 
situation to start with.
    So if you are going to step in and fix it, why not step in 
all the way and, in fact, I am reading stuff about your 
background, Mr. Bloom. Your personality seems to be one who 
likes to step in and take charge. I mean, that just seems to be 
your background, so why didn't you do that?
    Mr. Bloom. I think we did step in very aggressively. We did 
not step in in terms of dictating which factories would close. 
What we stepped in and did very aggressively was insist that 
the companies position themselves for profitability.
    We acted as if this was essentially as we were the agent of 
this being our money. And so in the context of it being our 
money, we are not managers. We don't run automobile companies. 
We know our task force, our group knows a lot about investing. 
We know a lot about what it takes to make a company successful, 
but we are not managers.
    And so the role of a manager is to put together a business 
plan and then to take it essentially to the investor and for 
the investor to scrutinize the plan, ask a lot of questions 
about the plan. But at the end of the day it is either support 
the plan or not support the plan and that was the role we 
played.
    Going forward our role will be to closely monitor the 
investment. There is a huge amount of taxpayer dollars that are 
in these companies, to closely monitor the investment, to make 
sure the company is living up to its commitments that it made, 
but the board of directors will be responsible for seeing to it 
that the management is doing its job.
    And I hope you will agree that the Chrysler board of 
directors has been fully announced. The GM board of directors 
will be announced shortly. These are independent businessmen 
and women----
    Mr. Jordan. I understand that----
    Mr. Bloom [continuing]. With impeccable credentials.
    Mr. Jordan. Is there, answer my question. Is there a 
definition, is there a set of circumstances that you have 
defined, put on paper that indicate when you will step in a say 
no, you can't do that or yes, that is okay. When do you do 
that?
    Mr. Bloom. We will not intervene in the management 
decisions. If the company, if the government believes that the 
Board of Directors is not doing its job, the government would 
have the right, as the shareholder, to replace the board.
    That would be the only time there would be an intervention. 
Other than that, we will simply be monitoring, obviously we 
will consult with the companies, we will be in dialog with 
them----
    Mr. Jordan. Is it fair----
    Mr. Bloom [continuing]. But we will not intervene in their 
decisions.
    Mr. Jordan. Is it fair to say that it is totally 
subjective? It can be what you want it to be----
    Mr. Bloom. No, I don't think it is objective at all. I 
think it is quite a bright line.
    Mr. Jordan. Okay. Do you think, Mr. Bloom, I am going to 
change directions here. Do you think the energy policy or lack 
of an energy policy as well as CAFE standards that have been 
passed and policies that have been passed by our government 
have impacted, I mean, led to this situation where GM was in 
trouble, Chrysler was in trouble? Do you attribute any cause 
there?
    Mr. Bloom. I don't happen to believe that CAFE standards 
are the cause for the company's problems. The company has 
successful competitors who make a lot of money. They all live 
under the same standards. I don't happen to believe, but I do 
believe that the efforts that are being made now to create a 
uniform set of standards, so California doesn't have one set of 
rules and other places other set of rules, is a good step 
forward.
    Mr. Jordan. I agree.
    Mr. Bloom. I think that the companies are fully prepared to 
compete under the revised rules and when we stress tested the 
business plan our assumption is that they will be in full 
compliance with the CAFE standards.
    Mr. Jordan. What is the timeline for the auto task forces? 
Is there a wind-down for the task force? What is your vision of 
when you will no longer be needed?
    Mr. Bloom. I can't say when we will be finally no longer 
needed, but there will be a winding down of our overall 
activities because, as I said, we are moving more to that 
monitoring phase. So I think in the fairly short period ahead, 
the size will be contracting. We will have fewer people we need 
and many of our members, many of the folks who worked on it 
will be returning to their former lives.
    Mr. Jordan. What is the background of the members of the 
auto task force do? Do any of you have any experience in the 
auto manufacturing or auto dealerships business?
    Mr. Bloom. I don't believe that any of us have been 
specifically involved with auto dealers. Most of the members of 
the task force----
    Mr. Jordan. Auto manufacturing?
    Mr. Bloom. I mean, I have generally been involved in 
manufacturing situations, but I have--but none of us have been 
involved as an executive of a manufacturing company if that is 
your question. I think a number of us have had a lot of 
experience with manufacturing companies dealing with them 
either as investors, as legal advisors or in other roles like--
--
    Mr. Jordan. No experience running auto manufacturing 
companies or no experience running auto dealerships?
    Mr. Bloom. None of the members of the task force ran an 
auto dealership or an auto manufacturing company.
    Mr. Jordan. Thank you, Mr. Chairman.
    Mr. Cohen. Thank you.
    And I now recognize, for our final round of questions for 
as much time as exists in the universe, the distinguished 
gentleman from Michigan, honorable Vice Chairman of this 
Committee and Mr. Congeniality, Mr. Delahunt.
    Mr. Delahunt. Thank you, Mr. Chairman. Maybe you can help 
me, Mr. Bloom, because I heard my friend the Ranking Member 
talking about government incapable of running these new 
companies or anything, any business. Were the government 
officials that were part of the management team in the old 
General Motors?
    Mr. Bloom. No.
    Mr. Delahunt. Were there any government officials in the 
old Chrysler that were government officials?
    Mr. Bloom. No.
    Mr. Delahunt. In terms of the old management teams in both 
of those automobile manufacturers, was there, were they all 
private sector individuals?
    Mr. Bloom. To my knowledge largely, yes and certainly 
nobody from the government.
    Mr. Delahunt. So there is nobody from the government?
    Mr. Bloom. No.
    Mr. Delahunt. So the government didn't drive those two auto 
manufacturers into the mess that we have had to deal with?
    Mr. Bloom. I don't see how one could ascribe their problems 
to the government.
    Mr. Delahunt. Okay. There has also been talking about, you 
know, the bailout and again I think it was my friend from 
Arizona that alluded to the fact that some of these companies 
had been in trouble before and worked their way out of them and 
that provoked, with me, a memory of that--he was the CEO of 
Chrysler, Lee Iacocca.
    Mr. Bloom. Name rings a bell.
    Mr. Delahunt. Did Chrysler at any point in time receive 
government loans or government guarantees or, I don't want to 
use the term but let us call it a bailout.
    Mr. Bloom. Yes. I think in the late 1970's, early 1980's, 
Chrysler was the recipient of a government bailout. As I recall 
the fact they repaid all that money----
    Mr. Delahunt. Does that----
    Mr. Bloom [continuing]. With interest and went on to have a 
fairly successful run for quite some time.
    Mr. Delahunt. That was my memory. Maybe that is why I am 
confused that, you know, I guess bailouts don't work except----
    Mr. Bloom. When they work.
    Mr. Delahunt [continuing]. When they work.
    Mr. Bloom. Yes.
    Mr. Delahunt. My memory is that there was a senator from my 
home State, which is Massachusetts, Paul Tsongas, who put forth 
this rather, at that point in time, unique idea that the 
government, in particular crisis, carefully and cautiously 
could intervene. And in the case of Chrysler, again this is my 
memory and contradict me if you think I am inaccurate, not only 
did the taxpayer recover all, but my memory is there were 
millions of dollars in profits?
    Mr. Bloom. That is true. All the money was repaid with 
interest and some warrants which were granted that actually 
made the recovery larger than the investment by a meaningful 
amount.
    Mr. Delahunt. And nobody lost their jobs?
    Mr. Bloom. Well, there were you know, again, shared 
sacrifice as there is in this case. But again, I think the 
judgment at time, which I happen to think was wise one, was a 
heck of a lot better than the alternative.
    Mr. Delahunt. And the alternative would have been if as in 
the case that we are dealing with now, the latter-day Chrysler 
and the latter-day GM would have been a disaster in terms of 
unemployment, in terms of lost jobs, in terms of the impact on 
the community.
    But the Congress back in the 1970's saw it differently, 
offered legislation that provided relief for Chrysler and at 
least until recent times, Chrysler appeared to prosper and the 
taxpayer made some money and people were able to live their 
lives in a way that gave them dignity and security and hope.
    Mr. Bloom. I think that is a very fair rendering of the 
facts. Like, as in the Chrysler situation, the tragedy we faced 
today is that because the capital markets are not fully 
functioning there simply is not private capital around that can 
intervene here.
    If there was, I can assure you we would have played an 
exceedingly different role, but tragically there wasn't and 
therefore the President decided that we needed to step in.
    Mr. Delahunt. Thank you, Mr. Bloom.
    Mr. Cohen. Thank you, sirs.
    Mr. King seeks recognition.
    Mr. King. Thank you, Mr. Chairman. Appreciate being 
recognized and appreciate your testimony, Mr. Bloom. I just 
would take off of the questions asked by Mr. Delahunt and the 
statement that there wasn't enough private capital around to 
solve this problem.
    Would you consider the union pension funds and the other 
capital investments that went into this private capital or 
public capital?
    Mr. Bloom. I am not sure I know what you mean by the union 
pension fund.
    Mr. King. Why don't you then--all union resources that went 
into this to hold this together, would you consider that to be 
private funds or public funds?
    Mr. Bloom. Just let me try to answer but I just want to be 
sure I am tracking the facts. The pension fund, the pension 
plan, the General Motors and Chrysler pension plan were not 
involved in investing in this transaction one way or the other.
    Mr. King. Could you let this Committee know what union 
funds are involved in the transaction?
    Mr. Bloom. Well, there is a--something called a VEBA, which 
is a trust that is used to provide retiree health care benefits 
for the retirees. In both cases those VEBAs had substantial 
claims to cash and other consideration that they had achieved 
as part of a collective bargaining agreement.
    Mr. King. Were those public or private funds?
    Mr. Bloom. Those are private funds between the--but those 
were claims. Those were not capitals. Those were not fresh 
money. Those were simply claims and those claims were converted 
into substantially reduced modified claims in the new company.
    Mr. King. Were they current or future claims?
    Mr. Bloom. They are essentially claims for future retiree 
insurance benefits.
    Mr. King. Thank you. And then from a collateral 
perspective, where would you rank them at--would you consider 
that to be secured investors or unsecured with regard to all of 
those impacted by Chapter 11.
    Mr. Bloom. In both cases the VEBA in a Chapter 11 would be 
an unsecured claimant.
    Mr. King. Okay, and I imagine this panel has already 
examined the secured creditors who lost a significant position 
in this negotiation. I would rather, Mr. Bloom, as I have 
watched what has unfolded during this Administration, and I 
understand you haven't had an opportunity to play in on this 
thing from the beginning.
    But I am looking at at least eight huge formerly private 
sector entities that have been nationalized by the Obama 
administration in a few months and three large investment bank 
firms, AIG, Fannie and Freddie, who were private and now a 
government-sponsored enterprise, now solely owned by the 
taxpayers of America, and then General Motors and Chrysler.
    That is eight huge entities and it is hard to fathom that 
if one rolls back in their mind's eye 6 months or a year ago 
that if that prediction had been made, I think that most 
Americans would have shook their heads and said that can't 
happen in the United States of America.
    Also I recall a President, who was elected at least in part 
because he took on President Bush and challenged President Bush 
for going into Iraq without an exit strategy and so I think it 
is ironic that President Bush had an exit strategy. It was 
victory.
    It was negotiated with the SOFA agreement, the Status of 
Forces Agreement and the exit strategy in Iraq is being 
followed to the letter by President Obama, but I know of no 
exit strategy to get the public investor, the taxpayers 
divested of these private sector entities.
    Is there something that you are familiar with that you 
could tell this panel that would give us some hope that 
Americans might end up with less nationalization in the future 
in a way that they might be divested at least of a automaker's 
investment? That is really the central question I am interested 
in.
    Mr. Bloom. Okay. I will try to answer that and I may have 
my history wrong. I think that, to the extent the government 
became an owner of AIG and Fannie and Freddie. It was done 
under the prior Administration.
    In terms of the exit strategy for the car companies which I 
am more directly knowledgeable about, the strategy is that our 
expectation is that next year, as early in the year as 
feasible, but the precise timing remains in discussion, we 
would expect General Motors to undertake an initial public 
offering where they will sell shares into public markets so the 
company will then be freely traded on one of the stock 
exchanges.
    And then at that point, over a period of time, and we don't 
have a defined set period but the President has said that he 
wants this stock sold as soon as is practicable. So the 
objective will be without disrupting the market, without 
diluting the value or degrading the value of our remaining 
stake, we will be undertaking a program to sell these shares 
out into the public capital markets which is why it is so 
important that these companies be run in a private sector----
    Mr. King. I appreciate that statement and to the record. 
That gives some hope and something to watch. And so my final 
question then would be your predecessor was involved in day-to-
day operations of the automakers to the extent of multiple 
phone calls a day some days and has said so. I guess Chris 
Henderson said so publically about the discussion with your 
predecessor.
    And so I would ask if you could describe for this panel 
what you expect that day-to-day involvement to be with the 
automakers?
    Mr. Bloom. I mean, it is obviously still evolving but what 
I said was and what I expect we will be doing is we will be and 
continue to be in regular contact. There is obviously a lot of 
government money at stake here. But it will be largely in the 
form of monitoring to understand what is going on at the 
company and to assure ourselves that the commitments they have 
made in the various documents that they have agreed to with us, 
the loan agreements and other things are being adhered to.
    So that will be our principal role. We will also I would 
expect be involved in facilitating consultations with Members 
of Congress, with effective stakeholders, with anyone else 
because we obviously believe, while we believe it is generally 
good practice, in this particular case we will insist that the 
companies be open and transparent be it with Congress, 
Committees or other communities, effective stakeholders 
generally and we will be also ensuring that as well.
    Mr. King. Mr. Bloom, thank you for this dialog. I 
appreciate it. Mr. Chairman, thank you, and I yield back.
    Mr. Cohen. Thank you, Mr. King, thank you.
    I would like to thank Mr. Bloom for his testimony today. 
Without objection Members will have 5 legislative days to 
submit any additional written questions forward to the 
witnesses and ask to be answered as promptly as you can to be 
part of the record.
    Without objection the record will remain open for 5 
legislative days for the submission of any other materials. 
Again, I thank everyone for their time and patience. The 
hearing of the Subcommittee on Commercial Administrative Law is 
adjourned.
    [Whereupon, at 1:32 p.m., the Subcommittee was adjourned.]
                            A P P E N D I X

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               Material Submitted for the Hearing Record

Response to Post-Hearing Questions from Ron Bloom, Senior Advisor, U.S. 
                       Department of the Treasury




                                 
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