[Senate Hearing 111-103]
[From the U.S. Government Publishing Office]




                                                        S. Hrg. 111-103

        OVERSIGHT OF TARP ASSISTANCE TO THE AUTOMOBILE INDUSTRY

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

                             FIELD HEARING

                     CONGRESSIONAL OVERSIGHT PANEL

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               ----------                              

            HEARING HELD IN DETROIT, MICHIGAN, JULY 27, 2009

                               ----------                              

        Printed for the use of the Congressional Oversight Panel


                       Available on the Internet:
   http://www.gpoaccess.gov/congress/house/administration/index.html



                                                      S. Hrg.   111-103

        OVERSIGHT OF TARP ASSISTANCE TO THE AUTOMOBILE INDUSTRY

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

                             FIELD HEARING

                     CONGRESSIONAL OVERSIGHT PANEL

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

            HEARING HELD IN DETROIT, MICHIGAN, JULY 27, 2009

                               __________

        Printed for the use of the Congressional Oversight Panel


                       Available on the Internet:
   http://www.gpoaccess.gov/congress/house/administration/index.html





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                     CONGRESSIONAL OVERSIGHT PANEL
                             Panel Members
                        Elizabeth Warren, Chair
                     Representative Jeb Hensarling
                              Paul Atkins
                           Richard H. Neiman
                             Damon Silvers













                            C O N T E N T S

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                                                                   Page
Statement of:
    Statement of Jay Noren, President, Wayne State University, 
      Detroit, Michigan..........................................     1
    Statement of Hon. Carolyn C. Kilpatrick, U.S. Representative 
      from Michigan..............................................     2
    Statement of Hon. John Conyers, U.S. Representative from 
      Michigan...................................................     2
    Opening statement of Elizabeth Warren, Chair, Congressional 
      Oversight Panel............................................     1
    Statement of Hon. Jeb Hensarling, Member, Congressional 
      Oversight Panel, U.S. Representative from Texas............    12
    Statement of Ron Bloom, Senior Advisor, U.S. Department of 
      the Treasury...............................................    14
    Statement of Jan Bertsch, Senior Vice President and 
      Treasurer, Chrysler........................................    41
    Statement of Walter Borst, Treasurer, General Motors Company.    50
    Statement of Dr. Sean McAlinden, Executive Vice President and 
      Chief Economist, Center for Automotive Research............    58
    Statement of Richard Mourdock, Indiana State Treasurer.......    83
    Statement of Barry Adler, Charles Seligson Professor of Law, 
      New York University School of Law..........................    97
    Statement of Stephen Lubben, Daniel J. Moore Professor of 
      Law, Seton Hall University School of Law...................   109
    Responses to questions for the record........................   130

 
    FIELD HEARING ON OVERSIGHT OF TARP ASSISTANCE TO THE AUTOMOBILE 
                                INDUSTRY

                              ----------                              


                         MONDAY, JULY 27, 2009

                                     U.S. Congress,
                             Congressional Oversight Panel,
                                                 Detroit, Michigan.
    The Panel met, pursuant to notice, at 10:01 a.m., in the 
Spencer M. Partrich Auditorium, Wayne State University Law 
School, Elizabeth Warren, Chairman of the Panel, presiding.
    Present: Elizabeth Warren and Jeb Hensarling.
    Index: Elizabeth Warren and Jeb Hensarling.

  OPENING STATEMENT OF ELIZABETH WARREN, CHAIR, CONGRESSIONAL 
                        OVERSIGHT PANEL

    Chair Warren. This is Elizabeth Warren. I am calling to 
order the July 27th, 2009 field hearing on TARP assistance in 
the auto industry.
    I would like to begin by thanking Wayne State University 
for their hospitality in making these facilities available to 
us and making it possible for us to have this hearing in 
Detroit.
    I would like to begin by recognizing President Jay Noren 
and asking him for a few opening remarks. Mr. President?

STATEMENT OF DR. JAY NOREN, PRESIDENT, WAYNE STATE UNIVERSITY, 
                       DETROIT, MICHIGAN

    Dr. Noren. Well, thank you very much. We are most pleased 
to host the Congressional Oversight Panel, Chair Elizabeth 
Warren, who is the Leo Gottlieb Professor at Harvard Law 
School, and Congressman Jeb Hensarling, who is from Texas and 
actually from Texas A&M, a place where I spent some time. It is 
a real pleasure. It is a real privilege to host the panel.
    Of course, we all know in Michigan, as much as anywhere, 
how critically important the automobile industry is and where 
it goes in the future, and because of that, this is a most 
appropriate place to host this among, I know, many of your 
hearings around the country to explore the process and the 
results of aid to the auto industry and beyond from TARP.
    Wayne State's role, particularly in collaboration with our 
new consortium formed about three years ago with the University 
of Michigan and Michigan State as the University Research 
Corridor, is particularly important to the future of the auto 
industry and to Michigan's economy. We, the three research 
institutions here, are principal producers of managers and 
engineers in the auto industry and many other of the workforce, 
as well as many of the innovations ahead of us in the auto 
industry in terms of alternative energy and hybrid vehicles and 
a number of other things in our engineering schools. So we are 
a partner with the auto industry. We are a partner with 
Michigan's economy, and therefore, we are a partner with this 
oversight panel and its objectives.
    So we are very anxious to spend the day listening and we 
are very anxious for the outcome of your reviews around the 
country and what we expect will be a real boost to the economy 
and what you find out and what you recommend. So thank you very 
much for being here.
    Chair Warren. Thank you, President Noren.
    I also want to thank Congresswoman Kilpatrick and Senator 
Levin and their staffs for their assistance with today's 
hearing. I understand Congresswoman Kilpatrick is with us and 
we would like to thank her especially and recognize her for 
some opening remarks.

 STATEMENT OF HON. CAROLYN C. KILPATRICK, U.S. REPRESENTATIVE 
                         FROM MICHIGAN

    Ms. Kilpatrick. Madam Co-Chair, Madam Warren, my colleague, 
Congressman, how are you this morning?
    I just want to thank Mr. McGreevy for your fine work and 
work with my staff and my district director, Duron Marshall--
would you please stand for a moment--as they coordinated 
efforts to have this event here. I think this is the first that 
you have had.
    This panel was created by legislation of the Congress, 
adopted as a part of our TARP package, and I think you are 
doing a fine job.
    This is my district. This is a perfect place to be this 
morning. Here in Michigan, we are the epicenter of the 
manufacturing that is kind of eroding itself in America. We are 
happy that you are here.
    The Congressman is an active participant in Congress, and I 
know that as we rebuild America and rebuild our Chrysler 
Corporation, our General Motors Corporation, and the thousands 
and hundreds of thousands of jobs that will be affected, your 
job will be one of most significance.
    Thank you for coming to Michigan's 13th Congressional 
District. My staff is available and willing and ready to work 
with you. Thank you very much; We give you all our respect and 
love. Thank you.
    Chair Warren. Thank you, Congresswoman Kilpatrick.
    I also want to recognize Congressman Conyers who has also 
been very active in economic issues and we appreciate the 
support that he has given us on the oversight panel and in 
inviting us here to Detroit. Congressman Conyers, can I call on 
you for a few remarks?

   STATEMENT OF HON. JOHN CONYERS, U.S. REPRESENTATIVE FROM 
                            MICHIGAN

    Mr. Conyers. Overcoming my usual reluctance to come before 
a committee other than mine, I am happy to be here and to 
welcome you all for several reasons.
    This is the university that taught me everything I did not 
know before I got here, and I am very happy to see the 
President here who is doing a great job.
    I want my colleague in the Congress to know that we are 
privileged to use this part of the law school quite frequently 
for our own hearings and town hall meetings and activities. So 
we are glad you are all here.
    This is a difficult period of time that we are going 
through and in the automobile industry particularly. Now, the 
big question is how we can make this automobile bailout--and I 
know that is probably not a good term of art in a congressional 
hearing, but how can we help these companies to a maximum 
degree and yet not disempower hundreds and hundreds of 
automobile dealers? Some 700-800 Chrysler dealers gone out of 
business. General Motors, I think it is in the 1,700 range. And 
the question is, how did that happen and is there anything we 
can do about it?
    The House has already tried to do something about it only 
last week. One of the chairmen in the Senate committee--I just 
found out that he has asked for a review of this as well. So to 
me this is a very, very important part of our business. 
Minority auto dealers kind of have been even more disadvantaged 
by this.
    I should particularly thank Ron Bloom for being here. Lord 
knows how many hearings he has been in. He has been before us. 
We have had three hearings in Judiciary already on this matter.
    But I hope that we will be thinking together about whether 
the auto task force diminished the rights of secured creditors 
and investors while giving preferential treatment to the United 
Automobile Workers. There has been a lot of talk about that in 
Washington. I do not think it is accurate, but I want to get it 
out there in advance.
    Then we have had the issue of whether there is--I do not 
think it will be raised, but whether the administration, 
whether the President is trying to start a government takeover 
of the private sector. I do not think that we should spend a 
lot of time on that today. Just remember it was the two leaders 
of the two automobile manufacturers that came to us to ask us 
for their help.
    So I am happy to be back here at my school. I am happy to 
have everybody here with me.
    We might want to consider an honorary degree for my 
colleague in the Congress, depending on his deportment and 
behavior today. But I welcome you here and I thank you very, 
very much.
    [The written statement of Representative John D. Dingell 
follows:]


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    Chair Warren. Thank you very much, Congressman.

 STATEMENT OF ELIZABETH WARREN, CHAIR, CONGRESSIONAL OVERSIGHT 
                             PANEL

    Chair Warren. Last October, Congress established our panel 
as part of the Emergency Economic Stabilization Act (EESA) to 
oversee the expenditure of funds from the Troubled Asset Relief 
Program, commonly referred to as TARP. It is our duty to 
investigate and issue monthly oversight reports that analyze 
and evaluate the Treasury Department's administration of this 
program and its efforts to stabilize our economy.
    Congress also authorized this panel to hold hearings. Over 
the past eight months, we have traveled to locations as diverse 
as Nevada, Maryland, Wisconsin, New York, and Colorado in order 
to learn how the financial crisis is affecting people across 
the country. We believe that this is the best way to develop 
yet another perspective on the impact of the financial crisis.
    Today, we are here in Detroit, Michigan to examine the 
Treasury's use of TARP funds to support the automotive 
industry. As home to the three largest automakers in North 
America, Detroit offers a unique opportunity for our panel to 
better understand the benefits and the challenges posed by the 
Government's intervention in the auto sector.
    A symbol of American strength and ingenuity, few industries 
are as deeply embedded in our national identity. For 
generations, the health of the auto industry has been a mirror 
for the health of our Nation. As you know all too well, this 
reflection has dimmed over the past few years, as both the auto 
industry and our country have faced the worst economic downturn 
since the Great Depression. Treasury has stated that the 
failure of the American auto sector poses a systemic risk to 
our economy. Such a failure would threaten hundreds of 
thousands of jobs, ranging from the auto industry itself to 
suppliers, dealers, and small businesses that depend on the 
industry for their livelihoods.
    On December 19th, 2008, Treasury offered domestic 
automobile companies eligibility for government assistance 
under TARP. Treasury's decision to invest in the auto industry 
through the Automobile Industry Financing Program provided 
General Motors and Chrysler with approximately $80 billion in 
financial assistance on the condition that they provide viable 
business plans demonstrating how this assistance would allow 
them to restructure and to return to profitability.
    For our September oversight report, we will focus on 
Treasury's use of funds to support the American automotive 
industry as authorized by the EESA. It is our hope that today's 
hearing will enhance that report.
    We hope to explore the impact of TARP funds and to better 
understand the specific role that Treasury has played. We also 
want to examine the longer-term implications of Treasury's 
involvement here.
    For today's hearing, we have invited the head of the 
President's Automotive Task Force, officials from GM and 
Chrysler, a creditor affected by the bankruptcy and 
reorganization of Chrysler and GM, and independent experts on 
the automotive industry and the bankruptcy process. We thank 
you all for joining us today and we look forward to your 
testimony.
    Before I turn to Congressman Hensarling for his opening 
statement, I want to note the absence of Damon Silvers. This is 
the first hearing of the Congressional Oversight Panel that he 
has missed. Mr. Silvers has recused himself on all matters 
relating to the auto industry before the panel. All of us who 
serve on the panel serve on a part-time basis as Special 
Government Employees, and in his day job, Mr. Silvers is 
Associate General Counsel to the AFL-CIO. The AFL-CIO has taken 
a position advocating for TARP funding for the health care 
plans of AFL-CIO affiliate union members and retirees at GM and 
Chrysler. For that reason, Mr. Silvers did not feel it was 
appropriate for him to be involved in our oversight of 
Treasury's assistance to the auto industry. We miss his good 
counsel, but we understand that he is working to protect the 
integrity of the process.
    I also should note the absence of yet another of our panel 
members and that is Richard Neiman, Superintendent of Banking 
for the State of New York. Mr. Neiman spent several hours in an 
airport in New York last night, only to learn at the end of the 
evening that his plane had been canceled and he was not able to 
come to Detroit and could not get on a plane early enough this 
morning in order to make the hearing. So I am afraid weather 
has conspired against him. We shall miss him as well.
    I now yield to Congressman Hensarling for any remarks he 
would like to make.
    [The prepared statements of Chair Warren and Mr. Neiman 
follow:]

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    STATEMENT OF HON. JEB HENSARLING, MEMBER, CONGRESSIONAL 
        OVERSIGHT PANEL, U.S. REPRESENTATIVE FROM TEXAS

    Mr. Hensarling. Thank you, Madam Chair.
    First, let me also add my voice of thanks and gratitude for 
Wayne State to host us today. I had originally advocated that 
we hold this hearing in the Nation's capital, but having been 
here just a little bit of time, I can certainly say that the 
hospitality of Wayne State far exceeds that of my colleagues 
and other Members of Congress. So we are happy to be here, Mr. 
President. Happy to be here.
    I do actually want to thank my colleagues for being here 
today, and although we come from different parties and 
different philosophies, Congresswoman Kilpatrick and Chairman 
Conyers are very, very able advocates for their constituents. 
They are very distinguished and respected leaders within the 
United States House. It is an honor to have them here with us 
today.
    Unfortunately, I sense that Chairman Conyers is going to be 
in charge of the committee that decides whether or not I 
receive that honorary degree, I suspect I will not have to go 
to Michael's and buy the frame later this afternoon.
    I look forward to hearing from the various panel members 
today. I think there are a number of serious questions that we 
have to ask. It is important that we understand exactly how 
TARP funds have been used in the unprecedented restructuring of 
our U.S. automakers, Chrysler and GM, and the specific roles 
played by the administration and others in the negotiations.
    As many know, the TARP program has never been quite as 
advertised. What was supposed to be a toxic asset purchase 
program somehow overnight morphed into a capital purchase 
program under the previous administration. What was a program 
that was ostensibly designed for financial firms is clearly now 
being used to rescue auto manufacturers. This raises a number 
of serious questions and for many Americans a program that was 
originally intended to stabilize markets during a time of 
economic crisis with taxpayer protection paramount, 
disappointingly now appears to be nothing more than a $700 
billion revolving bailout fund used to promote the 
administration's political, social, and economic goals.
    Clearly, one of the more questionable uses of taxpayers' 
money under TARP has been the administration's handling of the 
bankruptcies of GM and Chrysler which now has involved the 
commitment of at least $80 billion of taxpayer money. In the 
case of Chrysler, bondholders with the most senior claims saw 
their claims reduced substantially while junior creditors like 
the UAW Retiree Benefits Trust were given far more preferential 
treatment. UAW, as we know now, effectively owns Chrysler with 
its trust fund ending up with a 55 percent stake. The UAW 
claims are clearly an integral part of the bankruptcy 
negotiations and will remain an integral part of Chrysler in 
the future.
    So it is most unfortunate that, as I look at the witness 
list today, there is no representative of the UAW scheduled to 
testify to help shed light on how this ownership stake came to 
be. Somewhat in their defense, I am informed that the 
invitation from our Congressional Oversight Panel went out just 
last week, although it was in discussion for many weeks.
    Having said that, I am still disappointed. As a Member of 
Congress, I know that Mr. Gettelfinger, who heads the UAW, 
appeared on numerous occasions in front of numerous committees, 
including my own, asking for taxpayer assistance. Clearly, he 
was able to rearrange his schedule to come ask for the TARP 
money, but now that he has received it, it appears that neither 
he nor his representatives can be found to help account for 
these funds.
    Another troublesome aspect of the Chrysler restructuring 
deal is the alleged pressuring by Treasury officials of senior 
secured bondholders to abandon their fiduciary responsibilities 
to investors, which included teachers, school endowments, and 
major pension and retirement plans of working Americans, to 
accept less than what they would typically be entitled under 
bankruptcy law.
    Even more disturbing is that there seemed to be a clear 
contrast between the reluctance of several non-TARP recipient 
creditors to accept less than what many viewed as their 
historic fair share and the acquiescence of TARP recipient 
credits to consent to Treasury's proposed deal which gave them 
29 cents on the dollar.
    In the case of GM, the UAW was again given preferential 
treatment over bondholders with similar claims. Their 
bondholders exchanged $27 billion in unsecured debt for what 
will likely remain a 10 percent common equity interest while 
the UAW exchanged $20 billion in claims for a 17.5 percent 
common equity interest, plus billions in preferred shares.
    I fear that this rather unorthodox reordering of rights is 
not only unfair, but may have chilling and far-reaching 
consequences on our capital and bond markets. Investors, 
fearful of entering into contracts that may later be abrogated, 
will surely price this risk into the premiums they require. 
Ironically, TARP was put in place to help make credit flow 
again, and instead, it may have exactly the opposite effect by 
creating disincentives to participate in markets. At a time 
when our Nation's unemployment rate has hit a 26-year high, 
this is unacceptable.
    As TARP programs continue to create market distortions and 
discourage private sector support, they enhance what is proving 
to be an enduring role of Government in business. The United 
States Government and the taxpayers now own almost 61 percent 
of GM.
    Now, I am glad that Mr. Bloom from the President's Auto 
Task Force has agreed to join us today. The Congressional 
Oversight Panel has responsibility to find out how and when the 
administration plans to unwind its ownership of GM and return 
the money to the hands of the taxpayer where it belongs.
    I remain fearful, though, that the decisions Treasury has 
made will become part of our national heritage and, 
unfortunately, may enshrine us as a bailout Nation, help 
politicize our economy, and hinder our economic recovery.
    I am confident, though, that the panel will carry out its 
oversight duty to thoroughly investigate the dealings of all 
parties involved in the Chrysler and GM bankruptcies, and I 
look forward to hearing from the witnesses.
    Chair Warren. Thank you, Congressman Hensarling.
    We have seven witnesses testifying before us today, and we 
hope this will give us a full opportunity to get answers to all 
of our questions. We reached out to a number of individuals and 
organizations who could not be with us today, including the 
UAW, J.P. Morgan Chase, and the lead attorneys for the 
dissatisfied creditors. We look forward to hearing from the 
witnesses who are with us today.
    I would like to call our first witness, Ron Bloom, if you 
could join us. Mr. Bloom is Senior Advisor to the Secretary of 
the Treasury and the head of the President's Auto Task Force. 
Mr. Bloom, if you could, I will ask you to hold your remarks to 
five minutes, but your entire written statement will become 
part of the record. Mr. Bloom, whenever you are ready.

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

    Mr. Bloom. Thank you. Good morning, Chairperson Warren, 
Representative Hensarling. 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 proceedings, 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 
situation 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 further Government support. Despite 
this, President Obama decided that he could only 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 the 
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's 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 largely to monitoring the taxpayers' 
investment as we move forward.
    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 
commitment of taxpayer resources. Therefore, for both 
companies, this meant substantial sacrifices for all 
stakeholders, sizable reductions in their workforces, plant 
footprints, and dealer networks, substantial reductions in the 
claims of secured and unsecured creditors, significant 
reductions in compensation and benefits for active employees 
and health care benefits for retirees, leaving behind a variety 
of unsecured claims, including on product liability and workers 
compensation, a decision the companies made on a commercial 
basis.
    I also want to emphasize the importance that our team has 
placed on transparency and accountability. The task force has 
conducted broad outreach over the past several months to 
affected stakeholders, industry experts, and other 
constituencies that have requested such meetings to ensure that 
we have been as inclusive as possible. And because the 
investments made by both the prior and current administrations 
to support the auto companies have come from the TARP, the task 
force and its staff activities have been subject to the full 
range of disclosure and reporting requirements under the EESA 
statute.
    In addition to reporting to this committee, this includes 
oversight by the GAO, EESA's financial stability oversight 
board, the Special Inspector General for TARP, or SIG TARP, as 
well as required reporting to multiple House and Senate 
committees.
    Also, to date, I have testified before the Senate Banking 
Committee and the House Judiciary Committee. We have had dozens 
of meetings with Members of Congress and their staff, as well 
as almost constant telephonic communication with them. The Auto 
Task Force will continue to be as responsive as possible to the 
requests of these entities to ensure thorough transparency and 
accountability for our actions.
    Finally, the administration has articulated principles that 
will govern its approach to managing ownership interests in the 
automotive companies and protect taxpayer dollars.
    First, the Government has no desire to own equity in 
companies any longer than necessary, and it will seek to 
dispose of its ownership interest as soon as practicable.
    Second, the Government will protect the taxpayers' 
investment by managing its ownership stake in a hands-off 
commercial manner.
    And finally, as a common shareholder, the Government will 
only vote on core governance issues, including the selection of 
a company's board of directors and major corporate events or 
transactions.
    Together these principles will help maximize the return 
taxpayers receive on their funds.
    In a better world, the choice to intervene would not have 
had to occur, but amidst 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 new GM and 
new Chrysler with an extraordinary second chance and a very 
real opportunity to succeed and prosper in the years ahead.
    Thank you and I look forward to your questions. [The 
prepared statement of Mr. Bloom follows:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] 

    Chair Warren. Thank you, Mr. Bloom. We appreciate your 
being here today.
    You started your remarks by noting that sacrifices have 
been required of all the stakeholders in this effort to 
reorganize the automobile industry. And I would like to start 
my questions along the same line.
    As I understand it, in order to receive taxpayer 
assistance, the two automobile companies have had to come up 
with a new business plan. They have had to replace at least 
some senior management. They have forced creditors to take 
losses, and they have largely wiped out their shareholders.
    As I also understand it, in order to receive TARP funds, 
none of those same requirements have been made of the financial 
institutions, even though the amount of money at stake is about 
two and a half times more.
    So I wonder if we could begin this process with some 
explanation of why these restrictions were demanded of the auto 
industry and not of the banking industry.
    Mr. Bloom. Well, Madam Chairman, I really cannot speak 
about the determinations that were made relative to the banking 
institutions. My responsibility has been to work with the 
President's Auto Task Force. I think the situations facing the 
banks are quite different. But honestly, our sole focus over 
the past 4 or 5 months has been on the auto companies, and so I 
am happy to try to give you as much understanding as I can 
about how we approached that matter. But in terms of comparing 
it to what was done with the banks, that is really not 
something I am in the position to do.
    Chair Warren. So no sense of how the two industries either 
are different from each other or the role of insisting on some 
reorganization in order to protect taxpayer investments?
    Mr. Bloom. I have had my hands full trying to wrestle with 
two very large, troubled auto companies, and that takes up 21 
hours of the day, and the rest I reserve to myself.
    Chair Warren. Well, in that case, I will ask you more about 
what you have said about your efforts with the auto industry.
    I want to understand two phrases that seem to be somewhat 
in tension with each other. I hear you and others discuss many 
times the need for a ``change in culture'' in the auto 
industry, and at the same time, I hear you and heard you in 
your testimony today describing your role as ``hands-off.'' So 
I am curious how it is, if you see ``change in culture'' as a 
central ingredient for reviving the industry and protecting the 
taxpayer investment--how you see that as consistent with a 
``hands-off'' approach to managing the Government's investment.
    Mr. Bloom. Well, that is a fair question. Let me try to 
answer it.
    I think we tried to do three separate things as we 
approached our work.
    The first was we tried to facilitate and effectuate a 
financial restructuring, a reordering of the balance sheet to 
help the company relieve itself of liabilities that its current 
profit potential were simply unable to bear.
    The second thing we did is, working with the management, we 
insisted that there be an operational restructuring so that the 
companies were able to make profit at a lower level of sales 
and make more profit at higher levels of sales than they 
historically had. And that was an insistence that the President 
has made that I spoke about, that was a condition to advancing 
the additional Government funds.
    In terms of the third leg of the stool, the cultural 
change, which I absolutely agree with you is central to 
effectuating a turnaround, I think what we did there largely 
was to bring in, in the case of Chrysler, an entirely new and, 
in the case of GM, a significantly new board of directors of 
people of extraordinary accomplishment in the private sector; 
people who have had experience effectuating turnarounds and we 
have tasked them with the responsibility of overseeing the 
management so that this culture change, which you referred to 
and which we would agree is very important, is in fact 
effectuated.
    I would also note that in the case of Chrysler, the entire 
management team is new, and in the case of General Motors, many 
of the senior managers are no longer with the company and the 
management team is certainly a lot smaller than it was. And we 
are very hopeful that the new management team at Chrysler will 
be committed to the culture change that you spoke of, and we 
are confident it will. We are very hopeful at General Motors as 
well, but we have a lot of faith that the new board of 
directors that has been put in place will be very vigilant in 
pursuing that objective.
    Chair Warren. Thank you, Mr. Bloom. My time is up.
    Congressman Hensarling.
    Mr. Hensarling. Thank you, Madam Chair.
    Mr. Bloom, I could barely see you there.
    Mr. Bloom. Yes, this is better. We can look at each other.
    Mr. Hensarling. Mr. Bloom, the first question I have, the 
first tranche of assistance to the automakers came from the 
previous administration, but knowing how often this 
administration has broken with the policies of the previous 
administration, what is the legal authority that you cite for 
the continued infusions of TARP money that took place prior to 
the Chapter 11 reorganizations?
    Mr. Bloom. I do not think this administration breaks with 
the prior administration just to do it. I think it does it 
where it believes that change is appropriate. And on this 
particular matter, we think the finding that the prior 
administration, made that under the statute these companies are 
eligible, is a finding that this administration concurs with 
and made as well.
    Mr. Hensarling. Refresh my recollection. That specific 
finding--is that a finding by whom? Is this something----
    Mr. Bloom. By the Secretary--I am sorry.
    Mr. Hensarling [continuing]. The Justice Department? So it 
is an interpretation by the Secretary of----
    Mr. Bloom. By the Secretary of the Treasury in consultation 
with----
    Mr. Hensarling. Okay. That is the legal authority you all 
rely upon.
    Mr. Bloom. Well, under the statute, yes.
    Mr. Hensarling. Given that the taxpayer has become an 
involuntary investor in Chrysler and GM, is it the intent of 
the Government and your Auto Task Force to ensure that they 
receive the same disclosure of any public company, that they as 
shareholders would receive all proper disclosures?
    Mr. Bloom. Neither of these companies today are public 
companies in the traditional use of the word, meaning their 
stock is traded on a recognized exchange.
    Mr. Hensarling. But will the taxpayers----
    Mr. Bloom. No. I am going to answer your question.
    On the other hand, we have insisted--and the companies have 
both agreed--that they will be making periodic reports to 
shareholders, if you will, but to the Government these will be 
publicly available on a quarterly basis. They will be filing as 
voluntary filers under the SEC, not immediately but shortly. 
But immediately and quarterly, they will be making regular 
reports, yes.
    I am sorry. Just to clarify to be clear, as you know, the 
old General Motors is still a public company, but I was 
speaking about the new GM.
    Mr. Hensarling. Correct, correct.
    For a lot of observers, clearly again, TARP crossed a 
threshold when funds were invested into what many would view as 
a nonfinancial firm. The New York Times recently wrote, I 
believe just a few days ago, on the 25th--and the New York 
Times is not known for being a bastion of conservative 
thought--quote, ``Why, after all, should the automakers receive 
the equivalent of a technicolor dream coat giving them favorite 
son status when other industries like airlines and retailers 
also have suffered from the national recession.'' Unquote.
    I come from Dallas, Texas. Two of the Nation's leading 
airlines, American Airlines and Southwest Airlines, are 
headquartered in our greater Dallas-Forth Worth Metroplex. So 
it does beg a question. I know of very few firms, industries, 
sectors that are not hurting in this economy. So once you got 
out of the financial realm into the automakers, would the 
administration come to the rescue of American Airlines and 
Southwest Airlines if they fell upon economic hard times?
    Mr. Bloom. I cannot answer a hypothetical about what might 
happen. I can answer only that the administration and the prior 
administration believe that the centrality of the automobile 
industry to the broader economy justified this intervention. 
What would happen down the road is, I think, something that 
would have to be evaluated when, as, and if it happened.
    Mr. Hensarling. What would be that criteria? Or in your 
position at the Auto Task Force, you would not necessarily be 
privy to that information.
    Mr. Bloom. Again, my responsibility is for autos. So I 
guess it is possible someone would ask my opinion about 
airlines, but I do not anticipate it.
    Mr. Hensarling. As part of the restructuring of Chrysler--I 
believe I have my facts right--I believe that Fiat has the 
opportunity to increase their equity stake. I believe it is 
from 20 to 35 percent for, among other things, producing a 
domestic car that can achieve 40 miles per gallon. I think I 
have my facts right.
    And if so, Mr. Bloom, what does that have to do with 
financial stability? Why does that not instead speak to the 
President's global warming initiatives, which is an interesting 
debate to have? But I am curious, what does it have to do with 
financial stability in our markets?
    Mr. Bloom. Just a very minor correction. You are 
essentially correct. Fiat has 20. They can move to 35. There 
are three different metrics. The one you cite is one of them. 
It would get them an additional 5 percent. But you are 
essentially right.
    And let me answer your question. The judgment was made that 
producing a high-mileage car would be helpful to the company's 
long-term viability. And Fiat--one of the things they, if you 
will, bring to the party is very advanced technology 
particularly in the area of small cars. So what we were trying 
to do is build an incentive for Fiat to bring--or Chrysler to 
avail itself of that technology as quickly as possible--the 
judgment being that in order for Chrysler to be successful in 
the long term, a fully balanced product portfolio, including 
high-mileage cars, was critical to its long-term success. So 
the reason was based on a judgment about what Chrysler needed 
to be long-term successful company and trying to align their 
interests with Fiat's.
    Mr. Hensarling. Thank you. I see I am way past my time 
limit.
    Chair Warren. Yes, you are. I had lost track. I was 
interested in the question.
    Mr. Bloom, you pointed out that an essential tool for 
change in the culture is not only the new management team, but 
the new board of directors. And I just want to ask a few 
questions about the role of the members.
    For the directors appointed by the Government, are there 
any restrictions on the role that these directors will play? Do 
they play a role just like any other director?
    I raise this because of the special relationship that we 
must probe between the Government and the ongoing management of 
the company.
    Mr. Bloom. Let me try to be responsive, and if I am missing 
something, maybe you can help me. But let me say that our 
expectation is that these people will act as directors must 
act, which is to say fiduciaries for the shareholders, 
unrestricted in their ability to do that. There is no checking 
with Government. There is no look-back. There is no special 
reporting. They are there to do the job of every other director 
in any company that a director serves on.
    Chair Warren. All right. That is what it was that I just 
wanted to clarify. If the question was unartful, the answer 
was, nonetheless, responsive.
    But that means then it takes me to another part of the 
corporate governance structure, and that is the notion that 
ultimately boards of directors are responsive to shareholders. 
And, as I understand it, both VEBA and the Government intend to 
be hands-off here.
    Does that mean, to the extent there is shareholder 
influence in the operation of this business, that it will be 
essentially representing about 10 percent of the equity of 
General Motors in its influence over the major decisions to be 
taken?
    Mr. Bloom. Let me take the GM case and see if I can be 
responsive.
    As you correctly suggest, the bondholders will have 10 
percent, although they do have warrants to purchase an 
additional 15, could grow to 25, but still a small number. The 
VEBA has 17.5, could grow to 20 with a very, very highly priced 
option as well. The U.S. Government, 60.8, and the Canadian 
Government, the balance.
    It is our intention, as the Government, that we will vote 
those shares on the reelection of the board of directors. So if 
for whatever reason there is an issue with the board, the 
Government would be able to exercise its influence there. But 
the shareholder right, if you will, is quite narrowly 
circumscribed only to the election of the directors, and that 
will be the full extent of it.
    So I think while that is not 100 percent traditional in 
terms of how one might think of a large shareholder, the 
decision that was made was that while--on the one hand, there 
is obviously an expectation that there is a huge amount of 
taxpayer resources at stake here and they need to be protected. 
On the other hand, we are very eager to dispose of these shares 
as soon as is practicable and to provide these companies with 
access to private capital markets. And so balancing all those 
things, the judgments were made to exercise our governance 
rights as we are.
    Chair Warren. So if I am understanding this, then you are 
telling me that having appointed a certain number of directors, 
that the Government in effect will now recede from the field 
until the next time that the directors are up for election, and 
then it will make, in effect, the binary decision, yes/no, on 
these directors or replacing them with directors that the 
Government is more comfortable with.
    Mr. Bloom. Yes.
    Chair Warren. Is that the process?
    Mr. Bloom. I think that is a fair description of it, yes.
    Chair Warren. Good. I think that is good.
    Instead of opening up another line of questions, I will 
just go to you, Congressman Hensarling.
    Mr. Hensarling. Mr. Bloom, I am still trying to make sense, 
I guess economic sense more than bankruptcy law sense--our 
chair certainly has far greater expertise as a professor in the 
area than I do. But on a before-and-after basis, again, how is 
it possible that the UAW VEBA unsecured creditors receive a 
greater distribution of proceeds than Chrysler senior secured 
creditors or the GM bondholders? Regardless of whether it was 
legal, I think it is certainly unprecedented, and I continue to 
be curious about the matter.
    Mr. Bloom. Okay. As you acknowledge, it is perfectly legal. 
The courts have scrutinized this extensively, and no one has 
found any problem with it.
    In terms of precedential quality, let me refer you to the 
bankruptcies of the steel companies in the turn of the prior 
decade, which is something I happen to have been quite involved 
in. In that case as well, there was a huge difference in the 
recovery that the VEBAs were able to receive versus the 
creditors. Likewise, I would point you in Chrysler to the 
recovery received by the suppliers and the recovery received by 
the warranty holders.
    And it all stems from the same basic fact, which is that 
the new buyer of these assets made a commercial decision that 
to enter into contracts with its suppliers, to assume the 
warranty claims of past warranty holders, in those two cases, 
it made a commercial judgment that in order to be a successful 
business enterprise, to not provide a recovery to warranty 
holders, who are for most companies the most logical buyers of 
the next vehicle, would be an illogical commercial judgment.
    Likewise, the suppliers--it is difficult to make cars if 
you do not have steering wheels--decided that providing 
essentially ordinary course payment to its supply base through 
the entirety of the bankruptcy proceeding and therefore leaving 
them essentially unimpaired was a wise commercial decision, 
which the Government agreed with.
    Likewise with the UAW, the company engaged in a very 
difficult, arm's-length bargain with its labor union, and as 
part of that bargain, the union decided that its active workers 
would take reductions in their pay and benefits. There were a 
variety of other changes made in work rules and other areas, 
but through that hard-fought bargain, the UAW also said that we 
want new Chrysler to have a VEBA to take care of the people who 
used to work for old Chrysler. And new Chrysler made a 
commercial decision that without a skilled workforce, it would 
be very difficult for the company to operate. And so they got 
the UAW to take as small of an amount, as they could, in that 
process. And that was the commercial judgment that the company 
made, which----
    Mr. Hensarling. Mr. Bloom, when you talk about new 
Chrysler, new GM, I mean, we are still talking the Federal 
Government and the UAW substantially. Correct?
    Mr. Bloom. I am sorry. The last part of your sentence?
    Mr. Hensarling. When you are talking about new GM and new 
Chrysler, the management made this decision.
    Mr. Bloom. Yes.
    Mr. Hensarling. Two observations. Number one, they are 
representing the Federal Government and they are representing 
the UAW. So to some extent, the old becomes the new, number 
one.
    And number two, I am not convinced that somebody using 
their own money would have made this same deal as opposed to 
using the taxpayer money.
    Mr. Bloom. I am not sure I understand. You mean they were 
representing the UAW. They were adverse to the UAW in the 
proceeding. I mean, there was an arm's-length bargain between 
the management and the UAW. So I do not think they were 
representing----
    Mr. Hensarling. And that is how they ended up with 55 
percent.
    Mr. Bloom. That is how they represented, number one.
    Number two, in terms of whether a private sector individual 
would do it, that is a matter of speculation. But again, I 
would recommend you to the steel bankruptcies where private 
sector individuals did come in and put their own private sector 
money at risk. In fact, the relative amount that the VEBAs 
received in the steel bankruptcies was more like 40 and 50 
times what the unsecured creditors received. So I do not find 
it at all out of line. But I have been doing a lot of 
bankruptcies over a lot of years, and I think most of the 
participants of the bankruptcy did not find it out of line, but 
perhaps others would.
    Mr. Hensarling. Thank you.
    Chair Warren. Thank you.
    Could we turn for just a minute to GMAC? How has GMAC 
performed as a reliable source of credit for GM and Chrysler 
dealers and consumers so far?
    Mr. Bloom. Well, obviously, the entire sector is troubled, 
and obviously, people in general are not buying as many cars. 
But I think we are satisfied that GMAC has done as good a job 
as it could under the circumstances. There was, obviously, this 
very large and complex transfer of the Chrysler dealers to 
GMAC, which we believe was handled largely--you know, there is 
a hiccup here and there, but I think was largely well. 
Certainly there are individual dealers and individual consumers 
who have complaints about the company, which would be true of 
any financial institution. But I think we feel, by and large, 
that GMAC, while facing its own challenges, is doing a good job 
of providing credit to both consumers and dealers.
    Chair Warren. Do you know? Is GMAC still the preferred 
financing option for most purchasers? Has its percentage 
shifted during 2009?
    Mr. Bloom. There certainly were periods--not relative to 
GMAC. There were periods with Chrysler financial where there 
was some movement away from it, but I am not aware--and I can 
get back to you with more detail or maybe we can direct those 
questions directly to GM. But to my knowledge, the percentage 
of consumer purchases that GMAC is doing both before and after 
is not very different.
    The only area where you might see a decline in GMAC was in 
the leasing business. It has gone out of the leasing business. 
And there is a percentage of buyers of cars who are sort of 
lease-specific, and those guys therefore, obviously, are not 
getting their financing from GMAC.
    But other than that, I think the straight purchases, to my 
knowledge, are roughly the same, but I can certainly get you 
more detail on that.
    Chair Warren. Insofar as you know, the rates are still 
competitive that GM is asking for. I am just trying to get a 
sense of----
    Mr. Bloom. Yes, versus the private markets. We are not 
aware of any rate discrepancy versus the banks or others who 
might be providing auto credit.
    Chair Warren. Do you have any concerns about the 
interconnectedness between GMAC and the two auto companies in 
the sense of a sort of double exposure here of one industry 
that is trying to make and sell cars, another that is having to 
rely on the credit of households that are facing their own 
difficulties with rising rates of unemployment and other 
financial stress?
    I just want to focus for a minute on whether it is. Having 
approached it from one angle, and that is, is GMAC adequately 
supportive of the two car companies, it is really from the 
other direction. Does it bring added risk to the table for the 
long-term success of the overall enterprise?
    Mr. Bloom. I mean, there is no question that GMAC's future 
is importantly dependent on the existence of a healthy car 
industry, but likewise, the dilemma is the car industry's 
future is dependent on their being a reliable and healthy GMAC. 
So whether we like it or not, the two are integrally committed.
    Chair Warren. Can I actually press on that, though, just a 
bit, Mr. Bloom? Because I really do want to understand this. Is 
it that the auto industry relies on the availability of credit 
in general and consumers who can afford to buy cars and 
ultimately then to pay off their loans? Or is it that it relies 
specifically on GMAC? And if it is the latter, can you just 
fill that in a bit on why that would be so?
    Mr. Bloom. No, that is a fair question. Certainly the first 
part of your question is correct. Roughly 80 to 90 percent of 
car purchases are financed. So that is undeniably true.
    GMAC just has very, very large market share. I mean, 
obviously, remember not too many years ago GMAC was a wholly 
subsidiary of General Motors, and then it was spun off to be a 
minority and then, obviously, in the course of these additional 
capital injections, General Motors' interest has declined. It 
will continue to decline.
    But nevertheless, GMAC has a very high percentage of the 
overall market, if you will, for purchasers of GM cars. And so 
the dilemma would be, while it is theoretically possible that 
all those consumers could find their way to alternative 
financing sources, I think in any reasonable period of time, 
that would not have happened. All the other car companies--
Ford, as well as the transplants--also have their own, and they 
have their own fully captive finance companies.
    So certainly there are big banks who are in the business of 
providing consumers with financing to buy cars and providing 
dealers. Credit unions do it. But collectively all of them do 
not equal what GMAC provides to GM. So I think the decision was 
that if you took that away all at once, you would have an 
enormously disruptive impact on the company's ability to sell 
cars and a dealer's ability to buy cars, which is obviously 
critical.
    Chair Warren. If I might just follow up with one more 
question, even though I am beyond my time, but it is the 
appropriate moment to ask, if I can.
    Then let me ask the question just at one more turn of this 
analysis, and that is, is GMAC then really an integrated part 
of the two auto industries? You rightly point out for many, 
many decades, it was merely the financing operations so that 
the industry could sell on credit. And when it became very 
profitable, it was spun off into its own separate entity. And I 
am just really asking functionally is it now truly part of the 
two companies that we are trying to revive here, an internal 
part of them?
    Mr. Bloom. Well, I would argue it is less a part of them 
than it used to be.
    Chair Warren. In what sense economically? I understand the 
point legally.
    Mr. Bloom. Economically in the ownership.
    Chair Warren. I understand the legal distinction, but I am 
asking the economic----
    Mr. Bloom. No, because the shareholders get the economic 
upside and now there is a 100 percent--I mean, there was always 
an arm's-length dealing between the companies and the people 
who loaned money. The finance companies insisted on that. But 
now there is also the economic incentive of a completely 
different shareholder group.
    Chair Warren. And is that good or bad? That is the 
evaluation I am asking you for. You are running the whole show 
here.
    Mr. Bloom. Right. Well, we are not running the show.
    But I think that remains to be written. Our belief is that 
separate entities, obviously, connected by the nexus they have, 
but separate companies can be successful. I mean, the car 
companies have a lot of suppliers who are integral to their 
future and their life who are not owned by the car companies. 
They are key suppliers who provide them steering wheels and all 
kinds of things they do not own. So we do not feel that it is 
essential that GMAC be owned, but obviously, the two companies 
are connected. No question about that.
    Chair Warren. Thank you, Mr. Bloom.
    I thank you for your indulgence. Congressman Hensarling.
    Mr. Hensarling. Mr. Bloom, on the way in from the airport 
last evening, the first auto facility that I saw on my way to 
the hotel I stayed at was a Ford facility. You brought them up 
in your earlier answer. Chrysler and GM sought TARP funds. They 
received TARP funds. Ford has not. Ford has, I assume, a very 
significant debt service that they have to handle.
    How is it wise economic policy to have a subsidized GM and 
a subsidized Chrysler compete with a non-subsidized Ford, and 
if another catastrophe occurs and Ford's financial fortunes 
turn south, is the administration going to come in and rescue 
them with TARP funds?
    Mr. Bloom. Well, obviously, it does pose a dilemma. The 
administration did make clear to all three of the companies in 
the course of this process that if they came forward, their 
requests for assistance would be evaluated. Two companies came 
forward and requested it. Ford did not come forward and request 
it.
    I think Ford is going to have to determine what its best 
future is and whether or not they feel they can compete. I 
think at least reading the public media, that Ford believes 
that the decision to provide assistance to GM and Chrysler was 
a good one. I think they have been supportive of it. So I take 
it that they know how to represent their own interests, and so 
this does not seem to be something that they think should not 
have been done.
    As to what the future may hold, again, I do not have a 
crystal ball, and what the facts and circumstances are at the 
time will determine, I think, how a request from Ford would be 
evaluated. So, again, I cannot speculate on that. Obviously, 
right now, Ford believes--they have stated it publicly, so I am 
only simply restating their public statements--that they 
believe they can make it through without any Government 
assistance, and we obviously----
    Mr. Hensarling. One could argue--and I do not pretend to be 
an expert in the automobile industry, but one could argue, 
could they not, that the Federal Government has subsidized two 
failing business models and is thus harming a competitor that 
has a successful business model? Arguably, had Chrysler and GM 
been allowed to go through, let us say, a more natural Chapter 
11 process, perhaps Ford would gain even more market share. And 
I am wondering if the Federal Government might actually 
contribute to the economic demise of Ford.
    Mr. Bloom. Well, it is obviously possible that if these 
companies went into uncontrolled bankruptcies and the likely 
liquidation that would have followed, Ford would have done 
better on that versus what has happened. Again, I cannot 
speculate about what might have been.
    As I said, I do know that Ford felt like--has stated 
publicly that--the assistance given was a good idea. I think 
they were deeply concerned about the integrity of the supply 
base and sending many, many suppliers into bankruptcy, which 
the liquidation of GM and Chrysler most assuredly would have 
done, in addition would have caused bankruptcies that would 
have affected the transplants as well. Again, it is possible 
that a different future could have been written differently.
    There is no question that GM and Chrysler were failing 
companies. I think that is absolutely true, and the Government 
offered the smallest amount of assistance that it could 
consistent with giving these companies a second chance, 
believing that the overall impact on the economy of an 
uncontrolled bankruptcy and a liquidation which would have 
followed was far, far worse for the overall economy. That is a 
judgment that was made.
    Mr. Hensarling. Mr. Bloom, let me ask you another question 
on how we arrived here. Did you or do you have knowledge of any 
member of the Auto Task Force encouraging a TARP recipient or 
other creditor to support Chrysler and GM's section 363 sales?
    Mr. Bloom. If the question is whether an approach was made 
to a TARP recipient suggested that because they are TARP 
recipients, they ought to do one thing or the other, the answer 
is absolutely not.
    Mr. Hensarling. So you are speaking on behalf of yourself, 
and are you also speaking on behalf of the administration when 
you assert that?
    Mr. Bloom. Yes. This is a matter that I was asked about in 
deposition, and so in preparation for my deposition, I did 
extensive questioning of all the people who were involved in 
this matter on behalf of----
    Mr. Hensarling. And that includes Mr. Rattner who has now 
departed?
    Mr. Bloom. It absolutely includes Mr. Rattner.
    Mr. Hensarling. I see my time is up.
    Chair Warren. I would like to ask some questions about 
exit, Mr. Bloom. Milestones, so that we can see that we are 
making progress toward exit. Let me start there rather than 
with the exit itself.
    When can we expect to see some timelines and actually just 
the articulation of what the milestones are and when we expect 
to hit those milestones as we go forward in this reorganization 
process?
    Mr. Bloom. Well, two things. On General Motors, I think we 
have publicly said and our expectation is, subject to an 
enormous change in our view of what the markets are like and 
where the company is, that GM will be able to undertake an 
initial public offering, an IPO, sometime in 2010. So at that 
point, the stock will then again trade on an exchange. I would 
think as part of that IPO, it is certainly possible the 
Government will be selling some of their shares into that IPO. 
It is possible there will be primary shares too, but that will 
be determined at the time. So there you will see and be able to 
sort of get a first look at the new GM in the public markets.
    In terms of the articulation of a specific timeline 
following that, at this time the decision has been made to not 
articulate a specific timeline, either a back end or 
milestones. And the reason was, again, these are all balancing 
acts. We have articulated the principle of ``as soon as is 
practicable.'' The judgment was made that to put out a more 
specific timeline would create an overhang in the market that 
would be deleterious to receiving the best price. So the idea 
will be that working with the company, market opportunities 
will be taken, consistent with the principle I articulated of 
``as soon as practicable.'' But to state a certain number of 
months or how much in any given month, the feeling was this 
would create an overhang that would actually make it more 
difficult for the company's stock to trade well and, obviously, 
therefore for the American taxpayers to get value for their 
investment.
    Chair Warren. Actually I got a little lost in the last part 
of the description. Between now and the IPO, will there be any 
milestones or markers so that we know we are on target to get 
our money back to head toward that IPO?
    Mr. Bloom. No. The answer is at this point there is no 
intention to put out specific milestones either now or in the 
future. Now, again, that might change. But the current judgment 
is that the best way to get out as quickly as possible is not 
to commit to a defined schedule. So, for instance, if the 
markets open up more in 2010 than we hope, we would obviously 
try to sell more in 2010 than what we might otherwise. But it 
is going to be based on the situation as it evolves.
    Chair Warren. Well, I understand your point about wanting 
to take advantage of the markets if the markets open up more 
than you had otherwise anticipated. But does that mean that it 
is not possible to identify, for example, some kind of 
operational markers or signs we will see if the company is 
reviving?
    Mr. Bloom. Oh, I am sorry.
    Chair Warren. These are the indications that good things 
are happening. Or will it simply be a black box until the 
moment we announce an IPO?
    Mr. Bloom. Well, as I responded earlier to the Congressman, 
the company will be reporting. So there will be a visibility 
quickly on a quarterly basis as to how the company is doing. So 
the traditional sort of financial metrics of visibility will be 
available I think relatively soon. So we are not going to wait 
for the IPO to give people a peak as to how the company is 
doing. The company understands, because there are taxpayer 
dollars at stake, that giving the American people a periodic 
quarterly report card is proper and appropriate and they will 
be doing that.
    Chair Warren. I am sorry. Before you go to the next point, 
I just want to be clear. You will be giving the same report 
card that any other company would be giving under the 
circumstances, any publicly traded company in America?
    Mr. Bloom. I want to clarify that. In the absolute near 
future, there will not be a fully SEC-style report, but there 
will be a report. And obviously, after there is an IPO, of, 
there will be SEC-style reporting.
    Chair Warren. And you expect it not to be full SEC-style 
reporting. Can you just give us an idea of in what ways it will 
be more constricted than an ordinary SEC report?
    Mr. Bloom. I think that there are a whole variety of 
accounting issues that probably the company is best able to 
speak about, which prevent the company from immediately being 
able to be fully compliant. But it is the intention to be fully 
compliant as quickly as is possible and to provide as much 
information as the company can responsibly provide on a 
quarterly basis.
    Chair Warren. So if I understand you, it may be that the 
first quarterly report would not be a full SEC-style report, 
but by the second or third, it might----
    Mr. Bloom. Again, I do not want to give you a false 
impression. I cannot today tell you whether it will be the 
second or the third, but clearly we have articulated, and the 
company has agreed, that as quickly as possible we expect them 
to be SEC-compliant.
    Chair Warren. Will it be possible to give us some idea of 
what kinds of metrics are to be in the reports? I understand 
that you say that it will not be a full SEC-style report, but 
what items will be covered so that we know what to anticipate?
    Mr. Bloom. Yes. Without giving you an exhaustive list, I 
think you can expect to see traditional measures of revenue and 
profitability that a normal investor would want to know about.
    Chair Warren. If I can, let me ask the question then if we 
roll the clock out a bit farther. I think I am past time. Do 
you mind if I ask one more question? Thank you, Jeb.
    After the IPO and the Government has, hopefully, receded 
from the field here, how will we know if the taxpayers' 
investment was a success? What are the appropriate measures of 
ultimate success for this extraordinary investment?
    Mr. Bloom. Well, let me just be sure I did not mislead you. 
We would not expect to sell the entire stake in the IPO. So I 
just want to clarify that point.
    But nevertheless, you----
    Chair Warren. But I presume----
    Mr. Bloom. No, no.
    Chair Warren [continuing]. Ultimately we hope to sell the 
entire stake.
    Mr. Bloom. Not we hope to. We will.
    Chair Warren. So I am saying in addition to the fact that 
it will be a successful day when our share is gone and out of 
Government hands. I am really asking a different question. For 
this extraordinary investment, how will we measure success?
    Mr. Bloom. Well, I think success will be measured in the 
way that one as a taxpayer would expect it to be measured, and 
that is to say the taxpayers put a lot of money up and they 
want their money back. So the greater percentage of the money 
that we invested that we get back, the greater success. That is 
clearly the primary measure. This was taxpayer money, and it 
needs to be gotten back: in the case of the debt, paid back; in 
the case of the stock, gotten back by virtue of the sale. And 
obviously also over time, whether these companies have 
addressed the long-term problems that we identified, which is 
to say, you know, a declining market share, a poor 
profitability profile, not growing in terms of their ability to 
provide good, stable jobs, so keeping the promises they make to 
their stakeholders. So I think all those things which you would 
always judge a company on we would expect to, but first and 
foremost, the taxpayers want their money back.
    Chair Warren. Thank you, Mr. Bloom.
    Congressman.
    Mr. Hensarling. Mr. Bloom, you mentioned the term 
``stakeholder'' in your answer there, and I believe in your 
testimony you spoke about how every stakeholder in the GM and 
Chrysler reorganizations were hurt. I want to have our panel 
here--from a few of them now--these are letters, 
correspondence, statements that I received in my office, some 
dating back a month or 2 ago, or maybe 2 or 3 months ago from 
GM bondholders.
    This one comes from Jim Graves, former GM employee, 
currently an independent software developer in Florida. Quote. 
``I have worked for General Motors and Ford Motor Company and 
am currently an independent software developer. I am speaking 
out on behalf of my mother, an 80-year-old retired GM employee 
and small bondholder. Both my mother and I have over $100,000 
in GM bonds. My mother uses the interest from the bonds for 
retirement income, and I plan to do the same when I retire. We 
are here to urge the Obama administration to listen to our 
concerns and treat us fairly in the GM restructuring. 
Bondholders, especially small bondholders, are being ignored in 
negotiations and singled out to bear the lion's share of the 
cost of restructuring in GM.''
    Chris Crow, an electrician and home inspector in Denver. 
Quote. ``I am a retired electrician from Denver, Colorado. I am 
not rich and I am not a Wall Street bank. These bonds finance 
my son's college tuition and my retirement. I am actually very 
concerned about not getting a check on May 15th from my bonds 
because I need this money to pay my property taxes. When the 
administration refuses to meet with the bondholders or chooses 
to wipe them out, they are wiping me out and lots of others 
like me. We are Main Street not Wall Street. Who is looking out 
for our interests? Mr. President, please protect us.''
    And I have got probably 20 more on my BlackBerry that I 
could read from there.
    I guess the question is, Mr. Bloom, why would not one 
reasonably conclude that if you are a hard-working American and 
your retirement got invested in GM bonds, but you did not have 
a special relationship with the UAW, you fared worse than the 
UAW?
    Mr. Bloom. Well, first thing, let me say that I have 
received a number of those letters as well. And there is, 
obviously, no easy way to speak to anybody who had a promise 
broken by General Motors. Lots and lots of people had promises 
broken. The company was insolvent. That is fundamental to the 
facts.
    Mr. Hensarling. But some promises got broken more than 
other promises.
    Mr. Bloom. No. I think all the promises were dealt with on 
a commercial basis, which is to say that the company--and 
obviously the task force was involved in this--looked at each 
of the stakeholders and made a judgment about what was the 
minimum required of taxpayer dollars that had to be provided in 
order to reorganize General Motors. And the bondholders, 
obviously, did better than they would have had the Government 
not stepped in but did worse than they would have had the 
company not become insolvent. And that is true for every single 
stakeholder.
    And our judgment was--and obviously, people can question 
it--that all of these stakeholders were treated in a commercial 
way, not a nice story. A terrible story. And there are many, 
many more like that, but the alternative was either we 
liquidate the company--and I think the devastation would have 
been multiples of that--or all promises get met, in which case 
the taxpayer investment would have been multiples of----
    Mr. Hensarling. And Mr. Bloom, why do you conclude that 
liquidation was the only alternative?
    Mr. Bloom. To what was done?
    Mr. Hensarling. Yes, the leveraging of TARP funds in this 
particular Chapter 11. Why was a Chapter 11 reorganization 
without the use of TARP funds not possible?
    Mr. Bloom. Our analysis was there would have been no 
debtor-in-possession financing, and so if the company had had 
to go into bankruptcy without debtor-in-possession financing, 
the case would have been quickly converted to a Chapter 7----
    Mr. Hensarling. So it was the administration's analysis 
that that would not have taken place.
    Mr. Bloom. It was our analysis that there was no DIP 
financing available of the size required to reorganize and 
support General Motors.
    Mr. Hensarling. Let me speak about another group of 
creditors, bondholders. Thomas Lauria, who is the global 
practice head of the Financial Restructuring and Insolvency 
Group at White & Case LLP, represented a group of senior 
secured creditors, including the Perella Weinberg Xerion Fund, 
during the Chrysler proceedings. You are probably familiar with 
this matter. On May 3rd, the New York Times reported, quote, 
``In an interview with the Detroit radio host, Frank Beckmann, 
Mr. Lauria said that Perella Weinberg was directly threatened 
by the White House and, in essence, compelled to withdraw its 
opposition to the deal under threat that the full force of the 
White House press corps would destroy its reputation if it 
continued to fight.''
    In a follow-up interview with ABC News, Jake Tapper, he 
identified Mr. Steve Rattner, the head of the Auto Task Force, 
as having told a Perella Weinberg official that the White House 
would embarrass the firm.
    Mr. Rattner is not here today. You are. Have you spoken to 
Mr. Rattner about this matter? And if so, do you know if Mr. 
Rattner represented to you that he denies the ABC story?
    Mr. Bloom. I have spoken to Mr. Rattner about the matter, 
as I said earlier. This was a subject on which I was deposed. I 
spoke to him extensively about it. He categorically denies Mr. 
Lauria's allegation.
    Mr. Hensarling. Might someone else in the White House have 
had similar conversations? Who else did you speak to besides 
Mr. Rattner?
    Mr. Bloom. I spoke to all the people in the administration 
who were directly involved in the matter. I did not speak to 
every employee in the White House. Mr. Lauria's allegation is 
that Mr. Rattner said it. And Mr. Lauria is wrong. He is free 
to make allegations, but he happens, in this case, to be wrong.
    Mr. Hensarling. I see I am out of time.
    Chair Warren. Thank you very much. Thank you, Mr. Bloom. I 
appreciate your being here. The witness is excused.
    Mr. Bloom. Thank you.
    Chair Warren. If we could call the second panel please.
    The second panel is Jan Bertsch, Vice President and 
Treasurer of Chrysler; Walter Borst, Treasurer of General 
Motors; and Dr. Sean McAlinden, Executive Vice President for 
Research and Chief Economist for the Center for Automotive 
Research in Ann Arbor.
    Welcome to all three of you. I will ask you, as we did with 
Mr. Bloom--we would be grateful if you could hold your oral 
remarks to five minutes. Your entire statement will become part 
of the record.
    If I could start with you, Ms. Bertsch.

STATEMENT OF JAN BERTSCH, SENIOR VICE PRESIDENT AND TREASURER, 
                            CHRYSLER

    Ms. Bertsch. Thank you. Members of the panel, thank you for 
the opportunity to discuss the financial assistance provided to 
the domestic automotive industry.
    Chair Warren. You may want to pull that a little bit 
closer, Ms. Bertsch.
    Ms. Bertsch. Thank you.
    And specifically to Chrysler LLC and Chrysler Group LLC 
under the automotive industry finance program component of the 
TARP.
    My name is Jan Bertsch. I am Senior Vice President-
Treasurer for Chrysler Group LLC, a new company that purchased 
the principal operating assets of Chrysler LLC on June 10th, 
2009, in a sale that was authorized by the United States 
Bankruptcy Court of the Southern District of New York.
    I would like to place my comments in context by describing 
a series of events that culminated in the United States 
Department of the Treasury providing a secured loan to the 
Chrysler Group LLC of approximately $7 billion in connection 
with the closing of that sale.
    In the fall of 2008, the economic downturn and global 
credit crisis hit the auto industry with full force. On 
December 2nd, 2008, Chrysler LLC, now known as Old Carco LLC, 
submitted a request to Congress for a $7 billion working 
capital bridge loan.
    On January 2nd, 2009, Old Carco received a $4 billion 
bridge loan from the United States Department of the Treasury, 
with a requirement that the company submit a restructuring plan 
to achieve its long-term viability, international 
competitiveness, and energy efficiency.
    Old Carco submitted its restructuring plan on February 
17th, 2009 based on achieving viability on a standalone basis, 
but noting that it had signed a nonbinding letter of intent for 
a strategic alliance with Fiat that would greatly improve its 
long-term viability.
    The alternative to either a standalone plan or a strategic 
alliance was liquidation, which would result in tens of 
thousands of jobs lost at our company and its dealers across 
the country and would jeopardize the entire domestic auto 
industry due to the dependence of OEMs on common suppliers.
    On March 30th, 2009, the President's Auto Task Force 
concluded that Old Carco needed a partner such as Fiat to 
succeed in the global automotive industry. Over the next 30 
days, Old Carco worked to avoid bankruptcy by securing 
stakeholder concessions and reaching agreement on the terms of 
a strategic alliance that would enable the company to preserve 
U.S. jobs, develop more fuel-efficient vehicles, and expand its 
sales in international markets.
    Unfortunately, some of Old Carco's secured lenders did not 
agree to provide the required concessions, and Old Carco filed 
for bankruptcy on April 30th, 2009.
    Fortunately, concessions were achieved with other key 
stakeholders that enabled Old Carco, Fiat, and Chrysler Group 
LLC, a newly formed subsidiary of Fiat, to enter into a master 
transaction agreement on April 30th, 2009. The agreement called 
for Old Carco to transfer substantially all of its operating 
assets to Chrysler Group, for Chrysler Group to assume certain 
liabilities, and pay Old Carco $2 billion in cash, and for Fiat 
to contribute to Chrysler Group access to competitive fuel-
efficient vehicle platforms, certain technology, distribution 
capabilities in key growth markets, and substantial cost-saving 
opportunities. With court approval, the transaction closed on 
June 10th, 2009.
    Throughout this process, members of the task force and 
personnel from U.S. Treasury played a key role in facilitating 
negotiations between all parties, primarily Old Carco, Fiat, 
the UAW, the CAW, and the VEBA, Cerberus and Daimler AG as 
owners and second lienholders, and the first lien lenders. It 
is my view that U.S. Treasury and the task force's limited and 
targeted expenditure of taxpayer dollars in connection with Old 
Carco and Chrysler Group avoided a significant and potentially 
more costly disruption to the U.S. automotive industry and the 
U.S. economy. This limited and targeted approach is reflected 
also in the U.S. Treasury programs that benefit automotive 
suppliers, the receivables factoring program, and consumers, 
the warranty protection program.
    The U.S. Government is now a shareholder, or member in 
limited liability jargon, in Chrysler Group LLC. The LLC 
operating agreement provides the members with certain rights, 
including the right to designate individuals to serve on a 
nine-member board of directors. Fiat designates three 
directors, one of whom must be independent. Canada designates 
one independent director. VEBA designates one director, and the 
U.S. Treasury designates three directors, at least two of whom 
must be independent, who then designate a fourth independent 
director.
    Major decisions require a majority vote of the board, 
including at least one Fiat director. Further, Chrysler Group 
is subject to extensive financial information reporting 
obligations to its members, which will allow the U.S. Treasury 
to monitor the development, implementation, and modification of 
the company's business plan----
    Chair Warren. Ms. Bertsch, if I could just stop you there.
    Ms. Bertsch. Yes.
    Chair Warren. We will have your written testimony.
    Ms. Bertsch. Okay.
    Chair Warren. So that we will be able to get to the 
questions, which is what we mostly do here, I am going to ask, 
if you do not mind, if we could go to our next person.
    Ms. Bertsch. Okay. Thank you for the invitation to appear 
before you today, and I look forward to your questions.
    [The prepared statement of Ms. Bertsch follows:]

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    Chair Warren. And we appreciate your being here.
    Mr. Borst.

  STATEMENT OF WALTER BORST, TREASURER, GENERAL MOTORS COMPANY

    Mr. Borst. Good morning, Chairwoman Warren and 
Representative Hensarling. I am Walter Borst, Treasurer of 
General Motors Company, and I would like to thank you for the 
opportunity to testify about how GM is reinventing our company 
and how a new GM will repay our Nation's investment.
    Emerging from bankruptcy, we are a new company with less 
debt, a stronger balance sheet, with the right-sized 
manufacturing, product, and dealer network to match today's 
market realities. GM can now direct its full energy and 
resources to where it should be: on customers, cars, and 
culture.
    We are grateful for our Nation's support. Without it, we 
would not have this second chance. Equally important are the 
many who have been called on to sacrifice in order to create a 
new GM. We recognize the unprecedented level of Government 
support and the pain caused by the bankruptcy process. For this 
reason, both the Obama and Bush administrations made it quite 
clear that they were reluctant investors. We were equally 
reluctant recipients. I can assure you, as GM corporate 
Treasurer, that we pursued every possible alternative to raise 
funding and liquidity for General Motors and every possible 
alternative to restructure the General Motors balance sheet out 
of court. However, a Government-funded Chapter 11 bankruptcy 
was the last best option to avoid the devastating economic 
consequences to our country if GM collapsed.
    Although GM was out of time and money, to protect the 
taxpayers' interests, we had to deliver a plan to ensure we 
would never find ourselves in this position again. The 
direction we received from the President's Automotive Task 
Force was clear and to the point, to receive Government funding 
and remain viable, GM had to complete a dramatic, fast 
restructuring across all parts of our business. We agreed.
    Over the last several months, we worked closely with the 
Automotive Task Force to revise our operating plan and identify 
and agree to the broad targets and overall components needed to 
create a viable GM. The Automotive Task Force did not tell us 
how to run our business or dictate the specific details of our 
plan. Rather, they exercised the due diligence, as any 
purchaser of a business would. They questioned us and 
challenged us to ensure we had a robust and viable plan for GM.
    Created from the old GM's strongest operations in an asset 
sale approved by the U.S. Bankruptcy Court, the new GM will 
focus on four core brands in the U.S.--Chevrolet, Cadillac, 
Buick, and GMC--with fewer nameplates and more competitive 
level of marketing support for each brand, we can concentrate 
all of our talent and resources on vehicles that do not merely 
compete, but lead their respective segments.
    The new GM will effectively close the competitive gap in 
active worker labor costs compared with transplant 
manufacturers.
    The new GM will more efficiently utilize U.S. capacity 
while increasing the percentage of U.S. sales manufactured 
domestically.
    The new GM will feature lower structural costs, enabling 
our North American region to break even on an adjusted EBIT 
basis at a U.S. total industry volume of approximately 10 
million vehicles.
    The new GM will also achieve lower structural costs by 
further reducing 2009 salaried employment in North America from 
its year-end total of 35,000 to approximately 27,000, cutting 
executive ranks by 35 percent.
    The new GM will provide a higher level of customer service 
through a more focused U.S. network of approximately 3,600 
dealers.
    The new GM will continue and increase GM's investment and 
leadership in fuel economy and advanced propulsion 
technologies. For example, GM will launch the Chevy Volt 
extended range electric vehicle in 2010 and will assemble 
advanced batteries in the United States.
    As a new company, we expect the regular interaction with 
the Automotive Task Force will now shift to a world-class board 
of directors under the leadership of Ed Whitacre. Mr. Whitacre 
and the board are committed to setting a standard of excellence 
for corporate governance, and we expect them to hold us fully 
accountable to deliver results. We want to be the best, most 
transparent private company and will regularly report our 
results, issue 8-K's and provide information to the Government 
and the public to measure our progress.
    In closing, as Fritz Henderson, our President and CEO, has 
indicated, business as usual at GM is over. The last 100 days 
or so have shown everyone, including ourselves, that a company 
not known for quick action can, in fact, move very fast. We 
want to take the intensity, the decisiveness, and the speed of 
the last few weeks and transfer it to the day-to-day operation 
of the new company. This will be the new norm at General 
Motors.
    We must be accountable to perform and deliver winning 
results. Again, from this point on, our efforts are dedicated 
to customers, cars, culture, and paying back the taxpayers, 
both the loans and in creating value for shareholders.
    Through the taxpayers' support and sacrifice of many, GM 
will be great once again. We owe it to them to move forward 
deliberately. We owe it to them to succeed.
    Thank you very much, and I look forward to answering your 
questions.
    [The prepared statement of Mr. Borst follows:]

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    Chair Warren. Thank you, Mr. Borst.
    Dr. McAlinden.

 STATEMENT OF DR. SEAN McALINDEN, EXECUTIVE VICE PRESIDENT AND 
        CHIEF ECONOMIST, CENTER FOR AUTOMOTIVE RESEARCH

    Dr. McAlinden. Good morning, Dr. Warren and distinguished 
panel. My name is Sean McAlinden. I am the Executive Vice 
President for Research and Chief Economist at the Center for 
Automotive Research, known as CAR, a nonprofit research 
organization located in Ann Arbor, Michigan, and I welcome the 
opportunity to speak with you today on the subject of the U.S. 
Treasury Department's automobile industry financing program.
    I should point out that our actual submitted testimony was 
not printed this morning with just my oral remarks, but I have 
provided it to the panel and it is located on our Web site, 
cargroup.org.
    The automotive industry has long been, and continues to be, 
one of the most important sectors in the U.S. economy, 
employing 585,000 motor vehicle and parts manufacturing 
employees directly as of May 2009.
    In addition, the auto industry has one of the largest 
economic multipliers, if not the largest, of any industry or 
sector in the U.S. economy and is sufficiently large that its 
growth or contraction can directly cause measurable changes in 
gross domestic product.
    Twice in the last nine months, CAR has estimated the 
potential impact of significant contractions in automotive 
employment and production as a result of the economic crisis in 
the United States. In November, CAR published a research 
memorandum that estimated that 2.5 million to 3 million jobs 
would be lost in a major contraction of the Detroit three 
automakers.
    Of course, as you know, by May 2009, many of those jobs at 
the automakers were, indeed, gone and the suppliers. About 
145,000 direct U.S. motor vehicle and parts jobs were lost 
between November 2008 and May 2009. And obviously, many more 
jobs on top of those were lost in other sectors of the economy 
that directly supply the auto industry.
    In May, just this past May, CAR examined the impact on the 
U.S. economy of successful versus unsuccessful automaker 
bankruptcies here in Detroit, and even under the best case 
scenario, in the case of a planned, orderly, and well-executed 
bankruptcy, we estimate that 63,000 jobs will be lost by the 
end of this year and that total will rise to 179,000 by the end 
of 2010 under planned restructuring.
    However, we have appeared to have avoided the worst case 
scenario, which was an unsuccessful bankruptcy process 
resulting in liquidation, as described by my colleagues here, 
fellow panelists. This would have resulted by the end of this 
year, we estimate, in a loss of 1.3 million U.S. jobs. This 
total, as the rest of the industry would adapt to the crisis 
and recover, would have fallen to roughly 447,000 by the end of 
2010.
    CAR's estimates of State job loss found that impacts were 
geographically concentrated. About half the employment impact 
in the best case scenario, for example, occurred in just five 
States: Michigan, Tennessee, Ohio, Missouri, and Indiana. And 
these States, already hit hard by recession, would have 
suffered even more disastrous outcomes had the bankruptcies not 
gone so quickly and smoothly.
    Also, we believe, and many other economists believe, that a 
struggling U.S. economy might not have withstood the 
psychological impact of a complete collapse of GM and Chrysler, 
that the sudden and total loss of GM and Chrysler could have 
caused an economy-wide loss of confidence or even a panic at an 
inopportune time this fall in the Nation's path to economic 
recovery. It certainly would have resulted in a crisis in U.S. 
manufacturing similar to the effect on the financial sector 
caused by the collapse of the Lehman Brothers investment bank. 
In fact, we call it an industrial Lehman Brothers outcome.
    CAR estimates that the Government intervention resulting in 
successful bankruptcies at GM and Chrysler avoided a $114 
billion loss in additional personal income, Government transfer 
payment increases, foregone Social Security and personal income 
tax receipts in just the first 2 years and more in succeeding 
years beyond that $114 billion. A simple cost-benefit analysis 
shows the 2-year public costs far outweigh the current public 
investment in these companies, even if the companies never 
repay the loans which, of course, I believe they will.
    I can find no grounds, and my office can find no grounds, 
for criticism for the actions taken by the members of President 
Obama's Automotive Task Force, only grounds for the highest 
praise. Government, in the case of Chrysler and General Motors, 
was not the lender of last resort. It was the only resort. No 
other financing was available and no process other than 
bankruptcy could have led to such dramatic reductions in fixed 
costs that had crippled these companies for so long. Since 
March, the planning and actions of the Automotive Task Force 
and also the Chrysler and GM management teams can be labeled 
only as masterful and unprecedented by any fair industry 
observer.
    The considerable concessions made by all parties were those 
that would have had the greatest impact on lowering levels of 
fixed costs, a major cause of the companies' economic woes. In 
the case of GM, fixed costs are expected to drop in the next 
three to four years by $3,000 to $5,000 per vehicle, a 
remarkable achievement in a very short amount of time.
    And it is also worth noting, since this has come up, that 
while the relative sacrifices of debt holders in the UAW VEBA 
trust we think are comparable, in the 67 to 79 percent range, 
that the UAW made a far greater contribution in absolute dollar 
terms to the debt reduction in Chrysler and General Motors. At 
Chrysler, the UAW's $12.8 billion cut is three and a half times 
the size of the secured debt holders' contribution, and at 
General Motors, the UAW's $43.8 billion sacrifice since 2005 is 
nearly twice that of the unsecured bondholders.
    Chair Warren. Dr. McAlinden, I am going to have to stop you 
there just so that we can make sure we stay on track here, 
although I appreciate this. And I understand we do have a copy 
now of your remarks, and they will become part of the written 
record.
    [The prepared statement of Dr. McAlinden follows:]

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    Chair Warren. Thank you very much.
    I actually want to start not with the questions I prepared 
but where this conversation has gone and with the question 
raised by Congressman Hensarling. Perhaps I could start with 
you on this, Mr. Borst.
    If there had not been Government funding here, could you 
have reorganized in Chapter 11?
    Mr. Borst. We do not believe so, ma'am. We did take a look 
to see if there would be other sources of debtor-in-possession 
financing, and there was nothing available in the Private 
sector that was anything close to what we would have needed to 
reorganize in Chapter 11.
    Chair Warren. You are saying the money just simply was not 
there or was not there at the price you wanted to pay?
    Mr. Borst. It was not there, period. And surely nowhere 
close to the size that was required. We did talk to some large 
institutions in this regard where this is their business, but 
given the size of our company and our needs, it was unavailable 
at any price.
    Chair Warren. And you looked hard.
    Mr. Borst. We looked very hard. We not only looked hard for 
that, but we looked hard to avoid Chapter 11 in the first place 
by trying to find additional financing outside of the 
bankruptcy, looked at asset sales outside of the bankruptcy, 
looked at various partnership opportunities outside the 
bankruptcy. So we were very active in that regard, both before 
and in anticipation of the filing, but to no avail.
    Chair Warren. Ms. Bertsch, could I ask the same question 
about Chrysler, please?
    Ms. Bertsch. I would say we were much in the same 
situation. We could see the deterioration in the industry. We 
started out in 2008 with a SAAR of over 15.5 million units. By 
the second half of 2008, that had dramatically dropped.
    At that time, we went out looking for other sources of 
funding for both our dealers and our consumers, and we went and 
talked to some of the strongest banks. At that time, it was 
very difficult to secure any sort of financing for that. That, 
obviously, led to a great deterioration in our revenue, which 
resulted in us utilizing our cash resources to continue to 
operate the business. It was very clear to us and to the 
outside independent bankruptcy consultants who we hired to work 
with us that there was no funding available and that 
liquidation was the only other alternative.
    Chair Warren. Thank you.
    Dr. McAlinden, could I ask you to comment on this please?
    Dr. McAlinden. I think until recently with the current 
reorganization of Leer, it might be the first large automotive 
firm to receive some sort of outside DIP money, I think on the 
order of $500 million to $600 million. I would have to guess 
with some grounds of credibility that the only reason they 
received--they are the only firm in the last 6 months to see 
the light of this kind of money was because banks like J.P. 
Morgan saw that GM was reemerging successfully, their largest 
customer. So in a way, we already have a positive spinoff. The 
fact that GM has reemerged with Government assistance has 
allowed Leer to reorganize with private DIP.
    Chair Warren. If I could ask you, this is part of what you 
were covering in your testimony, and I would, if I could, just 
ask for a very short summary. I believe you were aiming toward 
a comparison of what would happen if there were no funding 
available, and therefore in the estimation of the treasurers of 
the company and your own estimation, a likely liquidation, 
versus a reorganization. I think you made a comparison on jobs 
where I believe your comparison showed that there would have 
been about 10 times more jobs lost. Is that right? About 10 to 
20 more times. I was trying to write down the numbers as you 
went through.
    Dr. McAlinden. I think by the end of this year, we will see 
about another 63,000 in jobs lost in the U.S. economy because 
of these reorganizations as opposed to a 1.3 million job loss. 
So, obviously, that is 20 to 1.
    Chair Warren. About a 20 to 1. I had thought there was a 
range here. So I wanted to go into next year.
    And then you talked about the dollar loss difference. I 
think you identified about $115 billion loss if there had 
been----
    Dr. McAlinden. $38 billion in the case of an unsuccessful 
bankruptcy, which we unfortunately call the Corvette-Wrangler 
scenario, and 90 percent loss of production at GM and Chrysler 
in employment. It would have been a loss of about $38 billion 
in personal taxes and increases in transfer payments in the 
next 2 years and an $81 billion loss of personal income in the 
United States.
    Chair Warren. Compared with an investment.
    Dr. McAlinden. Correct. And a much, much smaller amount 
under the successful reorganizations.
    Chair Warren. Any other comparisons that we can just do 
quickly? I am about to run out of time here.
    Dr. McAlinden. Not really.
    Chair Warren. So these are the key ones.
    Dr. McAlinden. These are very key.
    Chair Warren. All right. Thank you very much. I appreciate 
it.
    Congressman Hensarling.
    Mr. Hensarling. Well, first, let me issue my welcome to all 
the panel members. I will say to Mr. Borst and Ms. Bertsch that 
as happy as I am to see you, I might have even been happier to 
see the chairman or the CEO. At least you all bothered to send 
representatives, but I know, again, when your companies were 
seeking funding from the taxpayers, we saw them frequently. Now 
that it is time to account for the money, we do not seem to see 
them here today.
    I will accept at face value your opinions that liquidation 
was the only option for the companies. I have no reason to 
challenge your particular opinion or expertise.
    But today in the American economy, a majority of people 
work for small business. Roughly three out of four new jobs in 
America are created by small business. Every single day, there 
is some barbecue stand that goes out of business, some florist 
that goes out of business, some die cast machine shop that goes 
out of business. But we do not know their names and they cannot 
afford lobbyists in Washington, D.C.
    So when I hear the number of jobs you talk about, I become 
concerned again that although the program has gotten off to 
somewhat of a lukewarm response--I think the administration 
announced it in March, but I think it was only five days ago 
that I believe they actually rolled out the first funding. I 
think they are putting in $15 billion to buy loans from the SBA 
ostensibly to assist small business. Yet again, Chrysler and GM 
are looking at $80 billion.
    So I guess, Dr. McAlinden, maybe the first question is for 
you. Now, I know your expertise is not in the general economy, 
but in the auto industry. But can a case not be made that on a 
macro economic level, we might have been better off investing 
$80 billion in small business?
    Dr. McAlinden. Well, as you can see, I am sort of a neo-
Keynesian.
    Mr. Hensarling. I am not.
    Dr. McAlinden. I know. I could tell.
    Many small businesses, I believe, would have gone, tens of 
thousands, out of business if these companies to my right had 
collapsed, including RV franchises, repair shops, retail 
establishments of all kinds and they already have. I think the 
record is clear all around Wayne State, if you look right out 
the window.
    What can I say? These companies had the largest job 
multiplier of any industry in the United States. It once was as 
high as eight and a half jobs for every job at the big three. 
It is now lowered to six.
    Mr. Hensarling. I am sorry. That multiplier--is that from 
your research or where does that citation come from?
    Dr. McAlinden. We have performed, both at the University of 
Michigan and our independent office, almost all of the economic 
contribution studies or economic impact studies of the auto 
industry in the U.S. economy that have been published since 
1992.
    Mr. Hensarling. I understand and appreciate the answer.
    I would also say to Mr. Borst and Ms. Bertsch, again, you 
may be right, but we recently, as a Member of Congress, heard 
from CIT that if they did not receive taxpayer funds that they 
would have to go into liquidation. Apparently they got the 
answer no, they would not receive taxpayer funds, and lo and 
behold, private funds show up through the market. So, again, 
your analysis may be correct. Maybe it is not correct. I do not 
know.
    The next question I have--clearly for a lot of folks who 
sit where I sit, I am curious about the decision process on 
cutting loose the individual dealers. What process did each of 
your companies go through? To what extent was the 
administration involved in decisions to terminate those 
dealership relationships? As you might well imagine, we are 
hearing from lots of those folks. Ms. Bertsch, how about you 
first?
    Ms. Bertsch. Our company went through a very consistent 
analysis of each one of our roughly 3,200 dealers. What we had 
found was that the sales have deteriorated so much in the 
company based on the lack of financing available and the 
concern amongst our consumers on just customer confidence, that 
sales were down.
    As a result of that, it was very clear that the 
profitability and the healthiness of all of our dealer body was 
suffering. It was very clear that in an environment where we 
believe and hope that the industry will improve--but we do not 
believe that it will improve as quickly as it deteriorated--
that it would not be possible for our dealers to have the 
profitability they needed to invest in their businesses and to 
treat our customers the way that they needed to be treated.
    So the company went through a consistent analysis of each 
of the dealers, looked at their performance metrics--we have a 
very significant amount of metrics that we look at on a regular 
basis with our dealers--and determined that the roughly 800 
dealers would not be appropriate to contain in the new company.
    That decision was made at Chrysler. It was not a decision 
made by the Government, and we felt that that was the right way 
to proceed.
    While we will admit that bankruptcy is not necessarily fair 
or good for anyone, we felt that by not taking these measures, 
it would even be more dramatic and would ultimately put us into 
bankruptcy and ultimate liquidation.
    Mr. Hensarling. Mr. Borst.
    Mr. Borst. Yes. At General Motors, we also used what we 
believe to be very objective criteria to make those 
evaluations. We looked at the company's sales. We looked at 
consumer satisfaction indexes. We looked at capitalization of 
the companies. We looked at the profitability of the companies 
and came to the decisions that we came to.
    We took those decisions on our own. Individual decisions 
were made by us. They were not influenced by others.
    Mr. Hensarling. I am sorry. I am way over my time. Maybe 
this should be known and I do not know it. But you spoke about 
the objective criteria employed by GM.
    Mr. Borst. Yes.
    Mr. Hensarling. Has that objective criteria been shared 
with the Automotive Task Force? Has it been shared with Members 
of Congress, and if not, are you willing to share it?
    Mr. Borst. I believe it has been shared, and if it has not, 
we are surely prepared to share it.
    Mr. Hensarling. Thank you.
    And the same to you, Ms. Bertsch.
    Ms. Bertsch. I agree. I believe the concepts have been 
discussed, but we are certainly willing to share that 
information.
    Mr. Hensarling. Okay. Thank you.
    Chair Warren. Thank you.
    I want to ask about your relationship with the Treasury 
Department that gets us to this moment and ask the question 
whether or not Treasury has made its expectations and 
objectives clear going forward, what it is they have asked of 
you. Perhaps I could start with you, Ms. Bertsch.
    Ms. Bertsch. Yes, certainly. We have quite a few 
expectations that are outlined very clearly in our credit 
agreements with the Government. So we have certain compliance 
certificate requirements. We have financial reporting 
requirements that are due on a regular basis. That may mean 
monthly, quarterly, semiannually, or annually depending on what 
that requirement is.
    In addition, we have a plan to, and will, report on a 
monthly basis a series of financial and other metrics with all 
of our shareholders, with our board, including the Government. 
And that would include things such as our sales performance, 
our financial performance, income statements, balance sheets, 
as well as the other requirements that we are obligated to do 
based on our agreements.
    We have agreed with the Government on what those are going 
forward and will share that information not only with the U.S. 
Treasury but also the Canadian Government, the VEBA, all of our 
shareholders.
    Chair Warren. So these will be publicly available--these 
reports?
    Ms. Bertsch. Well, this will be available to our board and 
to all of our--you know, people that invested in our company. I 
am not certain on the public nature of that actually going 
forward.
    Chair Warren. But it will be available to the Treasury 
Department.
    Ms. Bertsch. Yes, it will be.
    Chair Warren. Mr. Borst.
    Mr. Borst. Yes. The Treasury has made it very clear what 
they expect of us, similar to what was just mentioned, for the 
new Chrysler. We will have regular reporting responsibilities 
to the U.S. Treasury on things like cash flow, liquidity, and 
annual plans.
    We also, as I mentioned in my opening remarks, plan to be a 
very transparent, private company until such time that we can 
get off an IPO. As Mr. Bloom testified, it is the expectation 
of us that we try to take the company public in 2010. The debt 
that we have received from the U.S. Government, as well as from 
the Government of Canada, has a repayment date of six years. We 
would hope to repay it faster.
    So we have reporting requirements. Publicly we will also be 
providing information initially on a managerial basis, and as 
we complete our, what is called, fresh start accounting, on 
more of a GAAP basis.
    Chair Warren. I want to ask one other question about the 
relationship with Treasury. Congressman Hensarling has asked 
specifically about any advice or interference from Treasury in 
the question of selection of the dealerships that will be 
closed or that will remain open. I want to ask about anything 
else related to day-to-day operations.
    Has Treasury in any way offered its advice, good counsel, 
warnings, or otherwise made suggestions about the day-to-day 
operations of your companies? Ms. Bertsch?
    Ms. Bertsch. No. The day-to-day running of our business is 
left up to our company, albeit brand new now and with a new 
nine-member board that is actually meeting today for the first 
time for an extended board meeting this week. But the running 
of the business is up to Chrysler Group LLC, and we are being 
extremely transparent with our reporting with them on an 
ongoing basis, as I previously mentioned.
    Chair Warren. And so your relationship is largely anchored 
around the axis of the kind of reporting one ordinarily does 
with a creditor of great magnitude.
    Ms. Bertsch. Exactly the same as what I would expect for 
any secured lender of our company.
    Chair Warren. Mr. Borst.
    Mr. Borst. In our case, as part of the 363 sale process, we 
had extensive due diligence from the Automotive Task Force. 
They asked a lot of questions, gave advice in terms of things 
that they think that we should consider. Asked a lot of 
questions again. And ultimately the decisions were ours in 
terms of exactly what the plans would be. We got no guidance 
that I am aware of in terms of any specific actions that we 
should undertake.
    But I would compare the process that we had in the 363 sale 
process to the acquirer of any company in terms of the type of 
questioning that we got. They had an assignment, to make sure 
that if taxpayer dollars were going to be appropriated and used 
for these companies in a particular--in my case, for General 
Motors, that we have a plan that would allow General Motors to 
be viable coming out of the bankruptcy. And that is where their 
focus has been.
    Chair Warren. So you would say neither more nor less 
intrusive than one would ordinarily see for an investor of 
this----
    Mr. Borst. I have seen more intrusiveness in other 
instances where I have been involved with sales.
    Chair Warren. Thank you.
    Congressman.
    Mr. Hensarling. I would like to continue to flesh out this 
line of questioning from Professor Warren. I still do not have 
a good sense on the frequency of communication between the Auto 
Task Force and your companies, who is communicating with whom 
about what. So in specific, who is the point of contact for Mr. 
Bloom at each of your companies? Or is there a point of 
contact? Does he speak to you? Does he speak to the CEO? Does 
he speak to----
    Ms. Bertsch. From the Chrysler perspective, Mr. Rattner or 
Mr. Bloom have had ongoing dialogue with our prior CEO from Old 
Carco vantage point, or our current CEO, Mr. Marchionne.
    In my office, which is the Treasury function, we have 
consistent and frequent dialogue with the staff of Mr. Bloom, 
which I have their names, if you are interested. But we have 
consistent dialogue from that vantage point.
    We as well had a recent visit from Mr. Rattner and Mr. 
Bloom meeting the entire management team at Chrysler in a 
recent review, which I would really look at as very consistent 
again with prior experiences that I have had with significant 
lenders----
    Mr. Hensarling. But just out of curiosity, how frequent is 
the communication? Daily, weekly, hourly?
    Ms. Bertsch. Well, I think it largely depends on what event 
we are talking about. For example, when we were setting up the 
supplier factoring receivables program, we had a minimum of 
one, maybe multiple calls per day, until we got that up and 
running very quickly. That impacted GM and Chrysler, and we 
were on joint calls and setting those up.
    Mr. Hensarling. Mr. Borst, your answer to the question to 
who is the point of contact, how often is the communication.
    Mr. Borst. Yes, sure. The communication is frequent, and 
during the period leading up to the bankruptcy, it was 
definitely daily. The interactions were with all of the task 
force and would have started with our CEO, Fritz Henderson. His 
contact, I think, was principally with Mr. Rattner. Mr. Bloom 
and the rest of the task force really split up the different 
things that we needed to get done. So within their team, which 
I thought was a very wise move, they took principal 
responsibility for certain topics. So I had the pleasure of 
interacting with Mr. Bloom, for example, on a couple of those 
topics.
    Mr. Hensarling. We know as part of the Chrysler 
reorganization the Fiat incentive to produce the domestic-made 
car achieving 40 miles per gallon. Has the Automotive Task 
Force otherwise suggested automobiles for your companies to 
produce. Mr. Borst?
    Mr. Borst. Not that I am aware of.
    Mr. Hensarling. Not to your knowledge.
    Mr. Borst. Not to my knowledge.
    Mr. Hensarling. But there could have been conversations 
with the CEO that you may not have been privy to.
    Mr. Borst. I am surely not privy to everything.
    Mr. Hensarling. Ms. Bertsch?
    Ms. Bertsch. The same with Chrysler. Certainly not at all 
to my knowledge, which is one of the reasons that our interest 
in an affiliation with a company such as Fiat was very positive 
so that we could continue to produce and look into further more 
fuel-efficient smaller vehicles.
    Mr. Hensarling. Clearly we know that there is more to our 
Government than the executive branch. There is the legislative 
branch as well. It was not long ago--I believe the article 
appeared in the Wall Street Journal, but I do not have the 
citation in front of me. The headline is ``GM Plant in Norton 
Safe from Closing for Now. Barney Frank Appeals to GM CEO, 
Gains 14-Month Reprieve,'' referring to Chairman Barney Frank, 
who I have the privilege of serving with on the House Financial 
Services Committee. I assume it is an accurate article since 
there is a press release from Chairman Frank. The articles 
says, ``The General Motors parts distribution plant received a 
14-month reprieve from GM officials, thanks to U.S. Congressman 
Barney Frank who appealed to GM's CEO, Fritz Henderson, this 
week on behalf of Norton workers.'' The rest of the article 
claims it was one of the three Norton plants to be shut down.
    So, again, I have not spoken to Chairman Frank about this. 
Apparently the article has a release from him. So at this 
point, I would assume it to be accurate.
    You have described your interaction with the 
administration. How often are you hearing from Members of 
Congress and would the CEO of GM take my call?
    Mr. Borst. I am sure the CEO of GM will take your call. He 
has been very communicative not only with people of your 
stature, but others.
    In that particular instance that you reference, I am not 
familiar with the details. However, we have had many, many 
calls and many e-mails and others from a variety of 
constituencies because this has been a very painful process for 
many.
    Mr. Hensarling. So when you say ``constituencies,'' am I to 
assume then there have been many calls from Members of 
Congress?
    Mr. Borst. Again, I personally have not gotten any calls 
from Members of Congress, but I am sure there has been to other 
parts of the company. But my point is that we are getting calls 
from pensioners and dealers and a variety of constituencies.
    Mr. Hensarling. Right now, I am just interested in--and I 
see I am beyond my time yet again. But, Ms. Bertsch, are you 
aware of calls from other Members of Congress to your company? 
Or in your specific position, you would not necessarily be 
aware of those calls or that influence coming to bear on 
decision-making at your company?
    Ms. Bertsch. Well, I have not received any, and I am not 
aware of specific instances. I mean, I do truly believe that 
there has been--people have been very vocal throughout this 
whole event for the last 6 months on whether or not they were 
supportive or not supportive----
    Mr. Hensarling. No. I was just asking specifically about 
Members of Congress.
    Ms. Bertsch. I cannot give you an instance, no.
    Mr. Hensarling. Thank you. I am way over my time.
    Chair Warren. So can you give me an idea, Mr. Borst, about 
your estimate of capital needs in the near and medium term and 
how you plan to deal with them?
    Mr. Borst. Could you define how you are using the word 
``capital'' because that means different things for different 
people?
    Chair Warren. I am just asking about additional financing. 
You have, obviously, received a huge infusion of cash. But I 
just want to know what the near and medium term--I realize no 
one knows the long term at this point. But do you have capital 
needs and plans for how you are going to meet those away from 
the Government?
    Mr. Borst. Yes. As we put together our plans in terms of 
DIP financing and the exit financing that we requested, we 
believe that will really take us to the low point or our peak 
cash needs which we estimated at the time would be in the early 
part of 2010. So the funds that we have received should get us 
through that period of time, and we would not necessarily 
expect a need for significant financing beyond that, if we are 
able to meet our plans and if the economy recovers the way we 
had projected and we are able to participate in that recovery 
as we believe the auto industry and General Motors will.
    So we have not built in significant additional funding 
needs. We do have applications in for section 136 funding, for 
example. We would expect that with us being a viable company 
now, that those will be looked at. We do have regular rollover 
of maturities in our foreign jurisdictions. We would 
anticipate, now being out of bankruptcy, that we would be able 
to roll over those lines. But with the capital markets the way 
they have been, we did not rely on a lot of additional external 
financing.
    Chair Warren. Right.
    Mr. Borst. That said, we would like to get back to that 
kind of business as soon as possible, and preferably, we would 
like to be positively cash-flowing as soon as possible so that 
that would not even be required.
    Chair Warren. And Ms. Bertsch.
    Ms. Bertsch. Similar to General Motors, we had outlined in 
our 363 filing with the Government what we thought our 
expectation was going to be for capital needs for the near mid-
term. And we are satisfied at this point that we will be able 
to service all of our debt, as outlined in our agreements with 
our lenders. Except for the same section 136, which is the 
Department of Energy funding that they have available to 
automotive companies and suppliers for improvement of their 
engineering and power trains and fuel efficiency, we likewise 
have an application in and have had an application in to the 
Government for the past year and expect that we will be 
borrowing under that, as outlined in our plan.
    Chair Warren. So other than as you have noted, you are 
really saying you have taken care of your short-term and mid-
term capital needs, not just in your exit financing provided by 
the Government, but you feel pretty well lined up on that.
    That leads me to the last question I want to ask, and that 
is, I understand that to make the decision about an IPO has a 
lot to do with other market conditions and that you will make 
those decisions based on what you see at the time. But I want 
to ask the question internally to the company as you are going 
forward. What do you see as needing to happen within the 
company before you are in a position for a successful IPO? Mr. 
Borst.
    Mr. Borst. Well, I think the following. First of all, I 
think we need to execute on our plan because there are 
currently just plans--and we are well on our way, but we need 
to execute on those plans. I believe the external community 
will in particular be looking at our revenue line and, coming 
out of the bankruptcy now as things stabilize, how the industry 
will perform and how we will perform within the industry. So 
that will be a key criterion to watch.
    Then it will be a function of whether we are meeting our 
financial metrics, as we go forward. Surely, it is easier to do 
an IPO if you are positively cash-flowing than if you are not. 
Surely, it will be easier to do an IPO if we are exceeding the 
targets that we had set out than if we are not.
    And internally, we have taken significant steps to 
restructure the company. We have significantly downsized the 
company. We have taken significant bureaucracy out of the 
company as we have reorganized. We have flattened the company. 
We are increasing the speed of the decision-making, and those 
will be critical elements, I believe, as we go on the road for 
an IPO next year that we will want to convey to potential new 
investors in the company beyond the shareholders that we 
currently have.
    Chair Warren. Ms. Bertsch, anything you want to add to 
that?
    Ms. Bertsch. No. Very similar.
    Chair Warren. Actually, I know I am over, but let me ask. 
Dr. McAlinden, anything you want to add to that?
    Dr. McAlinden. No. I think their plans look very good on 
paper. It does depend on the economy. It does depend on 
consumers in the market forgiving them for passing through the 
bankruptcy process. I hope this time around we have all kinds 
of scenarios in the planning, not just optimism. It is a second 
chance that we are very grateful for here in Detroit.
    Chair Warren. Thank you.
    Congressman.
    Mr. Hensarling. If the new plans for the new GM and the new 
Chrysler are, indeed, successful, when might the taxpayer be 
made whole? Ms. Bertsch, you first.
    Ms. Bertsch. Our debt to the U.S. Treasury is due in 
several different tranches. One would be in 2011, again in 
2016, and 2017. Our goal would definitely be, if possible, to 
pay that back early. Part of the reason is the interest cost to 
the company is not immaterial, and so based on the interest 
rates that we are paying, I think that it would be one of our 
definite goals to pay that back early. But we see no issue in 
paying it back on time, certainly.
    Mr. Borst. And for GM, as I mentioned earlier, we have a 
six-year term on the loan that we have. We are going to work 
very hard to repay that early. Our plans, if we deliver on 
them, will allow us to do that. But additionally, we have 
significant equity investment from the U.S. Government.
    Mr. Hensarling. Yes.
    Mr. Borst. And the key there is to get the IPO off next 
year. It is our goal to create a liquid market in the stock and 
then work together with the Government to allow it to sell down 
the balance of its interest. It is a very large stake. So I 
would not want to mislead you that it might take some time, but 
that will be a function of how well we perform and how well the 
capital markets perform.
    Mr. Hensarling. Well, and again, I know there are many 
variables in the equation, as you pointed out with the capital 
markets. We do not necessarily know how consumers are going to 
respond to your new products, but again, you do have a plan. Do 
we even have a range of when the taxpayers might be made whole 
if your assumptions are correct and if your plan works?
    Mr. Borst. Yes. At General Motors, we have not included 
that specifically in our plan because that is, obviously, a 
function of what the Government would like to do as well.
    Mr. Hensarling. Ms. Bertsch, did you have anything to add 
to that?
    Ms. Bertsch. No. I think it is largely dependent, too, on 
what the industry does. We have included a--I am hesitant to 
say somewhat conservative, but our ramp-up of industry volume, 
as outlined in our 363 filing, was not very aggressive. So we 
are hoping that we will be able to meet that.
    Mr. Hensarling. Let me go back to an earlier line of 
questioning where you were speaking of somewhat the frequency 
of communication between your companies and the administration. 
I guess both parties, the Automotive Task Force, your 
companies, seem to go to great length to say that the Federal 
Government is not involved in the day-to-day management of the 
companies.
    So I guess the question is, what do you seek or for which 
questions, for which issues, do you see the approval of the 
administration, if it is not ``day-to-day management''?
    Ms. Bertsch. I would not really define it as seeking 
approval. Most of our conversation with the Government----
    Mr. Hensarling. Where do you feel a need to counsel with 
them?
    Ms. Bertsch. Because they are a stakeholder in the company, 
they are also represented on our board. We will be having 
regular dialogue with them related to how we are progressing 
along on our business plan. So once we get our new business 
plan in place for the new company, we will be sharing that with 
the Treasury----
    Mr. Hensarling. I am trying to figure out are there 
specific issues which you feel a need to receive either the 
input or the approval of the administration. I would assume, 
for example, you do not need their counsel or input on whether 
or not you offer white sidewalls on some new Jeep product, but 
at some level, I would assume, you feel a need to receive at 
least their input, if not approval. I am trying to get some 
specificity on what those issues are.
    Ms. Bertsch. And I would say most of those would relate to 
a typical relationship with your board of directors. So, for 
example, as we are going through and defining what level of 
approvals we would need from our board versus from our CEO in 
the company, those are the kinds of things that we would go and 
seek approval from the Treasury, as they relate to board 
members. And then there is, of course, all the other things 
that normal automotive companies may be interested in talking 
about with the Government related to standard energy practices 
and things like that. But from running the company, it will be 
largely through our board of directors.
    Mr. Hensarling. Do you wish to add to that, Mr. Borst?
    Mr. Borst. Yes. In GM's case, I guess I like the analogy to 
the board of directors. I think that is probably an apt one. In 
our case, during this whole period, we needed to get approval 
for additional funds for certain expenditures, and so we would 
need to go back to the U.S. Treasury to get those funds. As 
part of those discussions, as you might have with a board, they 
queried us what we were going to be using those funds for.
    We also had specific topics that we need to address. GMAC 
was mentioned earlier in the hearing. That is an entity that 
the U.S. Treasury has also had interaction with during this 
period of time. We gave them, for example, information about 
what our needs were there and enlisted their support to help in 
that instance. We have our largest supplier, Delphi, that is in 
bankruptcy. We have enlisted their support as part of the 
funding to also help us get that entity out of bankruptcy, 
which is important to our future viability, those types of 
things.
    Mr. Hensarling. Thank you.
    Chair Warren. Thank you all very much. We appreciate your 
being here. This panel is excused. Thank you.
    We now call our third panel. The witnesses on our third and 
final panel will address the issues raised in the bankruptcy 
cases of General Motors and Chrysler. They include Richard 
Mourdock, the Indiana State Treasurer; Professor Stephen Lubben 
of Seton Hall University School of Law; and Professor Barry 
Adler from New York University School of Law. Welcome.
    As before, I will ask each of you to hold your oral remarks 
to five minutes or less. Your written statement will, of 
course, be made part of the permanent record.
    Mr. Mourdock, could we start with you, please?

     STATEMENT OF RICHARD MOURDOCK, INDIANA STATE TREASURER

    Mr. Mourdock. Well, first of all, thank you for the 
invitation to give you testimony today. Last Wednesday, I gave 
testimony to the Judiciary Subcommittee on Administrative and 
Commercial Law. As I said at that time, I never imagined I 
would be in a position to give testimony to a congressional 
committee. As I said at that time, I have great reverence for 
the process and, again, wish to express that and would start 
out by saying I have been very appreciative and admire the 
sense of fairness and balance in the questions that you all 
have offered.
    I should also start out by saying what I am not, which is I 
am not an attorney. If I may sound like one at times through 
this brief bit of testimony, it will only be because I have 
been exposed to so many attorneys in the last 6 to 8 weeks.
    I became involved with this issue when, as the trustee for 
two funds in Indiana and ultimately as a representative for a 
third fund, we purchased--invested some $17 million of Indiana 
retirees' money into the secured debt of Chrysler Corporation. 
As everyone in this room now knows, subsequent to that--that 
took place in July of 2008, and about 6 weeks later, when 
Lehman Brothers went down and the subsequent shock wave went 
through the economy, all of this cycle that we are dealing with 
today began.
    As a trustee with fiduciary responsibilities that I take 
very seriously, I was shocked to see, as all of you are aware, 
the secured creditors in the Chrysler case were, in an 
unprecedented manner, relegated not to the traditional position 
of being first in line but to being something subsequent to 
that.
    We subsequently discussed at length in our office how we 
should proceed. We thought, quite frankly, we might be part of 
a class action suit of other pension funds, but ultimately 
found through this process that we were, effectively, the only 
group that was willing to come forward and take this case to 
the bankruptcy court and ask that the 29 cents on a dollar that 
we were being offered be reviewed to look for some better 
return.
    I should also add at this point the real summation of our 
lawsuit, and I will be very, very brief with it.
    But point number one was that Article I, Section 8 of the 
United States Constitution says it is the congressional mandate 
to set a uniform bankruptcy code. That has been done since 
1789, but in this case the executive, by doing away with the 
traditional rights of secured creditors in this area, we think 
totally threw that bit of congressional balance out the window. 
So we see a balance issue.
    Secondly, we have what we call the sub rosa argument. For 
all the attorneys in the room, obviously, that does not need to 
be explained any further other than here to say simply that we 
see that the United States Government was on both sides of this 
deal simultaneously, setting values, setting all terms of what 
the sale would be, only to be the only bidder in the auction 
for the assets. That is totally unprincipled and we think 
absolutely un-American.
    To the point that gathers us here today, however, we argued 
in our lawsuit that the Troubled Asset Recovery Program monies 
were and are being used illegally to fund the car companies. 
Again, I am not an attorney, but I can state it very simply.
    In late September and in October of 2008, the Congress 
debated the Troubled Asset Recovery Program. At that time, 
Secretary of the Treasury Paulson testified to congressional 
committees saying this is not a bailout for the automobile 
companies. In the 169 pages of TARP, the word ``automobile'' 
appears twice as an adjective before ``batteries,'' 
``automobile batteries.'' It was intended solely to aid the 
ailing financial industry. That is clear in its intent.
    Subsequently, 2 months later, Congress tried to pass an 
automobile bailout bill and it failed, but it begs the obvious 
question. If the same Congress that had voted on TARP 2 months 
before had taken the testimony that it was not an automobile 
bailout, if they thought it was, why did they come back in 
December and try to pass a separate automobile bailout bill? It 
is because clearly they knew that was not their intent in 
October and thus they tried in December and it failed.
    The Bush administration--and I happen to be a Republican, 
by the way--then acted illegally in a desperate search for 
funds. Mr. Paulson then suddenly seemed to change his mind 
despite his own testimony and tried to write an opinion to say, 
well, this is justified. So the money was pulled out. 
Subsequently, obviously, the Obama administration has continued 
to do that.
    The entire process, we believe, has been flawed. From the 
valuation of the assets that took us from something, we 
believe, far better than 29 cents down to 29 cents, it is just 
wrought with error. We see valuations that were done in what we 
believe was an unethical fashion where the consultant who was 
setting the values was offered a $10 million bonus if in fact 
the valuation were accepted at that low level. There were 41 
product lines of Chrysler. Only two of them were given value, 
which we think was just absolutely unheard of. Just months 
before, the company had been valued at some $29 billion.
    And one last thing I will say just very briefly. The 
comment was made here today that the courts have all ruled on 
the points of law. When our case reached the United States 
Supreme Court, in the order that let the sale go forward, it 
says--and I quote--``The denial of a stay is not a decision on 
the underlying legal merits.'' These laws have not been 
reviewed and we hope to live to see that day come.
    Thank you.
    [The prepared statement of Mr. Mourdock follows:]

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    Chair Warren. Thank you, Mr. Mourdock.
    Professor Adler.

 STATEMENT OF BARRY ADLER, CHARLES SELIGSON PROFESSOR OF LAW, 
               NEW YORK UNIVERSITY SCHOOL OF LAW

    Mr. Adler. Thank you, Chair Warren, Congressman Hensarling. 
I appreciate the opportunity to testify here today.
    I want to start by saying I am not opposed in principle to 
the rescue of the auto industry. I have no expertise on whether 
that was a good idea or not. Although as a taxpayer, I wonder 
about the Government funding the UAW retirement funds when 
other retirees who were also suffering but received no such 
funding. Again, I have no expertise on that, and I am not here 
to testify about that either.
    What I do want to comment on what I have studied is the way 
the bankruptcy process was, in my view, distorted in order to 
accomplish the rescue of the auto industry and the funding of 
the UAW funds. Therein, from my perspective, given my 
expertise, whatever that is, lies the problem.
    At the risk of oversimplification, I think a plausible 
characterization of what happened in both the GM and the 
Chrysler bankruptcies is the Government bought the companies 
and transferred them to the UAW. That is controversial I know, 
but I think that is a plausible characterization.
    That would have been fine from the perspective of the 
creditors so long as the price was fair, so long as what the 
Government paid for the assets that it then transferred to the 
UAW was the correct value of the assets thus leaving the 
creditors the fair value of their assets as the proceeds of the 
sale.
    The problem was there is no assurance, given the way the 
bankruptcies were conducted, that the price was the right 
price, the fair price for the assets. In particular, the sales 
process approved by the courts in both cases limited the 
bidders who could bid and limited the characteristics of the 
bidders who could bid in such a way that a liquidation or 
breakup bid for the company was not to be permitted. Thus, if 
Chrysler, in particular, were worth more than $2 billion in 
liquidation, as might have been the case, that bid would not 
have been obtained and the creditors, as just represented, 
might have been left with less than their just deserts.
    Given that there was not a robust and contested auction for 
the assets, one might have recharacterized the transactions as 
what is referred to sometimes as a sub rosa reorganization 
plan, in other words, just a reorganization plan without the 
formality of the Chapter 11 process. But denying the formality 
of the Chapter 11 process, combined with a failure of a robust 
and contested auction, left creditors without the procedural 
protections that Congress granted in the Chapter 11 process.
    And this is a reason that the creditors in each case, the 
secured creditors in Chrysler and the unsecured creditors in 
GM, had reason to complain in my view. Did they receive less 
than they deserved? I do not know. I am not a market maker. I 
do not have the ability to say what the true value of those 
assets were, but the process was flawed. And thus, the 
creditors might have been disadvantaged in a way that the law 
would not permit.
    And this is problematic, particularly in an environment 
where raising capital is a problem for companies, where we want 
to encourage economic development. If creditors' rights are not 
respected, that economic development will be thwarted in a way 
that I think is not in the country's interest.
    What I would do, again turning back to the bankruptcy 
process, to prevent what I see as a mistake in the procedures 
that were approved, would be to pass or adopt new legislation 
that would restrict the procedures that are used in the sale of 
a going concern of a large company so that Government influence 
or not, the mistake, as I see it here, could not be repeated.
    Beyond that, I will leave it and I would be happy to answer 
questions, of course.
    [The prepared statement of Mr. Adler follows:]

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    Chair Warren. Thank you, Professor Adler.
    Professor Lubben.

STATEMENT OF STEPHEN LUBBEN, DANIEL J. MOORE PROFESSOR OF LAW, 
              SETON HALL UNIVERSITY SCHOOL OF LAW

    Mr. Lubben. Thank you, Chair Warren, Congressman.
    I am here, I guess, to present an alternate view on the 
bankruptcy law part of this.
    The reality is, in the last decade or so, Chapter 11 has 
become a highly sale-driven process. The 363 sales are the 
whole game in Chapter 11, at least in big Chapter 11 cases. 
This is a result of secured lenders who have control over all 
the company's cash. If they have control over all the company's 
cash, they can dictate what happens to the company, and quite 
frequently in recent cases, they have dictated a quick sale so 
that the cases involve a sale followed by just basically 
distribution of the proceeds. Recent examples of this, outside 
the cases we are talking about today, include Vlasic Foods, TWA 
in its last Chapter 11 case, the First Polaroid bankruptcy, 
Bethlehem Steel. I have got a whole big, long exhibit attached 
to my written testimony about all the cases that involved 363 
sales.
    So given that context, I really do not think that the GM or 
Chrysler Chapter 11 cases were all that unusual. The basic 
structure of the case, in fact, seems to be quite ordinary.
    Now, it is true, as Professor Adler has indicated, that 
there are limits on what you can do in a 363 sale. This is the 
so-called rule against sub rosa plans. This is, I guess, an 
example of us lawyers using Latin for clarity here. It does not 
seem to add a lot. Basically what we mean is a covert plan of 
reorganization. But in this case, we were selling the assets. 
The proceeds of the sale goes to the debtor and the debtor 
distributes those assets at some future time. I do not see how 
that is a sub rosa plan.
    In addition, the press has generally speculated, and I 
think fairly accurately, about who is going to get what in 
these Chapter 11 cases. That is true. But it still does not 
make it a sub rosa plan. That is just an application of the 
absolute priority rule.
    Now, it is true, as we have been talking about on all these 
panels today, the UAW is getting better treatment than other 
similarly situated unsecured creditors. Of course, a lot of 
that depends on how you define ``similarly situated.''
    In addition, I think it is important to point out that that 
better treatment is not coming from the debtor, and that is 
where it would be a bankruptcy problem. The better treatment is 
coming from the Government through these purchasing entities. 
Now, we can debate whether or not it is a good idea for the 
Government to be bailing out the UAW, but it is not really a 
bankruptcy issue given the structure that we have got here.
    There is also really little beyond rhetoric to support the 
idea that any of these cases impair investor rights. I mean, GM 
had $27 billion in secured debt, an estimated liquidation value 
of $9.7 billion. If you do the math, right there you can see 
that absent this structure, the bondholders in General Motors 
would have been entirely out of the money if there had been a 
liquidation in General Motors.
    The same idea in Chrysler. I think it is entirely rational 
that the Chrysler secured lenders decided that taking a risk-
free $2 billion was a better option. I mean, typically 
commentators often talk about liquidation as though it was a 
cost-free endeavor, but it would have cost millions, probably 
hundreds of millions of dollars to liquidate Chrysler.
    Unless the secured lenders were real sure that they were 
going to get more than $2 billion plus the liquidation costs, 
if they had taken over this case, they had every reason to just 
sit back and let the Government hand them $2 billion in cash.
    Quite frankly, by contract, these lenders had agreed to let 
Chase be their lead lender and their voice in these 
negotiations. My personal belief is that if Chase felt they 
were being strong-armed--it has been alleged that they were 
strong-armed, but Jamie Dimon is not somebody who is known to 
be quiet about his opinions--I think he would have let us know 
if Chase had been strong-armed in these negotiations.
    That brings us, I think, to the last important point I want 
to make is that it is important to remember that the lenders in 
Chrysler agreed to majority rule by contracts. When they bought 
into the loan, they agreed that they were going to sort of sink 
or swim together. The terms of that loan agreement said ``we 
decide whether to credit bid by a vote'' and ``we decide how we 
are going to proceed in a bankruptcy case by a vote.'' The 
contract does not allow individual lenders to go off on their 
own. So to the extent that we have individual lenders now 
complaining about that, you know, it is not really a TARP 
problem. It is not really a bankruptcy problem. It is not 
really even a Federal Government problem. It is a problem of 
the contract that they agreed to, and maybe they wish they had 
not agreed to it. But I think the bankruptcy court was 
absolutely right to enforce those terms.
    And finally, on the issue of the bidding procedures, I 
think this is one area where Professor Adler and I are somewhat 
in agreement. I do think that the bidding procedures represent 
some degree of overreaching. That said, in a case like this 
where there is no alternate bidder--and quite frankly, there is 
plenty of case law to support the idea that an alternate bidder 
could come in and make a nonconforming bid. They do not need a 
bankruptcy professor like me to tell them about that case law. 
So they would have shown up if there was an alternate bidder. 
Bidding procedures only matter in a case where you have 
contested bids. If there is no contested bidder, bidding 
procedures are largely irrelevant. So essentially while I agree 
it was a bit of overreaching, it is probably harmless error in 
this particular case.
    [The prepared statement of Mr. Lubben follows:]

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    Chair Warren. Thank you, Professor Lubben.
    I have a series of questions I want to ask about the 
bankruptcy part of this, but actually feel compelled to ask 
since Mr. Silvers cannot be with us here. You have spoken about 
the UAW. It is my understanding that the party-in-interest here 
is the VEBA and not the UAW. I just want to be sure and make 
sure I have not misunderstood since it is a distinction he 
often draws that is quite important to the parties involved.
    Mr. Adler. The VEBA was established at the behest of the 
UAW to benefit their retired workers.
    Chair Warren. Because of their obligations to their retired 
workers. I just want to be clear. What we are really talking 
about here on the other side are the retiree health plans and 
pension benefits. Is that right?
    Mr. Adler. Yes. I think I was the one that used the UAW. I 
was speaking generally of the UAW's interest, but it is the 
VEBA----
    Chair Warren. But it is the VEBA's legal interest on behalf 
of the retirees. I just wanted to be clear on that.
    So if I can, I will start with you, Professor Adler. I 
share your concern about the substitution of a 363 sale for the 
protections of an 1129 confirmation. The question that 
interests me here, why not go to an 1129(a)? Are there any 
facts that suggest that there was something that the parties 
were worried about with an 1129? Had they gone to ordinary plan 
conformation proceedings?
    Mr. Adler. I do not know the answer to that because the 
Government-orchestrated plan was for a sale from the beginning, 
as I understand it, and the judge approved the sale. There will 
be a Chapter 11 process with respect to the proceeds of the 
sale in each case, and that may have an 1129 component. And it 
may be a conversion to a Chapter 7--which is a liquidation--I 
don't know. So yes, I do not know why there was no Chapter 11 
process prior to the sale.
    Chair Warren. Well, then perhaps I should have asked it the 
other way. If both of us are going to be critical about the 
substitution of 363 for 1129, what advantages were there in 
using a 363 approach as opposed to an 1129?
    Mr. Adler. Well, as Professor Lubben points out, there has 
been a large number of cases in which the companies' assets are 
put into their new use very quickly through a sale. And I do 
not object to that process personally. So the answer, I am 
sure, the Government would give and that the debtor itself in 
each case would give is that we needed to quickly get these 
assets under their new management. And that is an advantage and 
would be an advantage, which is why I focused my criticism on 
the nature of the sale, on the restrictions, which Professor 
Lubben calls harmless, but if they are harmless, why were they 
there?
    Chair Warren. I see. But the point you are really making is 
this is how we could do this process much faster than otherwise 
would have been possible. So the notion was to get some real 
speed in this process.
    I also take it--I just want to be sure, since you have 
mentioned this--this is not unique to the auto industry.
    Mr. Adler. Not at all. The trend since the late '90s--in 
fact, I worked with authors who have done studies on this in 
particular, empirical studies--has been to sell firms as a 
going concern or in liquidation rather than keep the assets in 
place during reorganization, which in the past could have taken 
literally years. But again, my criticism is not with the sale. 
It is with the restrictions on the sale.
    Again, speaking of Chrysler in particular, I do not know 
what the economics of it were, but it certainly seems plausible 
that the Government, which was determined to have this company 
reorganized, was concerned that a bidder was going to come 
along and bid for the assets in liquidation and not want to 
take on the liabilities to the VEBA because their plan was not 
to continue to make autos under the old structure, rather to 
use the plants in some other capacity or the Jeep brand in some 
other capacity, and the Government----
    Chair Warren. Do you have any Government comments? I am 
just wondering. Is there any evidence to support that 
speculation?
    Mr. Adler. As I say, it is just a speculation. The question 
is why did the debtor put the restrictions in place. It seems 
an odd thing to do, to restrict your bidders. Generally people 
selling something want the process to be open as possible. Give 
me as much cash as you possibly can. I do not care what you do 
with the assets once you buy them. Clearly, someone cared what 
was going to be done with the assets once they were purchased, 
and that is the problem.
    Chair Warren. Would you like me to go on with Professor 
Lubben on this line? Professor Lubben.
    Mr. Lubben. Yes. I think Professor Adler and I are in 
agreement on the 363 point as it applies broadly. My point is 
just one that GM and Chrysler were not particularly unique in 
the use of 363 to execute a quick sale. It has become fairly 
common and it has been for at least 10 years. So I am just 
trying to dispel the notion that somehow what was done in GM or 
Chrysler was some sort of perversion of the bankruptcy process. 
Congress may well want to look at, as you say, sort of the way 
in which Chapter 11 has become overtaken by 363 generally.
    I think the answer is the speed, though. That is why people 
like to use 363. That is why secured lenders like to use 363, 
that you can get the good assets out of bankruptcy and on their 
way without having to wait for the negotiation of a plan and 
the voting on a plan and so forth. Basically it is a move to 
avoid what happened to companies like Eastern Airlines and Pan 
Am back in the 1980s.
    Chair Warren. Thank you very much.
    Congressman Hensarling.
    Mr. Hensarling. Professor Adler, I think I heard you say in 
your testimony--I want you to elaborate a little bit more--
maybe I am paraphrasing here--that the Government bought the 
companies and gave them to the UAW, a fairly provocative----
    Mr. Adler. I said that was a plausible characterization.
    Mr. Hensarling. A plausible characterization. Well, could 
you elaborate on that please?
    Mr. Adler. Yes. Mr. Bloom testified earlier that there was 
an arm's-length transaction between the purchaser of the 
companies and the UAW in which the purchaser agreed to take on 
significant liabilities to the VEBA and to assume the 
collective bargaining agreements of the UAW, admittedly a 
collective bargaining agreement that included sacrifices by the 
UAW itself. And here I mean the UAW, Chair Warren. That is also 
a plausible characterization, which is why I was careful to say 
that the alternative is only a plausible characterization.
    My concern over that particular characterization, that is, 
Mr. Bloom's characterization or his statement that this was an 
arm's-length transaction between the UAW and the purchaser of 
assets, is a skepticism I have on my part. Again, this is not 
based on an expertise. My expertise is on the bankruptcy 
process. But it is a skepticism on my part that a new car 
company walking into this area where the economy is in 
disrepair, where there are many unemployed workers, including 
many unemployed autoworkers throughout the industry, would have 
had to pay that much to get new employees to work in its 
company. So if it is true that the billions of dollars of 
funding of the VEBA were necessary to the continued employment 
of workers necessary to build cars, then I think it would be 
correct to say that there was no transfer between the 
Government and the UAW or the VEBA.
    If, however, my skepticism is well founded and a new 
automaker would not have had to make these enormous payments in 
order to get employees to build their cars, then what you have 
is a transfer to the VEBAs. That is to the United Auto Workers. 
And it is in this sense that I say what happened is the 
Government bought the companies because they provided the 
funding to buy the companies and then did not take, arguably, 
the full value of the companies that they just bought. What 
they, instead, did is made a transfer to the VEBAs, which was a 
benefit to the retired workers. And again, maybe that was 
appropriate. I do not know.
    Mr. Hensarling. But in your experience and expertise, how 
common is it then for the debtor to put such conditions on 
bids? In other words, I want my highest price but only if you 
essentially take care of the UAW's VEBA in such a fashion. How 
common is this phenomenon?
    Mr. Adler. Uncommon, as far as I know, although I have not 
studied it. And that is the next point I was going to make. The 
other thing that supports the characterization of a transfer to 
the UAW were the restrictions themselves. It seemed as if the 
Government was very interested in benefitting the United Auto 
Workers through the VEBAs and requiring any bidder to make sure 
that whoever purchased the assets pays from those assets these 
claims of the VEBA. I do not think it is very common. As I 
said, I have not studied this empirically. As an academic, I 
hesitate to say it is uncommon, but I am willing to bet that it 
is.
    Mr. Hensarling. Mr. Mourdock, let me ask you a question 
representing the State of Indiana. Did I understand that it is 
more specifically the State's pension fund for State employees 
that is truly the impacted legal entity in the Chrysler case? 
Is this correct?
    Mr. Mourdock. Yes, sir. There are three separate funds. 
There is the Indiana Teachers Retirement Fund. There is the 
Indiana State Police Pension Fund, and then the last one is not 
a pension fund per se, but it is an infrastructure fund, our 
Major Moves Construction Fund.
    Mr. Hensarling. I am sorry. The latter was?
    Mr. Mourdock. It is an infrastructure fund, Major Moves 
Construction Fund.
    I have to say each time I hear ``to the benefit of the 
retirees,'' I always want to scream, whose retirees?
    Mr. Hensarling. I suppose that is my question then. I 
suppose nobody sees any winners in such an economic calamity as 
we have seen with these two American icon companies going 
through Chapter 11. But relatively speaking, I suppose there 
are relative winners and losers. So I assume it is your 
position that the teachers of Indiana have lost. The policemen 
and policewomen of Indiana have lost, and relative to them, the 
UAW VEBA has won. Is that a fair assessment of your position?
    Mr. Mourdock. That is absolutely fair.
    Mr. Hensarling. I see I am out of time for this line of 
questioning.
    Chair Warren. So if I can just make sure I am following the 
narrower point that you want to make here, Professor Adler. 
That is, for the post-petition financer to make sure that 
assets go, let us just say, to labor or to suppliers who are 
going to be supplying benefits to the company going forward, 
that is both not unusual and not unlawful under the bankruptcy 
laws. Is that right?
    Mr. Adler. Yes, that is right. However, for it to make 
sense for a post-petition financer to make sure that certain 
payments are made--I am sorry. Let me start that again. For it 
to make sense for a post-petition financer to make sure that 
payments are made, it has to be that those payments are 
justified by the need of the purchaser to continue the 
operation of the company. So it may be----
    Chair Warren. I am sorry. What part of bankruptcy law are 
you referring to now?
    Mr. Adler. The assumption of--well, this is going to be 
complicated.
    Chair Warren. Post-petition financing. Is it not?
    Mr. Adler. Yes. I am sorry. What I thought you were 
referring to was the case in which a post-petition financer 
wants to see that certain executory contracts are assumed. If 
you are not referring to that, I am misunderstanding.
    Chair Warren. I am simply asking the question if post-
petition dollars are being used and everyone, all of the 
creditors have received whatever would have been their 
allocation of division of assets of the estate--but now we are 
talking about the distribution of post-petition assets from a 
post-petition financer. If those go, as they often do I think--
this is the point. Labor and suppliers are the two typical 
places where they may, although they had a role as creditors 
and they may be paid 100 cents on the dollar, as creditors of 
the pre-petition entity so long as they are being paid with 
post-petition financing dollars, I take it, first, that is 
entirely consistent with bankruptcy law.
    Mr. Adler. Yes, that is right, which is again why I point 
to the restriction on the sale as the key problem.
    Chair Warren. That is right, as your concern.
    Mr. Adler. My concern, yes.
    Chair Warren. And also that it is not uncommon, I think you 
were saying from your own studies.
    Mr. Adler. No. What is not uncommon from my own studies is 
the sale of the assets.
    Chair Warren. The sale itself is not uncommon. I suppose it 
was Professor Lubben who was talking about that it is not 
uncommon to use post-petition financing dollars in this way.
    Mr. Lubben. Yes. I mean, I will concede that it is somewhat 
unusual to see the union as the one who is the beneficiary, but 
I suspect that that is more--tells us who is usually providing 
the post-petition financing. I mean, it is quite typical for 
banks to specify exactly how their post-petition financing will 
be used post-bankruptcy like, for example, ``thou shall not use 
this financing to challenge pre-petition liens,'' for example. 
So these kind of conditions are quite typical.
    It is somewhat unusual to have a post-petition lender who 
wants to benefit a union, but again, I think that is because 
the Chases and the Citibanks of the world are not really often 
looking out for the unions.
    I think the other point I would make too is that while we 
were kind of obsessed--and I think everybody is a little 
obsessed with the unions in these cases. One point you kind of 
glanced by here was the trade creditors, for example. The trade 
creditors got a much higher recovery than the unions did in 
these cases. I mean, they got paid in full, and the unions 
actually had concessions.
    Chair Warren. So let me be just I am following here. So the 
people who made out best in this bankruptcy, at least as 
compared with where they might have been in a liquidation, were 
actually the trade creditors.
    Mr. Lubben. Right because they got paid under a critical 
vendor order, at least the trade creditors who were needed for 
the new entities going forward. If you were unfortunate enough 
to be a trade creditor exclusively for, say, Pontiac, I guess 
you would not feel as though you got out of this process too 
well.
    Chair Warren. And in your experience, the payment, for 
example, of critical vendors or trade creditors through the use 
of post-petition financing--does that happen with some 
frequency?
    Mr. Lubben. Well, again, I hesitate to make an empirical 
study out of my own experience and practice, but I would say 
that in 100 percent of the cases I did while I was in practice, 
which was in the late '90s when this process started, I always 
had a critical trade vendor order.
    Mr. Adler. That is right, and it is controversial. The 
Seventh Circuit issued an opinion in the KMart case suggesting 
that it should not happen, and I do not mean to be singling out 
the union here. I think all of this is inappropriate.
    Chair Warren. Well, let us stop. Is the Seventh Circuit 
opinion not talking about paying critical vendors out of estate 
funds rather than out of post-petition financing funds?
    Mr. Adler. Yes, but then I go back to the sale restriction. 
That is, what is happening here is where the conversation is 
going astray is that I keep converting the case as if it is a 
reorganization and using the estate's funds because the sale 
was flawed in my view. But you are quite right. If we treat the 
sale as legitimate, what the purchaser does with the assets is 
entirely up to the purchaser, and there is no problem there at 
all.
    Chair Warren. Thank you, Professor Adler.
    Congressman.
    Mr. Hensarling. Mr. Mourdock, had the Obama 
administration's Automotive Task Force chosen to treat the 
retired teachers and retired policemen and policewomen of 
Indiana equally to the retired autoworkers of the UAW, have you 
done a calculation on what that would mean to the bottom line 
of these retired teachers and policemen in your State?
    Mr. Mourdock. No, sir, I have not because we have never 
heard such an offer put before us to see us treated in any way 
different than any of the other secured creditors who were 
going to be thrown 29 cents.
    Mr. Hensarling. So at this point in the process, what do 
you consider your remedies to be?
    Mr. Mourdock. Well, because the Supreme Court, in issuing a 
petition, basically ruled and let the sale go forward, we 
understand we have 90 days. That was in early June. We 
understand we have 90 days to go back to the Court and ask for 
clarifications, and we are certainly considering doing that. As 
a fiduciary who believes very strongly those three points of 
law that I mentioned to you do deserve review by the high 
Court, I will not let any stone remain unturned to see that we 
cannot see this process work, that we might not get 
remuneration for our retirees.
    Mr. Hensarling. Well, I am certainly enjoying and learning 
much from the discussion among our three law professors, 
including the distinguished chair here.
    Not being an academic, I do want to try to go back to a 
point that has probably been covered, but I need to make sure I 
understand it. Is it not unusual to pay post-petition dollars 
for past pension obligations? I understand it may not be 
unusual going forward, but is it not unusual in your 
experience, Professor Lubben and Professor Adler, to have such 
post-petition dollars go for previous pension obligations?
    Mr. Adler. Sadly, it is not unprecedented. I do not know 
whether it is common. As I mentioned earlier, though I can't be 
sure. I'm willing to speculate that it is not ordinary course 
for bidding procedures to require that bidders assume 
particular liabilities as a condition of bidding. But as 
Professor Lubben points out, it happens from time to time at 
least in which post-petition financers insist that their pre-
petition claims get paid out of order.
    The way this is justified, if it is justified at all, is 
that the terms of the new loan are so attractive that it is 
beneficial to the estate, including the other creditors, to pay 
the post-petition lenders' old claims in full. This is 
controversial and inappropriate. It clouds the issue. But to 
say that it is unusual would be an overstatement. It is 
inappropriate in my view.
    Mr. Hensarling. Professor Lubben, do you have comments?
    Mr. Lubben. Yes. I think on the specific issue too of 
labor, I think while as a formal matter of the absolute 
priority rule, they are not supposed to get paid, the reality 
is that if you want to keep operating the business going 
forward, you cannot have people picketing in front of the 
business and disrupting the operations. So it is quite frequent 
that you see pre-petition claims getting paid post-petition to 
buy peace essentially going forward. And I assume that is what 
happened in this case.
    Mr. Adler. But again, if the best use of these assets were 
in liquidation, this would not have been a concern to a 
purchaser. So this is, again, why I keep focusing on Chrysler 
in particular and the restrictions in Chrysler and the fact 
that you had a secured creditor that would have benefitted if 
the liquidation value of the company exceeded $2 billion. Then 
the fact that the UAW would have been unhappy and might have 
picketed would have, arguably, been irrelevant because the 
purchaser would not have wanted to continue operations anyway. 
That is the problem with the restrictions on the sale.
    Mr. Lubben. I do not want to make this a debating society 
here, but my thought is if liquidation was the better option 
here, again, we would have seen Chase as lead lender wanting to 
credit bid in this situation and take control of the assets and 
liquidate them. I think we can assume because they did not take 
control of the assets and liquidate them, that the costs of 
liquidating them would have ended up with them getting a 
recovery substantially less than $2 billion.
    Mr. Adler. And that is possible, but the procedure should 
not have been perverted to guarantee that result.
    Mr. Hensarling. This is probably for my personal 
edification more than anything else since I think I took one 
bankruptcy law course and it was many, many years ago. But I 
vaguely remember 363 had to do with rotting vegetables on a 
cart, and now I think what I am hearing is there have been 
incredible developments with the use of 363.
    As I view TARP, TARP is written in a sense or is certainly 
practiced today by the administration--I am not sure if there 
is any firm in America that cannot receive TARP funds. If there 
is, I am not aware of it.
    What are the limits on 363 these days? What cannot be done?
    Mr. Lubben. Well, I think your notion of 363 sales might be 
one that predates 1978 because that is the rule under the old 
Bankruptcy Act, is you had to have something that was 
perishable.
    Mr. Hensarling. You are showing my age, Professor.
    Mr. Lubben. Yes. Since 1978, 363 really has not had any 
perishability requirements. So other than court-adopted rules 
like the rule on sub rosa plans, 363 by its terms does not 
really have any limitations about when and what you can sell. 
So there is some court gloss on there, but there really are not 
any limits and secured lenders have figured that out and they 
are using it quite aggressively in part because 363(f), which 
allows a sale free and clear of liens and so forth, is much 
more powerful than real estate foreclosure law. So it is a much 
easier way to sell assets.
    Mr. Hensarling. Thank you. I see I am out of time.
    Chair Warren. Mr. Mourdock, I understand that at the time 
you purchased your bonds, you paid 43 cents on the dollar for 
them.
    Mr. Mourdock. That is correct.
    Chair Warren. Which I assume was the current market price?
    Mr. Mourdock. Precisely.
    Chair Warren. Why was the current market price 43 cents on 
the dollar for a bond? Why was it not closer to 100 cents on 
the dollar for GM bonds?
    Mr. Mourdock. No. This was Chrysler.
    Chair Warren. Chrysler bonds.
    Mr. Mourdock. Yes. We did not have any General Motors.
    Well, as you certainly know--and somewhat of a rhetorical 
question I think--the reason the price was 43 cents was because 
that is where the market put the price based on all that had 
been happening in the American automotive industry with 
Chrysler specifically. At the time, gasoline was about $4 a 
gallon, and they were certainly seeing the results of that in 
their sales and forecasts.
    I have been asked many times as an elected official, why in 
the world would you buy those bonds even at 43 cents? And there 
are two answers. Number one, it was discounted as a secured 
piece of credit, ``secured'' being a word that at least at that 
time had meaning. And secondly--and this is not an unimportant 
fact--we have as a policy, as most States do, we want to help 
businesses that have a large footprint in our State. There are 
over 6,000 employees who worked for Chrysler Corporation in 
Indiana. We hoped to be a part of the party of their success. 
We never imagined in doing so that we would end up on this 
side.
    Let me also add, just as a footnote, and this is certainly 
in my written testimony. But I harbor no ill will whatsoever 
towards Chrysler Corporation or the UAW. What we are concerned 
about and what I think the Congress as the oversight committee 
should be concerned about are all the processes that are being 
upset here. And what we bring forward in our lawsuit Chrysler 
could not have done if they wanted to. It has been solely the 
actions of the United States Government that have put us in 
this position.
    Chair Warren. So actually, let me press on your point 
there. You said the reason that you bought these bonds was 
because you knew they were secured but they were priced at 43 
cents on the dollar, which tells you something about the value 
of the security. Does it not? What does it tell you?
    Mr. Mourdock. It certainly does. It tells us that the 
security was seen through a little bit of a squinty eye of the 
market. However----
    Chair Warren. I am sorry. What does that mean? What does it 
tell you about the value of the security relative to the bond?
    Mr. Mourdock. There was a higher level of risk there.
    Chair Warren. Not just higher level of risk. What does it 
tell you about the value of the collateral, at least as the 
market perceived it?
    Mr. Mourdock. Well, it goes with my comment that I just 
said about the risk. I mean, people are discounting it because 
they see some level of uncertainty out there as far as the 
future performance of the company.
    Chair Warren. I am trying to ask two different questions 
here. There is a risk that the company may fail. I understand 
that, and that is a risk that unsecured creditors take 
generally. And then there is a risk about the value of the 
collateral, that is, that the collateral will not cover the 
amount of the outstanding liability. So when the bonds are 
trading at 43 cents on the dollar, I presume it is not only 
because there is a risk that the company may fail, indeed may 
liquidate at some point, but that the value of the collateral 
is substantially less than the face value of the bond.
    Mr. Mourdock. Understood.
    Chair Warren. So you knew when you purchased these that you 
were purchasing them--I just want to be clear--in part as a 
secured creditor, but in larger part as a general unsecured 
creditor.
    Mr. Mourdock. When that debt was purchased--and we do this 
through a private firm, but the firm did the analysis based on 
the collateral, based on the performance, all that was out 
there, and they basically looked at it as a very conservative 
investment based solely on where Jeep was within the total 
portfolio of Chrysler.
    Chair Warren. But a price of 43 cents on the dollar tells 
you that the market at least strongly perceived and you 
purchased believing you were purchasing a partially secured and 
largely unsecured obligation of Chrysler.
    Mr. Mourdock. With the historical understanding it was 
still secured as a secured creditor.
    Chair Warren. Well, secured to the extent perhaps of 43 
cents on the dollar. Plus whatever its future upside earning 
was has to be included in that 43 cents. So secured at 
something less than, considerably less than that. Is that 
right?
    So the difficulty here is not that you were not paid 100 
cents on the dollar. It is simply the disagreement over the 
valuation of the collateral?
    Mr. Mourdock. Correct.
    Chair Warren. So your objection is that--I just want to 
make sure I understand--the valuation produced by Capstone--is 
that right--was inaccurate?
    Mr. Mourdock. Capstone was the consultant, I believe, for 
Chrysler.
    Chair Warren. Is that right?
    Mr. Mourdock. I believe that is correct, yes.
    Chair Warren. So you think that the valuation is wrong.
    Mr. Mourdock. Yes, I do.
    And I think there have been a number of things that have 
come forward even since then that raise more questions. For 
instance, during the bankruptcy testimony in New York, it was 
said the value of the Dodge Viper line might be maybe $5 
million when, in fact, Chrysler had received an offer just 2 
months before for $35 million. I mean, there are those types of 
valuations that we think were not given due merit in what the 
total valuation of this company was.
    You know, it has come up several times too. Again, I am not 
a lawyer and I make no apology here. But I do understand the 
value of time. While it has been said throughout the hearing 
today what is--you know, it was pushed, it was pushed, it was 
pushed. What was the issue that was pushing the timing? And it 
was a date of June 15th. It was said repeatedly that if this 
deal was not done, Fiat was going to walk away from the deal.
    Well, throughout that period, I kept raising the question, 
Fiat is not putting a penny of investment in here. They are 
being given hundreds of millions of dollars of assets on day 1. 
What difference does it make, if somebody is going to give me 
$100 million, if I do not get it on Monday, I will come back on 
Tuesday or Thursday. The day the sale took place, Mr. 
Marchionne, in fact, made the comment we do not know where the 
date came from.
    Chair Warren. So if I am understanding this, you are saying 
you would have made a different business judgment at that point 
in time. But as a creditor, that was not your legal right. Is 
that right?
    Mr. Mourdock. Well, that is not a decision as a creditor 
that I could set as far as what the date was going to be for 
the sale. But I am saying, in line with some of the other 
testimony here, that if the process had been opened up for 
other bidders, there might have been other bidders to get us a 
better valuation, but there was no time for other bidders 
because the Government so pushed this process forward to meet 
an artificial deadline.
    Chair Warren. Thank you, Mr. Mourdock.
    Congressman Hensarling.
    Mr. Hensarling. Mr. Mourdock, I assume somewhere in the 
investment decision-making process of the State of Indiana 
probably would have been the assumption that the pension fund 
would be treated at least equally to other secured creditors 
and be treated preferentially to unsecured creditors. Would 
that have been part of the decision-making process to buy these 
bonds at 43 cents on the dollar?
    Mr. Mourdock. Certainly.
    Mr. Hensarling. I think you also said, Mr. Mourdock, that 
``all processes are being upset here.'' So I will just kind of 
frankly lob a softball out to the panel as we end this round of 
questioning, and that is, from your vantage point, as you look 
at the entirety of the processes and decisions that have 
brought us here--and clearly, a lot of new ground is being 
broken certainly from a policymaking perspective and maybe a 
bankruptcy perspective, maybe not--what do you see as the long-
term either positive or negative policy consequences for what 
certainly has been a fairly unprecedented excursion by the 
Federal Government into these two private companies? We will 
just go left to right. We will start with you, Professor Adler.
    Mr. Adler. Thank you, Congressman.
    In a nutshell, whether the Government dictated the sale or 
not, it influenced a process through which the sale proceeds of 
the assets of a bankrupt company were going to go to a favored 
creditor. That may have been legitimate. It may have been 
illegitimate. The process, though, was not legitimate, in my 
view. That is, the direction of the proceeds to those creditors 
may have been appropriate in the end, consistent with what 
would have occurred had the process been fair. But we do not 
know. Instead, what we have is a potential diversion of value 
in a process that was flawed.
    And as a result, the parties that might have been injured 
by this, the creditors in this case, or some of them, 
complained. Other went along with the sale, I know, and perhaps 
those creditors were speaking in their best interests, but 
others dissented. Whether the dissenters had standing is in 
dispute, as I believe Mr. Lubben pointed out, but for my 
purposes here that's beside the point. Creditors who dissented, 
or others who worry about being in their position in the 
future, may be hesitant to lend in the future on terms that are 
favorable to future debtors. And as a result, when you do not 
have an open sale process, but instead allow the Government or 
the court to approve a sale in which only certain bidders are 
permitted and in which the sale proceeds are going to be 
siphoned off in a particular direction, you run the risk that 
the confidence in credit will be diminished and as a result, 
the cost of capital to future debtors will be increased.
    Mr. Hensarling. Thank you.
    Professor Lubben.
    Mr. Lubben. I guess I would start with the idea that there 
has been a diversion of value presupposes, I guess, that there 
was extra value there to be diverted and that the full value 
had not been paid in this process. Given the lack of evidence 
on valuation, other than what was presented in the bankruptcy 
court, it looks like the Government, if anything, paid more 
than adequate value for these assets. So I do not think we can 
assume that there has been a diversion of value here to anybody 
in particular.
    Again, I will agree that there has been kind of a 
Government bailout of the unions, and we can debate whether or 
not that is a good thing or a bad thing. But it is really not 
relevant to the bankruptcy issues.
    As to what do we take away from all these cases, I 
ultimately think that these cases will be recognized for what 
they are, as two very large bankruptcy cases that happened at a 
point in time where private DIP financing was not available, 
the Government stepped up and provided it. In that sense, they 
are kind of unique and I do not think they will really set a 
big precedent for anything going forward.
    One good thing that could come out of this, though, is I 
think to the extent that the larger public and Congress is 
being made aware of what is going on in Chapter 11 generally, 
that is a good thing because those of us in the bankruptcy 
community have been talking about it now for 5 or 6 years. But 
we could all fit in an elevator together and have that 
conversation, and I do not think the conversation has gotten 
out of the elevator. So now it has and that could be a good 
thing ultimately.
    Mr. Hensarling. Mr. Mourdock, you get the last word.
    Mr. Mourdock. Well, I would agree with you on that point, 
Mr. Lubben. I think it is good to have this discussion.
    I had, as you phrased the question, thought of three quick 
things.
    Number one is with TARP specifically--and you said this a 
few moments ago--it looks like anybody can get money from TARP, 
though that was clearly not Congress' intent in passing it. 
Certainly it seems the door is wide open, and I think that is 
rather frightening.
    Secondly--and this was mentioned a moment ago--the credit 
markets are still feeling the effect of this. I could not agree 
more with the Obama administration when they recently said we 
need to see unprecedented new investment in American 
manufacturing. I totally agree. But this type of change in the 
historical understanding of creditors' rights is going to cause 
billions of dollars to flow overseas where they are not 
changing the rules. We are already seeing that. We have changed 
the rules of investing in our office because of the new risk.
    And last but not least--and again, I said at the outset I 
have great reverence for this process--will we continue to have 
a true system of check and balances? The Congress voted to have 
an auto bailout bill, and it failed. It did not matter the 
executive acted. The leadership of Congress, obviously, agreed 
with the administration in their actions. So totally the 
actions of Congress were deemed irrelevant. The auto bailout 
bill failed. If the Congress had passed an automobile bailout 
bill, I doubt that I would be sitting here because then, 
clearly, most of our argument goes away and I think the process 
would have been handled differently.
    But as a congressional oversight committee, I guess the 
last word I would leave with you is you are being made 
irrelevant and you ought not let that happen.
    Mr. Hensarling. Thank you.
    Chair Warren. Thank you.
    With that, this panel is excused. Thank you very much for 
coming. We appreciate it.
    This hearing will be adjourned. We will hold the record 
open for 30 days. If there are any additional questions from 
the panelists, they will be submitted in writing and we will 
ask you to give your responses in writing as well.
    Again, we appreciate the hospitality of Wayne State 
University. We appreciate the participation of two of 
Michigan's finest Congressional representatives here. We 
appreciate your dedication and your willingness to come and 
share your thoughts and your time with us.
    With that, this meeting is adjourned.
    [Whereupon, at 1:06 p.m., the hearing was adjourned.]
    [The responses of the witnesses to questions for the record 
from the Congressional Oversight Panel follow:]
    Responses of Ron Bloom, Senior Advisor, U.S. Department of the 
Treasury, to Questions for the Record from Panelist Representative Jeb 
                               Hensarling

    1. Will the Administration provide the Panel with the 
written criteria the Administration uses to determine which 
entities or types of entities are allowed to receive assistance 
through TARP?
    Each program has guidelines that specify eligibility 
criteria. These criteria are posted on the financial stability 
website, www.financialstability.gov.
    For example, in determining whether an institution is 
eligible for funding under the Automotive Industry Financing 
Program, Treasury has identified the following factors for 
consideration, among other things:
          1. The importance of the institution to production 
        by, or financing of, the American automotive industry;
          2. Whether a major disruption of the institution's 
        operations would likely have a materially adverse 
        effect on employment and thereby product negative 
        effects on overall economic performance;
          3. Whether the institution is sufficiently important 
        to the nation's financial and economic system that a 
        major disruption of its operations would, with a high 
        probability, cause major disruptions to credit markets 
        and significantly increase uncertainty or losses of 
        confidence, thereby materially weakening overall 
        economic performance; and
          4. The extent and probability of the institution's 
        ability to access alternative sources of capital and 
        liquidity, whether from the private sector or other 
        sources of U.S. government funds.
    2. How much additional funding and credit support does the 
Administration expect to ask the American taxpayers to provide 
each of Chrysler and GM (i) by the end of this year and (ii) 
during each following year until all investments have been 
repaid in full in cash and all credit support has been 
terminated? What will be the source of these funds?
    The Administration does not plan to provide any additional 
funds to GM and Chrysler beyond those that have already been 
committed. GM and Chrysler may draw additional amounts under 
the loan agreements relating to the supplier support program. 
This amount is expected to be up to $500 million in total.
    3. Will the Administration agree to provide the American 
taxpayers with timely reports describing in sufficient detail 
the full extent of their investments in Chrysler and GM?
    The Treasury provides details of all investments within two 
business days pursuant to the transaction reports under section 
105 of EESA. These reports are posted and available for review 
by the public at http://www.financialstability.gov/latest/
reportsanddocs.html. These transaction reports identify the 
funds provided to GM and Chrysler.
    4. Will the Administration provide the Panel with a formal 
written legal opinion justifying the use of TARP funds (i) to 
support Old Chrysler and Old GM prior to their bankruptcies, 
(ii) in the Chrysler and GM bankruptcies, including the Section 
363 sales, (iii) regarding the transfer of equity interests in 
New Chrysler and New GM to the UAW/VEBAs, and (iv) regarding 
the delivery of promissory notes and other credit support by 
New Chrysler and New GM for the benefit of the UAW/VEBAs?
    The Treasury described the authority to use TARP funds to 
finance the old Chrysler and GM in bankruptcy court filings 
made on its behalf by the Department of Justice, specifically 
in the Statement of the United States of America Upon The 
Commencement of General Motors Corporation's Chapter 11 Case 
filed June 10, 2009, a copy of which has been provided to the 
Congressional Oversight Panel. In Judge Gerber's final sale 
order in the GM bankruptcy case dated July 5, 2009, also 
provided to the Congressional Oversight Panel, he wrote:

          The U.S. Treasury and Export Development Canada 
        (``EDC''), on behalf of the Governments of Canada and 
        Ontario, have extended credit to, and acquired a 
        security interest in, the assets of the Debtors as set 
        forth in the DIP Facility and as authorized by the 
        interim and final orders approving the DIP Facility 
        (Docket Nos. 292 and 2529, respectively). Before 
        entering into the DIP Facility and the Loan and 
        Security Agreement, dated as of December 31, 2008 (the 
        ``Existing UST Loan Agreement''), the Secretary of the 
        Treasury, in consultation with the Chairman of the 
        Board of Governors of the Federal Reserve System and as 
        communicated to the appropriate committees of Congress, 
        found that the extension of credit to the Debtors is 
        ``necessary to promote financial market stability,'' 
        and is a valid use of funds pursuant to the statutory 
        authority granted to the Secretary of the Treasury 
        under the Emergency Economic Stabilization Act of 2008, 
        12 U.S.C. Sec. Sec. 5201 et seq. (``EESA''). The U.S. 
        Treasury's extension of credit to, and resulting 
        security interest in, the Debtors, as set forth in the 
        DIP Facility and the Existing UST Loan Agreement and as 
        authorized in the interim and final orders approving 
        the DIP Facility, is a valid use of funds pursuant to 
        EESA.

    The rationale and determination of the ability to use TARP 
funds applies equally to the financing provided to the new 
Chrysler. There was no new financing provided to New GM. 
Instead, cash flowed from old GM to new GM as part of the asset 
sale, and new GM assumed a portion of the loan that Treasury 
had made to old GM.
    The interests received by other stakeholders of Chrysler 
and GM including the UAW/VEBAs were a result of negotiations 
between all stakeholders as described in detail by myself and 
Harry Wilson in our depositions in the bankruptcy cases, 
transcripts of which have been provided to the Congressional 
Oversight Panel.
    5. When does the Administration anticipate that Chrysler 
and GM will return to profitability? What are the 
Administration's projections for Chrysler and GM over the next 
five years? When does the Administration anticipate that 
Chrysler and GM will go public?
    The Administration reviewed Chrysler's and GM's business 
plans, which were developed by the companies. As part of this 
review process, the Administration's financial advisors 
performed sensitivity analyses by varying the assumptions 
underlying the business plans. These scenarios helped the 
Administration with its decision making process.
    The Administration has not projected dates by which the 
companies will return to profitability, which is dependent on 
the overall market conditions and economic recovery.
    GM, which will probably go public before Chrysler, is 
expected to go public over the next twelve months, but the 
final decision will be made in both cases by the companies' 
boards of directors and will be dependent, among other things, 
on the state of the public securities markets.
    6. What is the Administration's exit strategy regarding 
Chrysler and GM?
    The Administration plans to be a responsible steward of 
taxpayer money, and will periodically evaluate both public and 
private options to exit these investments. For GM the most 
likely exit strategy is a gradual sell off of shares following 
a public offering. For Chrysler, the exit strategy may involve 
either a private sale or a gradual sell off of shares following 
a public offering.
    7. When does the Administration anticipate that Chrysler 
and GM will repay in full in cash all TARP funds advanced by 
the America taxpayers?
    The Administration evaluated various scenarios and believes 
that, under certain assumptions, GM may be able to pay off a 
high percentage of the total funds advanced by the taxpayers. 
Less optimistic, and in Treasury's view more likely scenarios 
involve a reasonable probability of repayment of substantially 
all of the government funding for new GM and new Chrysler, and 
much lower recoveries for the initial loans. Such analyses are 
obviously sensitive to the overall market and the economy.
    8. Will the Administration agree to treat the American 
taxpayers as bona fide investors in Chrysler ad GM and provide 
them with at least the same disclosure they would receive under 
the securities laws if Chrysler and GM were public companies 
and each American taxpayer a common shareholder?
    Chrysler and GM plan to file financial reports with the 
Securities and Exchange Commission in the future in accordance 
with the requirements for other public companies. Prior to that 
time, they will be providing regular public reports on their 
financial performance.
    9. By making such an unprecedented investment in Chrysler 
and GM the United States government by definition chose not to 
assist other Americans that are in need. Given economic 
suffering that the american taxpayers have endured during the 
last several months please tell us why Chrysler and GM merited 
such generosity to the exclusion of other American taxpayers?
    In other words, why would the Untied States government 
choose to reward two companies that have been mismanaged for 
many years, as evidenced by a protracted deterioration in the 
financials of both companies, at the expense of hard working 
American taxpayers?
    What information does the Administration possess that 
proves Chrysler and GM are both sound investments for the 
taxpayer?
    Outright failure of GM and Chrysler would likely have led 
to uncontrolled liquidations in the automotive industry, with 
widespread devastating effects. Importantly, the repercussions 
of such liquidations could have included immediate and long-
term damage to the U.S. manufacturing/industrial base, a 
significant increase in unemployment with direct harm to those 
both directly and indirectly related to the auto sector (e.g., 
dealerships being shuttered, plant closings, supplier failures, 
service centers closing, etc.), and further damaged our 
financial system, as automobile financing accounts for a 
material portion of our overall financial activity.
    Under the direction of the President, the Administration 
sought to avoid such disruptions to the financial system and 
the economy as a whole by providing the minimum capital 
necessary to these companies to facilitate their 
restructurings. Prior to advancing new funds, the 
Administration has relied on commercial principles in 
determining the viability of these businesses and in 
structuring the terms of its investments.
    The President's March 30th, April 30th, and June 1st 
speeches detail the rationale for further investments in the 
companies.
    10. TARP funds were used by New Chrysler and New GM to 
purchase assets of the old auto makers, yet a substantial 
portion of the equity in the new entities was transferred to 
the UAW/VEBAs. As such, TARP funds were transferred to the UAW/
VEBAs. In addition, New Chrysler and New GM entered into 
promissory notes and other contractual arrangements for the 
benefit of the UAW/VEBAs.
    Why did the United States government spend billions of 
dollars of taxpayer money to give preference to employees and 
retirees of the UAW to the detriment of other non-UAW employees 
and retirees who pension funds invested in Chrysler and GM 
indebtedness?
    Why didn't New Chrysler and New GM transfer some of their 
equity interests to, or enter into promissory notes and other 
contractual arrangements for the benefit of, the non-UAW/VEBA 
creditors of Old Chrysler and Old GM?
    The President directed the auto team to take a commercial 
approach to the restructuring process of these companies. As a 
result, the Administration dealt with the various creditors to 
GM/Chrysler as a commercial actor would. The final division of 
debt, preferred, and equity securities between the various 
creditors was the result of arm's length negotiations.
    The UAW/VEBA had many billions of dollars of claims and 
labor agreements governing the companies' active workforces. As 
part of this process the Union agreed to major modifications in 
their labor agreement. Under the new contracts, the VEBA 
received a stake in the reorganized companies without any 
immediate payment. The cooperation and support of the UAW is 
essential to the ability of the reorganized companies to 
succeed.
    11. Given the judicial holdings in the Chrysler and GM 
bankruptcies, one might expect future firms to face a higher 
cost of capital, thus impeding economic development at a time 
when the country can least afford impediments to growth. Did 
the Administration consider these consequences when it 
orchestrated a plan that deprived certain creditors of the 
benefit of their bargains?
    How does the Administration defend the concern that, based 
on the Chrysler and GM precedents, the contractual rights of 
investors may be ignored when dealing with the United States 
government?
    The rights of all stakeholders were dealt with in 
accordance with the normal requirements and procedures of the 
Bankruptcy Code and the Bankruptcy Rules.
    The Chrysler senior lenders got $2 billion out of the 
proceeds of the Treasury loan to the new Chrysler, which was 
deemed to be in excess of the value of the collateral securing 
their loans. In the case of GM, the unsecured creditors 
received 10% of the stock of the new GM together with warrants 
for up to an additional 15% of stock.
    The findings by the judges in both the Chrysler and the GM 
cases attest to the fact that the administration and outcomes 
of these cases were well within acceptable practice. Further, 
as noted in my July 27 testimony before the Congressional 
Oversight Panel, the creditors of Chrysler and GM received more 
than they would have received had the Government not stepped 
in. Treasury does not expect that the judicial holdings in 
these cases will increase capital costs or impede economic 
development.
    Separately, had the Administration not acted, it would have 
led to a spiraling liquidation of GM and Chrysler leading to 
massive job losses and long-term damage to the U.S. 
manufacturing base.
    12. Please provide a list to the Panel of all auto task 
force officials as well as any additional Administration 
officials involved in the restructuring negotiations of 
Chrysler and GM. Which officials communicated with the senior, 
secured bondholders? Mr. Bloom mentioned those officials 
involved in the negotiations had gone through ``extensive 
questioning.'' Can you again affirm that no one on the list you 
provide encouraged in any manner a TARP creditor to support the 
bankruptcy of either Chrysler or GM? Did any of these TARP 
recipients acquiesce with the knowledge that losses from their 
Chrysler or GM holdings may be directly or indirectly 
replenished with TARP funds? How would the American taxpayers 
know whether or not Treasury channeled TARP funds through these 
institutions as a backdoor way of financing the auto industry 
and, indirectly, UAW/VEBA claims?
    The Auto Task Force is co-chaired by National Economic 
Council Director Larry Summers and Secretary of the Treasury 
Tim Geithner and is composed of agency heads, including: 
Secretary of Transportation Ray LaHood, Secretary of Commerce 
Gary Locke, Secretary of Labor Hilda Solis, Secretary of Energy 
Stephen Chu, Chair of the President's Council of Economic 
Advisers Christina Romer, Director of the Office of Management 
and Budget Peter Orzsag, Environmental Protection Agency 
Administrator Lisa Jackson, and Director of the White House 
Office of Energy and Climate Change Carol Browner. However, 
only the auto team within the Treasury Department was involved 
in negotiations relating to the Chrysler and GM bankruptcies.
    Following is the List of Treasury auto team members that 
were principally involved in communicating with senior secured 
creditors:
         Steve Rattner
         Ron Bloom
         Harry Wilson
         Matt Feldman
    Specifically, the government required the companies to 
demonstrate that they could generate positive cash flow and be 
viable and profitable over the long term. It was up to the 
companies and their management to develop business plans that 
would achieve those results and to negotiate the concessions 
necessary to implement those business plans. While auto team 
members participated in some of those discussions, they did so 
as potential lenders and investors.
    At no time in any meetings involving stakeholders were 
there discussions related to TARP funding for such 
stakeholders. As described in my testimony to the Congressional 
Oversight Panel, no one on this list had any role in dictating 
what stance other TARP recipients should take in dealing with 
GM and Chrysler.
    13. How frequently does communication occur between any 
member of the Administration and the directors and executives 
of Chrysler or GM? What is the nature of such communication?
    The members of the Treasury auto team communicate with a 
limited group of directors and executives at GM and Chrysler as 
necessary to administer the government's investments and 
protect the taxpayers' interests. The approach is consistent 
with what a commercial lender and investor would do in order to 
monitor their investments. It should be noted that the 
Administration has made an overall core decision not to engage 
in the management of these businesses, and any communication 
with the companies is consistent with this principle.
    14. What is the Administration's vetting process for new 
directors of Chrysler and GM?
    The Treasury auto team used a commercial process to vet 
directors as would be expected of any well-managed corporation. 
In the end, the auto team is comfortable that it has brought 
together world-class boards that are focused on being 
responsible stewards of taxpayer dollars and creating 
shareholder value.
    15. Will Chrysler and GM receive favorable government 
contracts or other direct or indirect subsidies the award of 
which is not based upon objective and transparent criteria?
    Chrysler and GM will not receive any special treatment when 
competing for government contracts or any direct or indirect 
subsidies as a result of the government's investments in these 
companies. They will have to win contracts based on their 
commercial strengths like any other auto manufacturer. As a 
principle, the Administration does not plan to manage these 
businesses or get involved in day to day management.
    16. Will Chrysler and GM promptly disclose all contractual 
arrangements with (i) the United States government and (ii) 
recipients of TARP funds, together with a detailed description 
of the contract, its purpose, the transparent and open 
competitive bidding process undertaken and the arm's length and 
market directed nature of the contract?
    Chrysler and GM will be subject to the same reporting 
requirements with respect to contractual arrangements as are 
any other similarly situated business entity. The companies are 
also subject to audit, including by SIGTARP and GAO.
    17. Will Chrysler or GM be able to obtain private or public 
credit or enter into other contractual arrangements at 
favorable rates because of the implicit governmental guarantee 
of such indebtedness and contracts?
    As indicated earlier, Chrysler and GM will have to win 
contracts and business solely based on the commercial strength 
of their offers. There is no actual or implicit government 
guarantee for their debt or contractual obligations.
    18. How will the United States government resolve any 
conflict of interest issues arising from its role as a creditor 
or equity holder in Chrysler and GM and as a supervising 
authority for Chrysler and GM?
    The Administration has already separated its role as 
investor/lender from that of regulator. The Administration has 
completely different teams working in these capacities, and 
decisionmaking in these areas is very purposefully separated. 
For matters related to the financial interests of taxpayers, 
the team overseeing the investments and loans will continue to 
act like any commercial actor in terms of protecting taxpayer 
capital. For regulatory matters, those functions will continue 
as if the GM and Chrysler interventions had not taken place.
    19. Will the IRS, SEC and other governmental agencies be 
able to discharge their regulatory and enforcement 
responsibilities with respect to Chrysler and GM without 
political influence?
    The companies will be subject to the same regulatory and 
enforcement requirements as are any other similarly situated 
business entity.
    20. Thomas E. Lauria, the Global Practice Head of the 
Financial Restructuring and Insolvency Group at White & Case 
LLP, represented a group of senior secured creditors, including 
the Perella Weinberg Xerion Fund (``Perella Weinberg''), during 
the Chrysler bankruptcy proceedings.
    On May 3, the New York Times reported: ``In an interview 
with a Detroit radio host, Frank Beckmann, Mr. Lauria said that 
Perella Weinberg was directly threatened by the White House and 
in essence compelled to withdraw its opposition to the deal 
under threat that the full force of the White House press corps 
would destroy its reputation if it continued to fight.'' In a 
follow-up interview with ABC News' Jake Tapper, he identified 
Mr. [Steven] Rattner, the head of the auto task force, as 
having told a Perella Weinberg official that the White House 
would embarrass the firm. At the hearing Mr. Bloom stated that 
Mr. Rattner denied Mr. Lauria's allegations. Has any member of 
the Administration spoken with Mr. Lauria or representatives of 
Perella Weinberg regarding this matter? If so, what did they 
say? If not, why not? Do you plan to ask SIGTARP to subpoena 
Mr. Rattner, Mr. Lauria and representatives of Perella Weinberg 
and ask them to respond under oath? If not, why not?
    As I testified during the July 27 Field Hearing of the 
Congressional Oversight Panel, I have spoken to Mr. Rattner 
about this matter, and he categorically denies Mr. Lauria's 
allegations. I have no knowledge of any other contact with Mr. 
Lauria or with people at Perella Weinberg regarding the issues 
mentioned above. SIGTARP will determine the appropriate use of 
its subpoena power or executive bodies to questions presented 
by the panel.
    21. Regarding the reorganization of the auto parts 
manufacturer, Delphi, on July 17 the New York Times reported: 
``Delphi's new proposal [reached with its lender group] is 
similar to its agreement with Platinum [Equity, a private 
equity firm], which was announced June 1, the day GM filed for 
bankruptcy. But hundreds of objectors, including the company's 
debtor-in-possession lenders, derided that proposal as a 
`sweetheart deal' that gave the private equity firm control of 
Delphi for $250 million and a $250 million credit line.'' On 
June 24 the New York Times reported that ``Delphi worked with 
GM and the Obama Administration to negotiate with Platinum. . . 
.'' Why would the Administration participate in the negotiation 
of a ``sweetheart deal'' for the benefit of Platinum Equity?
    The Delphi transactions were negotiated between GM and 
Delphi. GM determined a failure of Delphi would have led to 
high losses at GM. The auto team was involved in discussions to 
the extent necessary to avoid potential destruction of equity 
value of GM, which would have led to large losses to the 
Treasury investment and for the U.S. taxpayer.
    22. Did the Administration in any manner pressure or 
encourage Chrysler to accept a deal with Fiat?
    The Administration made the determination that Chrysler's 
business plan submitted on February 17th was not viable and 
that, in order for Chrysler to receive taxpayer funds, it 
needed to find a partner with whom it could establish a 
successful alliance. Chrysler identified Fiat as a potential 
partner after conducting a lengthy search process that began 
before Treasury made its initial loan to Chrysler and in which 
Treasury had no involvement. Fiat was the only potential 
partner to offer to enter into such an alliance, and ultimately 
the Chrysler Board made the determination that forming an 
alliance with Fiat was the best course of action for its 
stakeholders.
    23. Did the Administration in any manner thwart or 
discourage any merger or business combination or arrangement 
between Chrysler and GM?
    The Administration allowed GM and Chrysler to work toward a 
commercial solution they thought made sense for their 
businesses. Each company made its own determination to pursue a 
future independent of the other.
    24. Did the Administration in any manner communicate or 
consult with any director or executive of Chrysler or GM 
regarding their testimony before the Panel or their response to 
the questions presented by the Panel?
    Auto team staff have had discussions with Chrysler and GM 
management about a wide variety of issues, including requests 
for information from oversight bodies, but have never sought to 
influence responses of Chrysler or GM directors or executive 
bodies to questions presented by the panel.
                                ------                                


 Responses of Jan Bertsch, Senior Vice President, Treasurer and Chief 
  Information Officer, Chrysler Group LLC to Questions for the Record 
              from Panelist Representative Jeb Hensarling

    1. By making the unprecedented investment in Chrysler and 
GM, the United States government by definition chose not to 
assist other Americans that are in need. Given the economic 
suffering that the American taxpayers have endured during the 
last several months, please tell us why your company merited 
such generosity to the exclusion of other taxpayers?
    In other words, why would the United States government 
choose to reward two companies that have been mismanaged for 
many years, as evidenced by a protracted deteriorating in the 
financials of both companies, at the expense of hard working 
taxpayers?
    What information do you possess that proves your company is 
a sound investment for the American taxpayer?
    Please refer to (1) the materials submitted to the U.S. 
Congress by Chrysler LLC on December 2, 2008, (2) the 
Restructuring Plan for Long-Term Viability submitted by 
chrysler LLC to the U.S. Treasury on February 17, 2009, and (3) 
the testimony and supporting materials from Chrysler LLC and 
its advisors that are part of the public record in the 
bankruptcy proceedings of Chrysler LLC pending in the U.S. 
Bankruptcy Court for the Southern District of New York. These 
public materials provide comprehensive information detailing 
the sudden and drastic effects of the global credit crisis on 
the U.S. auto industry, the potential disastrous effects on the 
U.S. economy of a liquidating bankruptcy of Chrysler, and the 
potential for the new Chrysler to preserve tens of thousands of 
jobs and generate billions of dollars of federal, state and 
local tax revenues in the U.S.
    2. When do you anticipate that your company will return to 
profitability?
    What are your projections for your company over the next 
five years?
    When do you anticipate that your company will go public?
    As part of the 363 sales process, Chrysler LLC submitted a 
business plan (the ``363 plan''). Currently, Chrysler Group LLC 
is elaborating its 5-year business plan, the results of which 
are expected to represent an improvement on the 363 plan 
outcome.
    Decisions with respect to an initial public offering are 
within the province of the Members (equity holders).
    3. What is the Administration's exit strategy regarding the 
investment of TARP funds in your company?
    The $7 billion secured loan to Chrysler Group LLC from the 
U.S. Treasury requires repayment of all amounts borrowed by 
June 2017. Decisions with respect to an initial public offering 
are within the province of the Members (equity holders).
    Funds advanced under the Warranty Support Program were 
repaid in July 2009, and funds advanced under the Supplier 
Support Program in May 2009 are scheduled to be repaid in 2010.
    4. When do you anticipate that your company will repay in 
full in cash all TARP funds advanced by the American taxpayers?
    The $7 billion secured loan to Chrysler Group LLC from the 
U.S. Treasury requires repayment of all amounts borrowed by 
June 2017. Decisions with respect to an initial public offering 
are within the province of the Members (equity holders).
    Funds advanced under the Warranty Support Program were 
repaid in July 2009, and funds advanced under the Supplier 
Support Program in May 2009 are scheduled to be repaid in 2010.
    5. How frequently does communication occur between any 
member of the Administration and the directors and executives 
from your company? What is the nature of such communication?
    There is no established schedule for communications. Since 
June 10, 2009, interactions with the U.S. Treasury have 
occurred a few times a week and have related to, among other 
things, the formation and composition of the Board, financial 
reporting requirements, efforts to finalize a long-term 
business plan and an executive compensation program, and the 
Warranty Commitment Program and Supplier Receivables Program 
sponsored by the U.S. Treasury.
    6. Is the Administration in any manner providing input 
regarding corporate policy and/or the day-to-day management of 
your company? If so, what input is being provided and under 
what authority? Does your company seek the approval of the 
Administration regarding any matter?
    The U.S. Treasury has no role in the company's day-to-day 
management or policy making, except that (1) the U.S. Treasury 
included a requirement in its First Lien Credit Agreement with 
the company that requires the company to maintain an expense 
policy prohibiting or limiting certain expenditures, and (2) 
the company's executive compensation program is required to be 
approved by the U.S. Treasury's Special Master for Executive 
Compensation, Mr. Kenneth Feinberg.
    7. What objective market analysis has your company 
undertaken indicating that American consumers prefer small cars 
to larger cars and SUV's?
     Analysis of industry trends indicate that over the 
past five small and compact vehicles have captured a larger 
portion of the U.S. light vehicle industry (2004 14%; 2008 
22%). Industry forecasts predict a continuation of this growth 
over the next five years.
     Based on our propriety web-based survey about 
powertrains, Americans feel that fuel prices will be, on 
average, $2.89 per gallon in one year and $4.50 in five years. 
This supports the expectation that more fuel efficient vehicles 
will grow in demand as we have seen with recent fuel price 
spikes. With technology, consumers will also have a choice of 
getting large vehicles that are more fuel efficient but with 
the likely price premium of the technology, small car demand 
will rise.
     Since 2004, there has been a gradual increase in 
purchase intentions for smaller vehicles and a gradual decrease 
for larger vehicles. The gas price spike in 2008 magnified (and 
possibly accelerated) this trend.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] 


     Based on our dedicated, proprietary i-community 
that monitors consumer perceptions of automotive propulsion and 
small cars, 41% of consumers would likely consider a small car 
in the future. Fifty percent indicated they were unlikely to 
consider a small car.
    What objective market analysis has your company undertaken 
indicating that American consumers will prefer vehicles 
produced by your company to those produced by other companies 
within and outside this country?
     Chrysler does not currently offer A/B segment 
vehicles, however, we are successful in the segments in which 
we offer vehicles:
        Chrysler Share of Segment (Chrysler Segmentation)
                 Full Size Luxury 17.8% (Chrysler 300/
                C)
                 Compact SUV 43.5% (Wrangler, Compass, 
                Patriot)
                 MPV 40.1% (Town & Country, Grand 
                Caravan)
                 Large Pick-Up 17.8% (Ram)
     Research shows that for small car buyers the top 
five primary reasons for purchase are the following (2008 New 
Vehicle Experience Study, Strategic Vision Inc.):
        Fuel Economy 42.7%
        Value for the Money 17.6%
        Price/Monthly Payment 6.0%
        Fun to Drive 4.2%
        Reliability 3.7%
    Having access to Fiat's technology will enable Chrysler to 
compete in the small vehicle segments with these needs.
     Fiat's success in highly competitive small car 
segments in markets such as Europe and Brazil helped establish 
Fiat as a highly competitive global manufacturer. The small car 
technology that Fiat will transfer to Chrysler will lead to 
similar success in the growing U.S. small car segment.
     In addition, Fiat will make available to Chrysler 
Group its C platform technology, which will be the basis for 
the renewal of the Chrysler product offerings in both the C and 
D market segments. These actions by Fiat will provide Chrysler 
with technologically updated and more competitive products in 
the most important segments in the U.S. market.
    8. Did the Administration in any manner pressure or 
encourage Chrysler to accept a deal with Fiat?
    Chrysler pursued an alliance with Fiat because it viewed 
Fiat's products and distribution network as complementary to 
Chrysler's and capable of strengthening Chrysler for the long-
term. The U.S. Treasury indicated that it would provide 
financing in support of an alliance with Fiat--first in the 
context of an out-of-court restructuring that required 
significant concessions by key constituencies, and later in the 
context of a sale transaction under Section 363 of the U.S. 
Bankruptcy Code.
    9. Did the Administration in any manner thwart or 
discourage any merger or business combination or arrangement 
between Chrysler and GM?
    GM advised Chrysler it would discontinue merger discussions 
due to the need to address its own pressing liquidity issues.
    10. Will your company receive favorable government 
contracts or other direct or indirect subsidies the award of 
which is not based on objective and transparent criteria?
    No.
    11. Will your company agree to promptly disclose all 
contractual arrangement with (i) the United States government 
and (ii) recipients of TARP funds, together with a detailed 
description of the contract, its purpose, the transparent and 
open competitive bidding process undertaken and the arm's 
length and market directed nature of the contract?
    The Company would be willing to disclosure such 
arrangements as long as such disclosure would not violate 
confidentiality agreements or risk competitive harm.
    12. Do you anticipate that your company will be able to 
obtain private or public credit or enter into other contractual 
arrangement at favorable rates because of the implicit 
government guarantee of such indebtedness and contracts?
    No. And we question the validity of your premise regarding 
an implicit guarantee.
    13. Did any director or executive of your company in any 
manner communicate or consult with any member of the 
Administration regarding any testimony before the Panel or any 
response to the questions presented by the Panel? If so, please 
describe the communication or consultation.
    No, except for an ongoing dialog with the U.S. Treasury in 
the ordinary course of business to validate debt/cash amounts 
outstanding.
                                ------                                


   Responses of Walter Borst, Treasurer, General Motors Company, to 
  Question for the Record from Panelist Representative Jeb Hensarling

    1. By making the unprecedented investment in Chrysler and 
GM the United States government by definition chose not to 
assist other Americans that are in need. Given the economic 
suffering that the American taxpayers have endured during the 
last several months please tell us why your company merited 
such generosity to the exclusion of other taxpayers?
    In other words, why would the United States government 
choose to reward two companies that have been mismanaged for 
many years, as evidenced by a protracted deterioration in the 
financials of both companies, at the expense of hard working 
American taxpayers?
    What information do you possess that proves your company is 
a sound investment for the American taxpayer?
    The government's provision of debtor-in-possession 
financing when none was available in the private market, along 
with its other support for General Motors, enabled the company 
to go through bankruptcy without liquidation. As Mr. McAlinden 
testified, the government's actions probably avoided millions 
of job losses and billions of dollars of lost income and lost 
tax revenue. These millions of taxpayers, along with the state 
and local governments which their taxes support, benefited 
substantially from the government's involvement. Beyond this, 
the soundness of the government's investment will only be 
proved out over time.
    2. When do you anticipate that your company will return to 
profitability?
    Only July 10, GM's CEO announced that our Viability Plan 
projections comtemplate breakeven Adjusted Earnings Before 
Interest and Tax (EBIT) by 2010 and positive Adjusted Operating 
Cash Flow by 2011.
    What are your projections from your company over the next 
five years?
    Business plan projections from GM were included in the 
Stephen Worth Declaration filed in Bankruptcy court on June 4, 
2009, in support of the proposed 363 sale. These projections 
contemplate adjusted Earnings Before Tax (EBT) of ($1.3)B, 
$3.0B, $5.3B, $6.9B and $7.8B for CY 2010--2014 and at the time 
were based on current assumptions including total U.S. industry 
sales projections of 12.15M units, 14.3M units, 16.0M units, 
16.4M units and 16.8M units for CY 2010--CY2014.
    When do you anticipate that your company will go public?
    The timing of an initial public offering will be heavily 
influened by conditions in the equity markets and continued 
recovery in the auto industry, but we'd like to see the company 
in a position to launch a public offering as soon as sometime 
next year if the market conditions are suitable. Ultimately, 
General Motor's Board of Directors will determine when an IPO 
would be in the best interest of the Company and its 
stockholders.
    3. What is the Administration's exit strategy regarding the 
investment of TARP funds in your company?
    We do not have any information to add to the testimony of 
Mr. Bloom at the hearing.
    4. When do you anticipate that your company will repay in 
full in cash all TARP funds advanced by the American taxpayers?
    The American taxpayer will be repaid as GM repays the 
United States Department of the Treasury loan and as the United 
States Department of the Treasury monetizes its equity in GM 
post our IPO. While we are required to repay the United States 
Department of the Treasury loan by 2015, our goal is to repay 
this loan much sooner. We expect the company will be taken 
public as soon as practical sometime next year. Ultimately, 
General Motors' Board of Directors will determine when an IPO 
would be in the best interest of the Company and its 
stockholders.
    5. How frequently does communication occur between any 
member of the Administration and the directors and executives 
from your company?
    Communciations between the Administration and General 
Motors Company has been reduced significantly since July 10, 
2009. The number of members on the President's Automotive Task 
Force has been reduced significantly.
    What is the nature of such communication?
    The contact has focused on questions related to regular 
financial reporting requirements under the UST loan as well as 
the amendment of the UST loan document to further clarify 
certain reps and warranties related to GM and its covered group 
members.
    6. Is the Administration in any manner providing input 
regarding corporate policy and/or the day-to-day management of 
your company?
    There are some areas regarding corporate policy in which we 
communicate with Administration such as executive compensation. 
The Administration does not provide input regaring day-to-day 
management of our company.
    If so, what input is being provided and under what 
authority?
    Generally, input has been provided by the United States 
Department of Treasury and we expect input from the TARP 
Special Compensation Master.
    Does your company seek the approval of the Administration 
regarding any matter?
    Yes, under the terms of the United States Department of the 
Treasury loan we must seek approval on items such as 
withdrawals from the escrow account as well as TARP Special 
Compensation Master approval of compensation plans and payments 
for our senior executive officers and the next 20 highest 
compensated employees.
    7. What objective market analysis has your company 
undertaken indicating that American consumers prefer small cars 
to larger cars and SUVs?
    GM continuously assesses the automotive market and consumer 
behavior from three viewpoints: historical lessons, current 
realities and future projections. History provides insight re: 
consumer behavior relative to actual market conditions--the end 
result of economic factors such as overall economic health, gas 
prices, regulatory impacts; new product entries; societal 
trends, etc. Current realities provide insight to real-time 
behaviors--for example, the dramatic shift to compact sized 
vehicles during the gas price spike of 2008 when consumers 
expected fuel prices to continue to climb to the $5/gal level. 
Future projections assess the expected impact of the economic 
and regulatory outlook, demographic and societal trends and 
expected supply side influences. This ``scanning'' process 
leverages consumer surveys, primary research and product 
clinics, internal models and external academic and industry 
experts from various fields.
    What objective market analysis has your company undertaken 
indicating that American consumers will prefer vehicles 
produced by your company to those produced by other companies 
within and outside this country?
    As part of both the vehicle and marketing development 
processes, GM leverages extensive consumer and expert opinion 
research. The research may include full scale models of future 
entries in a competitive showroom environment with a 
representative sample of current new vehicle owners, ``garage 
visits'' (ethnography) in competitive owners' homes or focus 
groups in a neutral setting. All research is constructed to 
eliminate bias and GM's sponsorship of the research is masked.
    8. Did the Administration in any manner pressure or 
encourage Chrysler to accept a deal with Fiat?
    We have no information regarding this matter.
    9. Did the Administration in any manner thwart or 
discourage any merger or business combination or arrangement 
between Chrysler and GM?
    No, the Obama Administration did not thwart or discourage 
any arrangements between GM and Chrysler.
    10. Will your company receive favorable government 
contracts or other direct or indirect subsidies the award of 
which is not based upon objective and transparent criteria?
    We do not anticipate that we would receive any such 
treatment.
    11. Will your company agree to promptly disclose all 
contractual arrangements with (i) the United States government 
and (ii) recipients of TARP funds, together with a detailed 
description of the contract, its purpose, the transparent and 
open competitive bidding process undertaken and the arm's 
length and market directed nature of the contract?
    We have agreed with the SEC to voluntarily comply with 
security laws and disclose material contracts as we enter into 
them. Per this agreement, we disclosed on August 7, 2009 the 
Amendments to the Loan and Security Agreement between General 
Motors Corporation and the United States Department of the 
Treasury, Secured Credit Agreement between General Motors 
Company and the United States Department of the Treasury, as 
well as other material agreements.
    12. Do you anticipate that your company will be able to 
obtain private or public credit or enter into other contractual 
arrangements at favorable rates because of the implicit 
governmental guarantee of such indebtedness and contracts?
    No.
    13. Did any director or executive of your company in any 
manner communicate or consult with any member of the 
Administration regarding any testimony before the Panel or any 
response to the questions presented by the Panel?
    A copy of Walter Borst's prepared remarks was provided to 
the Automotive Task Force immediately prior to his testimony.
    If so, please describe the communication or consultation.
    Prepared remarks were provided as a courtesy, no 
consultation took place.
                                ------                                


 Responses of Barry Adler, Charles Seligson Professor of Law, New York 
  University School of Law to Questions for the Record from Panelist 
                     Representative Jeb Hensarling

    1. Does it appear that the United States government (as a 
major investor) or any other party supported or created any 
restrictions on bidders as part of the Section 363 sale of 
either the Chrysler or GM assets? If so, what were they and why 
do you think they were created?
    There were restrictions, described below, but I have no 
information on the source of the restrictions.
    2. Was there a market test to determine whether or not the 
creditors of Chrysler or GM would fare better from a Section 
363 sale, a Chapter 11 reorganization or a liquidation?
    It is often stated that potential buyers of these companies 
knew of their availability for months or years prior to their 
bankruptcy filings and that this knowledge, together with 
management efforts to attract suitors prior to filing, 
constituted a market test. However, once the companies entered 
bankruptcy, the courts severely restricted the time for 
potential buyers to bid and generally required that any bidder 
assume significant liabilities to the autoworker retirement 
fund known as VEBA. In each case, there was an exception to the 
requirement that the liabilities be assumed, but by court 
order, the UAW had to be consulted before a noncompliant bid 
would be approved. Because it is possible that, but for these 
restrictions, potential bidders might have appeared after the 
bankruptcy filings, I do not believe that there was an adequate 
market test.
    If so, please describe the market test. If not, why do you 
think a market test was not employed?
    As to whether there was a market test, please see my 
response above. I have no information about why the debtor did 
not request what I would consider an adequate market test.
    3. Did the courts in the Chrysler and GM bankruptcies err 
in any manner?
    In my view, subject to a qualification mentioned below, I 
believe that the courts erred in approving a sale without 
requiring an unconditional auction of the assets, one designed 
to maximize the highest possible price for the bankruptcy 
estates. Because there was no such auction, the transactions 
should have been characterized not as sales but as 
reorganizations and the VEBA interests in the purchased assets 
should have been considered distributions, which arguably 
violated prohibitions against unfair discrimination. The 
qualification is that in the Chrysler case, the secured 
creditors who objected to the sale were subject to a loan 
agreement that arguably bound them to be represented by an 
agent of a majority of such creditors. Consequently, there may 
have been no dissenting creditor in the case with standing and 
sufficient voice to block the sale even if the transaction had 
been characterized as a reorganization. These matters are 
addressed in my statement and related article, which are, I 
believe, already part of the record.
    4. What action would you recommend to solve any of the 
problems presented by the Chrysler and GM bankruptcies?
    In my view, the bankruptcy code should be amended to 
prohibit sale of all or substantially all of a debtor's assets 
except under conditions that would obtain under applicable non-
bankruptcy law and unless the sale process imposes no 
requirement that a bidder assume some but not all of a debtor's 
obligations. This proposal is set out in more detail in my 
statement and related article.
    5. What role did TARP play in the Chrysler and GM 
bankruptcies?
    My understanding is that TARP funds were a source of 
government finance, but I have no information beyond this.
    6. What negative public policy consequences have risen from 
the Chrysler and GM bankruptcies?
    My fear is that the Chrysler and GM bankruptcy cases will 
stand for the proposition that bankruptcy courts are permitted 
to substitute their own judgment for that of the market and 
sidestep creditor protections prescribed by the bankruptcy 
code. The result could be that lenders will become wary of 
extending credit on favorable terms to firms in need of funds, 
thus increasing the cost of capital. This would impede economic 
growth and development.
                                ------                                


Responses of Stephen Lubben, Daniel J. Moore Professor Law, Seton Hall 
  University School of Law, to Questions for the Record from Panelist 
                     Representative Jeb Hensarling

    1. Does it appear that the United States government (as a 
major investor) or any other party supported or created any 
restrictions on bidders as part of the Section 363 sale of 
either the Chrysler or GM assets?
    Yes.
    If so what were they and why do you think they were 
created?
    As I described at the Detroit Hearing and in my prepared 
remarks, the bidding procedures approved by both bankruptcy 
courts required any ``Qualified Bidder'' to assume various 
union agreements. As I also explained at the Detroit Hearing, 
and as I explain more fully in the supplemental paper prepared 
for the Panel, the flexible nature of bidding procedures in 
chapter 11 cases calls into question the importance of these 
requirements, since they could always have been changed to 
accommodate a bidder, if any had existed.
    The remainder of the question asks that I speculate or 
guess as to who required these procedures and why. I decline 
the invitation.
    2. Was there a market test to determine whether or not the 
creditors of Chrysler or GM would fare better from a section 
363 sale, a Chapter 11 reorganization or a liquidation?
    Yes.
    If so, please describe the market test. If not, why do you 
think a market test was not employed?
    As is commonly the case in section 363 sales, the initial 
bids in the automotive cases were subject to higher and better 
offers. Moreover, under the terms of Bankruptcy Code section 
363(k), the secured lenders in both cases had the option to bid 
their secured claims (in place of cash). Either an alternative 
bid or a credit bid would have resulted in an auction with the 
initial bidder. As is widely known, no alternative bidders of 
any sort materialized at either sale hearing, suggesting the 
current market value of the debtors' assets were less than the 
initial bid.
    3. Did the courts in the Chrysler and GM bankruptcies err 
in any manner?
    Both the bankruptcy and appellate courts properly applied 
the law, as currently understood in the Second Circuit, to 
these cases. The bankruptcy courts in particular appear to have 
done a commendable job of balancing the right of claimants to 
be heard with the debtors' need to resolve their financial 
difficulties in a timely manner.
    4. What action would you recommend to solve any of the 
problems presented by the Chrysler and GM bankruptcies?
    As I noted at the Detroit Hearing, section 363 sales 
followed by chapter 11 liquidating plans have become extremely 
common in the past decade. Congress may want to examine if this 
change in chapter 11 practice represents a socially or 
economically optimal development.
    5. What role did TARP play in the Chrysler and GM 
bankruptcies?
    TARP funding allowed the debtors to enter bankruptcy in an 
orderly fashion, by avoiding an uncontrolled or ``free fall'' 
Chapter 11 case. The funding also allowed the debtors to 
successfully reorganize--given credit market conditions, it was 
unlikely that these debtors would have been able to obtain 
sufficient DIP and exit financing.
    6. What negative public policy consequences have arisen 
from the Chrysler and GM bankruptcies?
    I am not aware of any.
                                ------                                


    Responses of Richard Mourdock, Treasurer, State of Indiana, to 
  Questions for the Record from Panelist Representative Jeb Hensarling

    1. Does it appear that the United States government (as a 
major investor) or any other party supported or created any 
restrictions on bidders as part of the Section 363 sale of 
either the Chrysler or GM assets?
    Indiana's funds were only invested in the secured credit of 
Chrysler. Therefore, I have no comments or observations to 
offer regarding the specifics of the GM bankruptcy. At the time 
of the Chrysler petitions to the bankruptcy court, I was 
neither concerned with nor watching developments in the GM 
case.
    To the question . . . ``yes,'' absolutely.
    If so, what were they and why do you think they were 
created?
    The principal restriction was imposed by the time 
requirement that mandated the bankruptcy be completed by June 
15, 2009. Throughout the bankruptcy process, the government 
maintained if the deal was not completed by that date that Fiat 
would walk away from its ``purchase'' of 20% of the Chrysler 
assets. From the beginning, the June 15 date was a myth 
generated by the federal government. Fiat was being given the 
assets at not cost at a minimum value of $400,000,000. Why 
would Fiat establish or negotiate such a date when they were to 
receive such a bonanza? On the very day that the Chrysler 
assets were transferred to Fiat, the company's chairman stated 
to the media that the June 15th date never originated from 
them. The artificial date drove the process in preventing 
creditors from having any opportunity to establish true values, 
prepare adequate cases, and therefore failed to protect their 
rights to the fullest provisions of the law. The artificial 
date also forced the courts to act with less than complete 
information.
    2. Was there a market test to determine whether or not the 
creditors of Chrysler or GM would fare better from a Section 
363 sale, a Chapter 11 re-organization or a liquidation?
    I have no knowledge that any such test was conducted.
    If so, please describe the market test. If not, why do you 
think a market test was not employed?
    I assume that no test was conducted so that the 
restructuring could be done in a manner to reward specific non-
secured creditors. There is no other logical reason to believe 
that a trustee or officer of the corporation, who acted in good 
faith, wouldn't have performed such a test.
    3. Did the Courts in the Chrysler and GM bankruptcies err 
in any manner?
    As stated in my verbal testimony, I am not a lawyer though 
we do have ample legal staff working on this issue as we 
consider going back to the Supreme Court of the United States 
to petition for a hearing. The U.S. 2nd District Court of 
Appeals in its written opinion of August 9th, 2009, denied our 
pensioners standing pursuant to the argument that we could not 
prove, under any other bankruptcy plan, we could have received 
more than the $0.29 we were offered. We believe this was an 
error because the court used a liquidation value for the 
company rather than an ``on-going concern'' basis. We received 
written notice from the U.S. Bankruptcy Court of New York by 
certified letter of our rights to file a claim on Monday, May 
18, 2009, at 10:00 a.m. We were advised in the letter that any 
evidence we wished to submit to make a claim against the 
submitted plan, (in part, the $0.29), would have to include 
trade tickets, depositions, affidavits, documents of evidence 
to substantiate claims, and etc. and would have to be filed 
with the bankruptcy court on Tuesday, May 19, 2009, by 4:00 
p.m. The bankruptcy of Chrysler was frequently referred to as 
``the most complex bankruptcy in American history,'' and yet we 
were given thirty hours to respond. We feel this was clearly an 
error in the process that helped to reduce the wealth of our 
beneficiaries.
    4. What action would you recommend to solve any of the 
problems presented by the Chrysler and GM bankruptcies?
    This is the simplest question that could be asked of a 
former secured creditor of Chrysler. In the future, just follow 
the law.
    5. What role did TARP play in the Chrysler and GM 
bankruptcies?
    TARP funds were used to begin funding Chrysler in December 
of 2008. As stated in my written and previously submitted oral 
testimony, the U.S. Congress passed TARP in October 2008 after 
hearing testimony from then U.S. Treasury Secretary Henry 
Paulson that TARP was not intended to be used to bailout the 
automobile industry. Two months later, the same Congress tried 
to pass a separate automobile bailout bill that failed. The 
obvious question is why would Congress have done such a thing 
if they thought that they already had the means to bailout the 
car companies? Clearly, Congress knew that TARP funds were not 
intended for the automobile industry when they passed the 
legislation. The Bush administration began the misappropriation 
of TARP funds and it continued under the Obama administration. 
If the TARP did not exist, it's highly unlikely that the 
Chrysler bankruptcy would have proceeded as it did.
    It is important to note that in its written opinion of the 
2nd District U.S. Court of Appeals, the Court pointed out that 
the questions raised by us, Indiana's pensioners, remain 
interesting and ``vexing.'' In oral arguments, the federal 
government stated that because car companies are so dependent 
and inter-related with banks that the car companies are, in 
fact, banks themselves. To the federal government's statement, 
the Appellate Court stated if that is the standard then clearly 
no standard exists because all business are interrelated with 
their banks. The Appellate Court goes so far as to explain that 
the use of TARP funds for the automakers is worthy of review by 
a higher court, but they then state that they do not have 
jurisdiction to make such a ruling because we, Indiana 
pensioners, have no claim of standing.
    The claim that Indiana's pensioners don't have standing 
remains, in itself, a ``vexing'' issue given the extraordinary 
schedule put into place by the government to facilitate its 
actions.
    6. What negative public policy consequences have arisen 
from the Chrysler and GM bankruptcies?


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