[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
LASTING IMPLICATIONS OF THE GENERAL MOTORS BAILOUT
=======================================================================
HEARING
before the
SUBCOMMITTEE ON REGULATORY AFFAIRS,
STIMULUS OVERSIGHT AND GOVERNMENT SPENDING
of the
COMMITTEE ON OVERSIGHT
AND GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
JUNE 22, 2011
__________
Serial No. 112-69
__________
Printed for the use of the Committee on Oversight and Government Reform
Available via the World Wide Web: http://www.fdsys.gov
http://www.house.gov/reform
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COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM
DARRELL E. ISSA, California, Chairman
DAN BURTON, Indiana ELIJAH E. CUMMINGS, Maryland,
JOHN L. MICA, Florida Ranking Minority Member
TODD RUSSELL PLATTS, Pennsylvania EDOLPHUS TOWNS, New York
MICHAEL R. TURNER, Ohio CAROLYN B. MALONEY, New York
PATRICK T. McHENRY, North Carolina ELEANOR HOLMES NORTON, District of
JIM JORDAN, Ohio Columbia
JASON CHAFFETZ, Utah DENNIS J. KUCINICH, Ohio
CONNIE MACK, Florida JOHN F. TIERNEY, Massachusetts
TIM WALBERG, Michigan WM. LACY CLAY, Missouri
JAMES LANKFORD, Oklahoma STEPHEN F. LYNCH, Massachusetts
JUSTIN AMASH, Michigan JIM COOPER, Tennessee
ANN MARIE BUERKLE, New York GERALD E. CONNOLLY, Virginia
PAUL A. GOSAR, Arizona MIKE QUIGLEY, Illinois
RAUL R. LABRADOR, Idaho DANNY K. DAVIS, Illinois
PATRICK MEEHAN, Pennsylvania BRUCE L. BRALEY, Iowa
SCOTT DesJARLAIS, Tennessee PETER WELCH, Vermont
JOE WALSH, Illinois JOHN A. YARMUTH, Kentucky
TREY GOWDY, South Carolina CHRISTOPHER S. MURPHY, Connecticut
DENNIS A. ROSS, Florida JACKIE SPEIER, California
FRANK C. GUINTA, New Hampshire
BLAKE FARENTHOLD, Texas
MIKE KELLY, Pennsylvania
Lawrence J. Brady, Staff Director
John D. Cuaderes, Deputy Staff Director
Robert Borden, General Counsel
Linda A. Good, Chief Clerk
David Rapallo, Minority Staff Director
Subcommittee on Regulatory Affairs, Stimulus Oversight and Government
Spending
JIM JORDAN, Ohio, Chairman
ANN MARIE BUERKLE, New York, Vice DENNIS J. KUCINICH, Ohio, Ranking
Chairwoman Minority Member
CONNIE MACK, Florida JIM COOPER, Tennessee
RAUL R. LABRADOR, Idaho JACKIE SPEIER, California
SCOTT DesJARLAIS, Tennessee BRUCE L. BRALEY, Iowa
FRANK C. GUINTA, New Hampshire
MIKE KELLY, Pennsylvania
C O N T E N T S
----------
Page
Hearing held on June 22, 2011.................................... 1
Statement of:
Bloom, Ron, former Senior Advisor to the Secretary of the
Treasury; and Vincent Snowbarger, Deputy Director for
Operations, Pension Benefit Guaranty Corp.................. 13
Bloom, Ron............................................... 13
Snowbarger, Vincent...................................... 19
Ikenson, Dan, associate director, Herbert A. Stiefel Center
for Trade Policy Studies, CATO Institute; Bruce Gump, vice
chairman, Delphi Retiree Association; Thomas Kochan,
professor, Massachusetts Institute of Technology; and
Shikha Dalmia, senior analyst, Reason Foundation........... 62
Dalmia, Shikha........................................... 93
Gump, Bruce.............................................. 76
Ikenson, Dan............................................. 62
Kochan, Thomas........................................... 86
Letters, statements, etc., submitted for the record by:
Bloom, Ron, former Senior Advisor to the Secretary of the
Treasury, prepared statement of............................ 15
Dalmia, Shikha, senior analyst, Reason Foundation, prepared
statement of............................................... 95
Gump, Bruce, vice chairman, Delphi Retiree Association,
prepared statement of...................................... 79
Ikenson, Dan, associate director, Herbert A. Stiefel Center
for Trade Policy Studies, CATO Institute, prepared
statement of............................................... 65
Jordan, Hon. Jim, a Representative in Congress from the State
of Ohio, letter dated June 21, 2011........................ 8
Kildee, Hon. Dale E., a Representative in Congress from the
State of Michigan:
Economic Policy Institute Issue Brief #290............... 39
Prepared statement of.................................... 6
Kochan, Thomas, professor, Massachusetts Institute of
Technology, prepared statement of.......................... 89
Snowbarger, Vincent, Deputy Director for Operations, Pension
Benefit Guaranty Corp., prepared statement of.............. 21
LASTING IMPLICATIONS OF THE GENERAL MOTORS BAILOUT
----------
WEDNESDAY, JUNE 22, 2011
House of Representatives,
Subcommittee on Regulatory Affairs, Stimulus
Oversight and Government Spending,
Committee on Oversight and Government Reform,
Washington, DC.
The subcommittee met, pursuant to notice, at 1:40 p.m., in
room 2154, Rayburn House Office Building, Hon. Jim Jordan
(chairman of the subcommittee) presiding.
Present: Representatives Jordan, Mack, Kelly, Issa (ex
officio), Kucinich, and Cummings (ex officio).
Also present: Representative Burton, Turner, Maloney, and
Johnson.
Staff present: Robert Borden, general counsel; Molly Boyl,
parliamentarian; Drew Colliatie, staff assistant; John
Cuaderes, deputy staff director; Adam P. Fromm, director of
Member services and committee operations; Tyler Grimm,
professional staff member; Christopher Hixon, deputy chief
counsel, oversight; Justin LoFranco, press assistant; Mark D.
Marin, senior professional staff member; Jaron Bourke, minority
director of administration; Lucinda Lessley, minority policy
director; Jason Powell, minority senior counsel; and Cecelia
Thomas, minority counsel/deputy clerk.
Mr. Jordan. The subcommittee will come to order. I want to
thank our witnesses, and I apologize for running late. We will
get started as quick as we can here. I will do my opening
statement, and I understand Mr. Kucinich is on his way, good.
And I just saw Darrell, I think Chairman Issa is on his way
as well.
American auto companies have long been a symbol of the
industrial vigor that has made our country strong and
prosperous. Generations of Americans have worked for General
Motors and Chrysler. They should be proud of their service.
We are here today because in late 2008 the Federal
Government took extraordinary actions to intervene in
automotive industry. Among firms that were bailed out was
General Motors, which received roughly $50 billion in taxpayer
funded assistance.
This decision and its aftermath fundamentally remade the
way our government interacts with the private sector. Dangerous
precedents have been established. In understanding the
consequence of the government actions leading up to and during
the bailout, it is essential to figuring out the path forward.
Taxpayers will end up billions of dollars short due to the
money given to GM, and its far from clear that the bailout has
succeeded in its goals of revitalizing the company. Megan
McArtle of The Atlantic has found that we could have given
every hourly GM employee $250,000 and still come out on top.
Furthermore, the bailout of GM desecrated the rule of law.
The bankruptcy proceedings that occurred were simply a
patchwork legal vehicle for delivering ownership shares from
the auto companies due to the government. What may have seemed
expedient at the time disregarded the true intent of our
bankruptcy process.
In the end, the auto bailouts set a precedent that will
make it more difficult for major companies to go through
bankruptcy proceedings in the future, resulting in serious
moral hazard. It wasn't even clear that these actions were
legal in the first place. After Congress failed to pass
legislation to allow for the bailout, only then did President
Bush move to do so under the Troubled Asset Relief Program.
However, TARP was designed to purchase troubled assets from any
financial institution on such terms and conditions as
determined by the Secretary.
Todd Zywicki, a legal expert and professor at George Mason
University, has pointed out TARP legislation did not permit the
use of the allotted funds to bail out. The car companies, after
all, were not financial institutions.
We are pleased today to be joined by Mr. Ronald Bloom, who
led the President's Auto Task Force. Before a congressional
oversight panel in 2009 Mr. Bloom stated: From the beginning of
this process the President gave the Auto Task Force a clear
message. The first was to behave in a commercial manner by
ensuring that all stakeholders were treated fairly and received
neither more nor less than they would have simply because the
government was involved. The second was to refrain from
intervening in the here management of those companies.
This hearing is taking place today largely because we
believe that both of those directives were faulted.
The committee believes there is substantial evidence that
decisions made by the administration in the handling of the GM
bailout were often politically motivated and that, to the
detriment of many, government chose winners and losers. The
treatment of Delphi pensions epitomizes the picking of winners
and losers that occurred in the GM bailout.
One group, hourly and union employees, are still receiving
their full pension while another group, salaried nonunion
employees, is receiving just a portion of their pensions as a
result of decisions made in the Treasury-orchestrated
bankruptcy process.
The American people have the right to know that their money
was not used to advance political ends and that every dollar
was loaned with the intention of getting GM on a sustainable
course to repay the Treasury.
With that, I will yield back our time.
Let's go to Mr. Cummings while we wait for Mr. Kucinich.
Mr. Cummings. Thank you very much, Mr. Chairman. Today's
hearing is entitled, ``Lasting Implications of the General
Motors Bailout.''
Without question, the most significant and lasting
implications of the Federal assistance to General Motors, are
the hundreds of thousands of jobs saved and the hundreds of
American communities spared further suffering in the midst of
the economic recession.
On July 5, 2009, the U.S. Bankruptcy Court for the Southern
District of New York issued a decision concluding that if the
Federal Government had not come to GM's aid, the firm would
have liquidated. The Court wrote, ``There are no merger
partners, acquirers or investors willing and able to acquire
GM's businesses other than the U.S. Treasury and Canada's
Export Credit Agency. There are no lenders willing and able to
finance GM's continued operations.''
GM's liquidation would have been a significant loss to this
country and would have been devastating to every community that
is home to a GM plant or a GM parts supplier or a GM dealer.
Faced with this crisis, the Bush administration extended $4
billion to GM in December 2008 and an additional $5.4 billion
in January 2009.
When the Obama administration took over they required, as a
condition of additional aid, that both GM and Chrysler
implement viable plans to reduce their costs and effectively
compete in a changed auto industry. After extensive
restructuring, the new GM quickly exited bankruptcy in July
2009.
The results of our Nation's investments are now becoming
clear. The first quarter of 2011 was GM's fifth consecutive
profitable quarter. According to Robert Scott, an economist
with the Economic Policy Institute, Federal, State and local
governments saved between $10 and $78 for every dollar invested
in the auto industry restructuring plan.
The value of our investment in the auto industry becomes
even clearer when we consider the costs of inaction. According
to the Center for Automated Motor Research, even a 50 percent
reduction in the operations of the big automakers could have
reduced personal income by more than $275 billion over 3 years,
resulting in a loss of more than $100 billion in State and
Federal tax revenues. The Federal Government's investment saved
hundreds of thousands of jobs and gave these automakers a new
lease on life.
The committee will hear today from one of the principal
architects of our investment in the auto industry, Mr. Ron
Bloom, and I welcome his testimony.
I also welcome the testimony of our other witnesses, former
Congressman Vince Snowbarger with the Pension Benefit Guaranty
Corp.; Daniel Ikenson with the Cato Institute; Ms. Shikha
Dalmia with the Reason Foundation; and Dr. Thomas Kochan with
MIT.
We will also hear from Bruce Gump, the vice chairman of the
Delphi Salaried Retiree Association. Delphi is a parts
manufacturing company spun off from GM in 1999. By 2005, it had
filed for bankruptcy and in 2009 the PBGC took over the
company's pension plans. GM agreed to top up the pensions of
employees of Delphi main unions, meaning they will receive the
pensions they were promised, but such top-ups were not provided
to Delphi's salaried employees or certain other union
employees.
Given the statutory limits on the benefits that the PBGC
can pay, many Delphi--many of Delphi's salaried retirees are
receiving benefits that are far lower than promised by Delphi.
The consequences of these shortfalls to salaried retirees are
truly heartbreaking, particularly as these employees have lost
their health coverage. This matter is, however, the subject of
ongoing litigation that makes the PBGC as a defendant. It names
the PBGC as a defendant.
Mr. Bloom is also being sued, not just in his official
capacity, but as an individual citizen whose personal assets
are on the line. Obviously, this will prevent him from
answering questions on this matter, a situation I hope everyone
will respect.
Again, Mr. Chairman, I want to thank you for this hearing.
With that, I yield back.
Mr. Jordan. I thank the gentleman.
I ask unanimous consent that the gentleman from Ohio,
Congressman Bill Johnson, be allowed to participate in today's
hearing. Without objection, so ordered.
I now recognize the other gentleman from Ohio, Mr. Turner,
for an opening statement.
Mr. Turner. Thank you, Mr. Chairman, and I also want to
thank our ranking member, another fellow Ohioan, Mr. Kucinich,
for holding this hearing and for the importance, really, of the
issues that we are addressing today.
I was very disappointed to hear that the administration has
prohibited Mr. Bloom from speaking to us on the important
issues of Delphi's pensions. I was hoping top hear Mr. Bloom
explain the administration's plan for finally restoring the
hard-earned retirement benefits of Delphi salaried workers from
across the country.
Two weeks ago, the White House unveiled a report entitled,
``Resurgence of the American Automotive Industry,'' and
President Obama paid a visit to Toledo, Ohio. What neither
report noted, nor did the President mention, was the
administration's plan to restore benefits to the Delphi
retirees. I believe it's because there isn't one.
The administration picked winners and losers where the
pensions of many salaried Delphi workers were lost. This was
done without any explanation, without any justification or
without basis. And today it is still being done, without any
answers.
Now, I beg to differ, litigation does not prohibit Mr.
Bloom from answering. What prohibits Mr. Bloom from answering
is that perhaps the answers or the truth might be damaging in
litigation, and that being it would be damaging because these
Delphi retirees are entitled to these benefits. These benefits
were wrongly taken from them and they deserve an answer.
We live in a government where the government is responsive
to the people. Things can't happen in secret. The
administration picked winners and losers, and not only do the
taxpayers need to know, because taxpayers' money was involved,
but certainly these Delphi retirees deserve an answer. But more
importantly, they deserve the restoration of these benefits.
Almost 15,000 salaried retired workers, some of which were
denied up to 70 percent of their pensions, all of them 100
percent of their life insurance and 100 percent of their health
insurance, it is devastating to them. It's an action that was
done to them by this administration while they were picking
winners and losers, and it's one that needs to be addressed by
the administration, not only just in providing answers, which
is what we are seeking today, but also in solving. These
workers deserve to have their pensions restored.
Now, pursuant to this hearing we have the ability to, I
know, provide additional opportunities for Mr. Bloom and Mr.
Snowbarger to answer questions. I am going to present today
and, please, I have a staff member who is going to present to
Mr. Bloom and Mr. Snowbarger 25 questions for Mr. Bloom, 30
questions for Mr. Snowbarger. I would appreciate it if you
would respond to these questions, the types you are going to be
receiving today from Members, they go directly to this issue of
the Delphi retirees and salaried workers. And we would
appreciate your finally attending to give them the information
that they deserve.
With that, Mr. Chairman, thank you for having this hearing
and we look forward to getting some answers for these retirees.
Mr. Jordan. I thank the gentleman from Ohio for his
statement and for his being here today and his hard work on
this issue.
The other gentleman from Ohio, my good friend, Mr.
Kucinich, is now recognized.
Mr. Kucinich. Thank you, Mr. Chairman. I ask unanimous
consent to insert into the record a statement by our colleague,
Congressman Kildee.
Mr. Jordan. Without objection, so ordered.
[The prepared statement of Hon. Dale E. Kildee follows:]
[GRAPHIC] [TIFF OMITTED] T1295.001
Mr. Jordan. If I could just interrupt for 1 second while we
are doing that, I ask unanimous consent to submit a letter from
Senator Portman and Representative Camp and a study led by the
Competitive Enterprise Institute.
Without objection, so ordered.
[The information referred to follows:]
[GRAPHIC] [TIFF OMITTED] T1295.002
Mr. Kucinich. Thank you very much, Mr. Chairman. I want to
thank you for holding this hearing. It's a chance to conduct
oversight, but it's also a chance to take stock of a critical
and successful government intervention. The Federal Government
saved two companies, GM and Chrysler, and probably an entire
region of the country. I come from that region.
There's a GM factory located east of Cleveland called
Lordstown. In March 2009 the community of Lordstown, Ohio, was
profiled by CBS News in this way. They said, ``Holding on for
dear life, where 70 percent of the town's tax base came from
the GM plant,'' according to the mayor.
Just last month the CBS News story profiled this community
in a completely different light. It talked about it being
jolted back to life by 4,000 pounds of steel. The Lordstown GM
plant was essentially dead for a short period of time, without
a single car being manufactured. But it's now alive and
employing around 4,500 people. Those workers are using parts
made down the road in my district. Roughly 20 percent of the
parts from the GM Parma Metal Center in my district go to
Lordstown for the manufacturing of the Chevy Cruze.
The interconnectedness of the region doesn't stop there.
The Parma GM metal plant buys equipment from the Automatic Feed
Co. of Napoleon, OH to make auto parts, sustaining yet another
Ohio work force.
The web of connections goes on and on in communities
responsible for the parts, materials, equipment, goods and
services that the auto industry, the workers, and their
families depend upon.
Whether or not this web survived or was torn apart was at
stake in late 2008 and throughout 2009. Thankfully, the Bush
administration decided, rightly, to make the first loans, and
the current administration built on what the Bush
administration did, with more financial support for the
restructuring of the industry and its successful emergence from
bankruptcy.
The most important point that I hope we remember throughout
this hearing is the calamity which was averted for these
communities through our investment in the auto industry.
Without that investment, as many as 3.3 million U.S. jobs would
have been lost, amounting to between 0.5 percent and 3 percent
yearly reduction in gross domestic product from 2009 through
2011.
Second, I hope we remember it was absolutely necessary for
us to act expeditiously. If GM, for instance, were to have
languished in a prolonged bankruptcy, so too would Lordstown
and many others languish in ruin as the jobs revenue and tax
base for essential community services evaporate.
In light of the success achieved by our support for GM,
this hearing will also examine a difficult situation faced by
workers and retirees of GM parts supplier Delphi. Being mindful
of the ongoing litigation on this issue, in fairness to the
other witnesses testifying at the hearing, I welcome the
opportunity to hear testimony from Bruce Gump of the Delphi
Salaried Retiree Association on a truly difficult situation
that has been experienced by the individuals that organization
represents.
Mr. Chairman, on this point, before I yield, other
committees such as Education and Labor, as long ago as December
2009, have heard testimony on the fact that certain retirees of
Delphi, such as salaried retirees as well as retirees
represented by a number of unions, lost their benefits through
Delphi's bankruptcy because they had no agreements to have
their benefits topped up to the level they have worked for and
deserve. It's a very painful situation and I know it's an issue
that concerns you as well, Mr. Chairman.
And while I appreciate Mr. Gump coming here, I think what
we need to do is to determine a course of action that would
solve the problem. So I would ask you if we could work together
on legislation that would correct this situation and consider
whether or not that legislation would enable the topping up of
benefits of all the Delphi retirees and the union retirees who
saw their benefits disappear in Delphi's bankruptcy.
You know, we are going to need to have some kind of action.
And just in the time that I have remaining, I would ask the
gentleman if we could work together to do something here.
Mr. Jordan. I always look forward to working with the
gentleman from Cleveland, and working with you and other
members from the Ohio delegation and surrounding States and
Congress, on what is the best approach moving forward. So I
appreciate the gentleman's statement.
Mr. Kucinich. I would like to work with you and other
members of the committee on this. And as Ohioans I think we
have the chance to reaffirm our support not just for
automotive, but America's manufacturing base has been at risk.
And while I join with you in fighting the bailouts to Wall
Street, which just produces paper, we are talking about people
who produce cars, people who make steel, aerospace products,
shippers, manufacturing. American manufacturing is something we
ought to be investing in, and I want to thank the chair for
holding this hearing so we can get into these issues. Thank
you.
Mr. Jordan. I thank the gentleman for his statement.
I would just point out, before recognizing Mr. Kelly for an
opening statement, that highlighting the Lordstown facility--
which we are all genuinely, you know, glad that it is still
operating and jobs are there and it has helped that community--
underscores what took place here. There were winners and losers
selected. We have, just down the road in Mansfield, Ohio, a GM
facility that was closed.
And what we are trying to get at was were these decisions
made by General Motors or were they, in fact, made by the Auto
Task Force and people in the government not only picking
winners and losers and who they were going to provide money to,
but also getting into the day-to-day operations of the company
and deciding which facilities would stay open and which ones
would not. That's an important question and one that I think we
need answered as well.
Mr. Kucinich. Thank you, Mr. Chairman.
Mr. Jordan. I now yield to the gentleman from Pennsylvania,
Mr. Kelly.
Mr. Kelly. Thanks for having this hearing. As someone who
was very close to the situation, being a Chevrolet/Cadillac
dealer and going through that process, the thing that does
bother me is we will never know if General Motors could have
survived on its own. Because the General Motors that I know,
the General Motors that my dad started with as a parts picker
in the thirties, and went through a war, and he came back home
and was able to rise through the organization and buy his own
dealership--and I am talking about not a huge dealership, but a
one-car showroom in a little town called Verona--and build it
into something we were very proud of through hard work, through
hard work, not that somebody picked that he was going to be a
winner or said no, you don't have an opportunity. That never
happened to him, but it did happen to me.
It was after the government takeover of General Motors, in
a business that we worked very hard to build for 56 years. I
got a phone call; and in 5 minutes, 56 years of work and saving
and putting everything on the line was pretty much taken away.
I got a phone call, said, ``Listen, you know what, where
are you?'' And I said, ``I am sitting at my desk.'' And said,
``Well, I am in Detroit, I am with a lawyer and I am recording
this. And we need you to sign that document we sent you
yesterday.''
I said, ``Are you talking about the 39 pages?''
``Absolutely.'' I said, ``I am not signing it.'' They said,
``Why not?'' I said, ``because I refuse to give up my
franchise.''
They said, ``Well, that's really not up to you, we made a
decision.'' And I said ``Well, you know, I have to tell you, it
is up to me and it is up to the people, the 100-and-some people
that work with me every day.''
And to have somebody make a phone call and tell me that you
are no longer going to be a dealer because of a decision that
was made not by car people, but by government, not by people
who have any skin in the game, not by people who put their
whole life on the line, but by people who made a decision based
on some type of metric that I absolutely have no idea where it
came from.
And then when you say, ``Hey, I am going to fight you, I am
going to arbitration,'' for somebody to laugh at you and they
say, ``Are you kidding me? You, Mike Kelly, Butler,
Pennsylvania, with your limited resources and one lawyer
against the U.S. Government? You don't have a snowball's chance
in hell of making it.'' I said, ``You know what? I will take
those odds. I will take those odds.''
So we got through it, went to arbitration, got the
dealership back. By the way, my friends that didn't go to
arbitration are no longer in business, not because they
couldn't make it in the open market, because government decided
they would go out of business.
That is not America, and we will never know if General
Motors could have made it on its own. They followed a Judas
goat and said, Yes, come with us, we will lend you the money,
we will help you. And these gentlemen can fly into Washington
and are berated, because their plan doesn't make sense, by the
same people--they are $14.3 trillion in the red--telling these
guys they don't know how to run a business?
So my question is: Where does it lie? What really could
have happened? Because in my opinion the government is the one
that picked and chose who was going to win and who was going to
lose.
And so from my standpoint, Mr. Chairman, I do appreciate
the opportunity to be here today, from somebody who has been
able to get through some very difficult times. And we are now
in our 60th year, not because of things that we have done
separately, but things that we have done collectively as an
organization, and through the grace of God we have been able to
get through it.
But I do wonder the direction of the country. And when we
place our faith in our future in the hands of those who have
never done it, who have never walked in our shoes, who have
never done the things we have done, but who do have the ability
to open a laptop and tell you, ``You are no longer in
business,'' that's not the American way. I don't accept it. My
father certainly wouldn't have accepted it, and I think it's
time to shed some light on this.
So I thank you for what you are doing because we are here
truly to make sure that the job creators, the small business
people, have an opportunity to compete and that it is not taken
out of their hands by somebody who has never, ever, had any
skin in the game.
So I thank you, sir.
Mr. Jordan. I thank the gentleman for his opening
statement.
Well, now I think what we are going to have to do is swear
in our witnesses, and I apologize, guys, it's one of those
days. We will swear you in. It's the custom of the committee to
do that. And then we are going to have to take a brief recess,
hopefully brief, to go vote, and then we will be back for
questioning. And we will try to be as accommodating with your
time, we understand you're busy as well, but unfortunately we
do have three votes on the floor. So if you will just rise and
raise your right hands.
[Witnesses sworn.]
Mr. Jordan. Let the record show that the witnesses answered
in the affirmative.
We have with us today, first, Mr. Ron Bloom, former senior
adviser to the Secretary of the Treasury, U.S. Department of
Treasury, now working as a senior manufacturing adviser to the
President, I believe; and then also Mr. Vince Snowbarger as the
Deputy Director of the Pension Benefit Guaranty Corp. and a
former Member of Congress from New York State?
Mr. Snowbarger. Kansas.
Mr. Jordan. Kansas. Why did I have New York? I had it in my
mind it was New York. A long way from New York. Kansas, right,
still a great State. We appreciate you both being here.
We are going to stand in recess for probably 35, 40 minutes
and then we will be back.
[Recess.]
Mr. Jordan. The committee will be back. We are going to
start with Mr. Bloom. You know this routine, you have done it
before. You get 5 minutes, and then the light system there, you
know, it's pretty self-explanatory.
So if you can keep it around 5, that would be great. If you
want to go shorter that's fine too, but we will go to Mr. Bloom
and then Mr. Snowbarger.
Go ahead.
STATEMENTS OF RON BLOOM, FORMER SENIOR ADVISOR TO THE SECRETARY
OF THE TREASURY; AND VINCENT SNOWBARGER, DEPUTY DIRECTOR FOR
OPERATIONS, PENSION BENEFIT GUARANTY CORP
STATEMENT OF RON BLOOM
Mr. Bloom. Chairman Jordan, Ranking Member Kucinich, and
members of the subcommittee, thank you for the opportunity to
testify before you here today. I am here to report on the Obama
administration's investments in GM and Chrysler.
As you may know, since February 2011, I served on the
National Economic Council as Assistant to the President for
Manufacturing Policy. While I am here today in my capacity as a
former Treasury official, I no longer work at Treasury and,
therefore, no longer participate in the oversight of Treasury's
automotive investments.
Thus, I am not in a position to discuss events since
February 2011, or anything concerning possible future actions.
Further, I understand that the committee has taken an interest
in issues regarding the pensions of certain former employees of
the Delphi corporation.
As has been communicated to your staff over the last few
days and as I communicated in a letter to the chairman
yesterday, I am a party to a lawsuit that is currently pending
in Federal court in Michigan. I have been named as a defendant
in that matter in both my official capacity as a former
Treasury employee, as well as in my individual capacity. I am,
therefore, not in a position to speak to the Delphi pension
issue in any way.
When President Obama took office, the American automobile
industry was on the brink of collapse. In the year before
President Obama took office, the industry shed 400,000 jobs. As
2008 came to a close, both GM and Chrysler were running out of
cash and faced the prospect of uncontrolled liquidations.
Therefore, the previous administration provided $24.8 billion
of support to the auto industry.
When President Obama took office, we faced a full-fledged
recession, our financial system was still exceedingly fragile,
and GM and Chrysler were requesting additional assistance.
After studying the restructuring plan submitted by the
companies, President Obama decided that he would not commit
additional taxpayer resources to these companies without
fundamental change in accountability. He rejected their initial
plans and demanded that they develop more ambitious strategies
to reduce costs and increase sufficiency to become sustainable.
However, President Obama also recognized that failing to
stand behind these companies would have consequences that
extend far beyond their factories and workers. GM and Chrysler
were supported by a vast network of auto suppliers. Because
Ford and other auto companies depended on those same suppliers,
the failure of the suppliers could have caused those auto
companies to fail as well. Also at risk were the thousands of
auto dealers across the country as well as countless small
businesses and communities with concentrations of auto workers.
It was the interdependence among the automakers, suppliers,
dealers, and communities that led some experts at the time to
estimate that at least a million jobs could have been lost if
GM and Chrysler went under. To avoid this outcome, the
President decided to give GM and Chrysler a chance to show that
they could take tough and painful steps to become viable,
profitable companies and to stand behind them if they could.
Working with their stakeholders and the President's Auto
Task Force, both GM and Chrysler underwent fair and open
bankruptcies that resulted in stronger companies. This process
required deep and painful sacrifices from all stakeholders.
However, the steps that the President took not only avoided a
catastrophic collapse and brought needed stability to the
entire auto industry, they also kept hundreds of thousands of
Americans working and gave GM and Chrysler a chance to once
again become viable, competitive businesses.
Today the American auto industry is mounting a comeback. In
2010, for the first time since 1995, GM, Chrysler and Ford
increased their collective market share. Since June 2009, the
auto industry has added 113,000 jobs, the fastest pace of job
growth in the industry since 1998.
The U.S. Government provided a total of $80 billion to
stabilize the U.S. automotive industry. As of today, $40
billion has been returned to taxpayers.
While the government does not anticipate recovering all of
the funds that it invests in the industry, loss estimates from
Treasury and the CBO have consistently improved. Independent
analysts estimate that the administration's intervention saved
the Federal Government tens of billions of dollars in direct
and indirect costs.
In a better world, the choice to intervene in GM and
Chrysler would not have had to been made. But amidst the worst
economic crisis in a generation, the administration's decisions
avoided devastating liquidations and provided the American auto
industry a new lease on life and a real chance to succeed.
Thank you again for the opportunity to testify. I look
forward to your questions.
Mr. Jordan. Thank you, Mr. Bloom.
[The prepared statement of Mr. Bloom follows:]
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Mr. Jordan. Mr. Snowbarger, you are now recognized.
STATEMENT OF VINCENT SNOWBARGER
Mr. Snowbarger. Good afternoon, Chairman Jordan and other
subcommittee members. I am Vince Snowbarger, and I am Deputy
Director for Operations at the Pension Benefit Guaranty Corp. I
should also point out that from January 2009 until July 2010, I
was also the acting director for the PBGC.
I will testify today about the pension plans of the Delphi
Corp., the Nation's largest producer of auto parts. As you
know, in July 2009, PBGC stepped in to protect the pensions of
Delphi's 70,000 workers and retirees. PBGC will cover about $6
billion of the plan's shortfall. About 1.2 billion of the
benefits is not guaranteed by the insurance program.
PBGC's interest in Delphi and its pension plans spans the
past decade. PBGC began actively monitoring Delphi after the
spinoff from GM in 1999. In early 2005, Delphi's credit ratings
were downgraded from investment grade to speculative grade.
After Delphi entered bankruptcy in October 2005, PBGC
worked intensely with Delphi, GM, and other stakeholders to
keep the pension plans ongoing. Delphi consistently told its
employees and PBGC that it intended to reorganize with the
pension plans ongoing. However, when Delphi failed to make
required minimum funding contributions to the plans, liens were
triggered against Delphi's nonbankrupt foreign subsidiaries.
Beginning in March 2006, PBGC perfected those liens so that the
plans had a secured interest against foreign Delphi entities.
In September 2007, Delphi filed a reorganization plan with
the Delphi bankruptcy court. As a part that reorganization, GM
and Delphi agreed to transfer part of Delphi's hourly plan to
GM's hourly plan, and Delphi was to retain all other pension
plans, including the salaried plan.
In April 2008, the reorganization deal fell through.
However, in the latter half of 2008, Delphi still anticipated
that it could reorganize, maintain its salaried plan, and merge
the hourly plan into the GM hourly plan.
In September 2008, Delphi and GM, with the approval of the
Delphi bankruptcy court, planned to transfer up to $3.4 billion
of net liabilities from Delphi's hourly plan to GM's hourly
plan in two phases.
The first $2.1 billion was transferred that same month.
That's September 2008. This transfer eliminated PBGC's lien on
behalf of the hourly plan. The subsequent downturn in the auto
markets left Delphi unable to pay GM the promised consideration
for taking the remaining portion of the hourly plan, so the
second transfer never occurred.
In late July 2009, the Delphi bankruptcy court approved
Delphi's modified plan of reorganization calling for the
liquidation of the company, termination of its pension plans,
and settlement of PBGC's claims. The settlement provided PBGC a
$3 billion general unsecured claim against Delphi's bankruptcy
estate.
The investors in new Delphi required PBGC to release its
liens on Delphi's foreign assets before its purchase could
proceed. At the time of that settlement, PBGC had a $196
million lien on behalf of the salaried plan. In exchange for
releasing the liens, PBGC reached an agreement with the buyers
to give PBGC $70 million in cash and a membership interest in
the new company. The cash payment and membership interest
effectively paid PBGC's salaried plan lien and gave PBGC a
reasonable recovery on its other claims in the Delphi
bankruptcy.
In March 2011, new Delphi redeemed PBGC's stake in the
company for $594 million. I would point out that's less than 10
percent of the total underfunding in the plans. However, under
statutory rules, the Delphi recoveries may allow PBGC to pay
small amounts of additional benefits to older Delphi workers
who retired or could have retired by July 31, 2006, 3 years
before the Delphi plans terminated.
Companies that sponsor pension plans have a responsibility
to live up to the promises they made to their workers and
retirees. Plans come to the PBGC because their sponsors have
failed to properly fund them. In the unfortunate case like
Delphi where the sponsors fail and liquidate, PBGC is forced to
and will step in to protect workers and retirees.
I would be happy to answer any questions.
[The prepared statement of Mr. Snowbarger follows:]
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Mr. Jordan. Let me thank both witnesses for their
testimony. We are going to start with Mr. Turner. The gentleman
from Ohio is recognized for 5 minutes.
Mr. Turner. Thank you, Mr. Chairman, and I want to thank
you again for holding this important hearing. This is an issue
that is certainly important in my district, but I think it is
important to people throughout the country when they look at an
administration stepping into a bankruptcy and there are
pensions and retirees, and people are picked as winners and
losers, they are not treated the same, this inequality.
I think all of Americans should be very concerned about the
process that this went through. What is the policy? What does
it say about the security that people have in their pensions?
And what does it say about the administration's commitment to
ensure that people have access to their promised health
benefits and to their salaries?
Gentlemen, I presented both of you with lists of questions.
Mr. Bloom, you received 25; Mr. Snowbarger, you received 30.
I am going to ask for your commitment that you review those
questions and that you, to the best of your ability, provide me
with answers. Do I have that commitment?
Mr. Snowbarger. I will.
Mr. Bloom. Absolutely.
Mr. Turner. Thank you. The questions involve many of the
issues that I think the taxpayers deserve answers to. How did
this process go through? How is it that there were winners and
losers that were picked? And how can it be resolved, more
importantly? Because the issue is, I think, this Congress, I
know that this chairman doesn't want us to just discover what
happened; we also want to find out what the solution is.
Mr. Bloom, you and I had a conversation just before this
hearing reconvened, and I want to, for the record, to restate
it. You know, I was telling you that I think that everyone
knows that when people aren't treated equally, that there's an
injustice or inequality, and that I would like, since you have
such a great knowledge and understanding of this issue, your
expertise and commitment as to how these salary retirees from
Delphi can be made whole.
You said you would be very willing to work with me on that.
It goes to my question of: Are you working on that? Is that on
your to-do list? Because I would really want to know that the
administration has it on its to-do list that this issue not
be--that the status quo--that we do look at ways that these
salaried retirees can have their pensions restored. Mr. Bloom.
Mr. Bloom. Thank you, Congressman. And as I did say to you
at the break, I am certainly happy to sit and talk with you or
anyone else who has ideas about how this matter should be dealt
with.
Look, there is a core unfortunate reality that we face in
this entire circumstance. These two companies came to the
government, first the Bush administration and then to the Obama
administration, in a state of insolvency. And unfortunately,
what that means is, as my colleague has made reference to in
another context, is that they simply had made promises to
people that were larger than they were able to make--than they
were able to honor. And that does not only go to the Delphi
salaried retirees, it goes, unfortunately, to thousands of
different----
Mr. Turner. But, Mr. Bloom, just a second. Some of those
promises were kept. And at the direction of the administration,
they were kept. I mean, the retirees from Delphi were not
treated similarly at the direction of the administration. So
this is not just promises that they couldn't keep. Selectively,
some people's promises were not upheld and others were.
Mr. Bloom. Let me try and address that. First thing, as I
said, because I am a defendant in a lawsuit, I am not in a
position to comment specifically about Delphi.
But I can say this. The company came to the administration
with restructuring plans, and we reviewed those overall plans
but we did not make determinations of particular treatment for
particular groups. The company came to us with an overall plan,
as was referenced by the chairman in his opening remarks.
Mr. Jordan. Would the gentleman yield for 1 second? Would
the gentleman yield for 1 second? I just want to ask one
clarification on that.
The company came to you with the restructuring plan, but
isn't it true the Auto Task Force turned down the first plan?
Mr. Bloom. Yes, it is absolutely true. So the reason--and
the reason we did, sir, is we concluded that those plans did
not create viable enterprises. And so we----
Mr. Jordan. But the selectivity that the gentleman is
getting to certainly took place with the whole restructuring
plan, because he turned down the very first plan.
Mr. Bloom. It was not selective. We concluded that the
overall plan was not viable. We concluded that the company had
not made, unfortunately, difficult enough decisions to turn
them viable. So that if the President was going to commit
additional taxpayer resources, we would have a reasonable
chance of having viable companies on the back end.
Mr. Turner. Mr. Bloom, my time is expiring. Mr. Chairman,
with your consent, if I could have just 1 more minute to do a
summation here.
Mr. Jordan. Without objection.
Mr. Turner. Thank you.
Mr. Bloom, it was the administration picking winners and
losers. And that really is the crux of everything that the
taxpayers deserve to discover. I mean, that's what this whole
hearing process is about. And I want to encourage the chairman
to have additional hearings. I believe that there ought to be
subpoenas to the administration. I believe that there ought to
be depositions. Because this is not something that you just did
in a vacuum, you did this with taxpayer dollars, and the
taxpayers will not be made whole, nor will the pensioners who
are retirees, salaried retirees from Delphi, but others will.
Absolutely, somewhere in a room at the White House, people were
picked as winners and losers.
There was inequality and injustice that was done. And we
deserve, and we will ultimately get to the bottom of how that
was done and what basis that it was done.
I want to have one more comment, Mr. Chairman, and then I
will yield.
The issue of the litigation is not one of requiring you to
be silent. It is absolutely for your sole convenience that you
stand in front of us and not answer questions based on pending
litigation. Because if you made statements to us that were
truthful, they wouldn't change the outcome of the litigation,
right? Because the statements themselves--it's the actions from
which liability arises, not from your statement. So by you not
speaking on it today, you are protected, inconvenienced, not as
a requirement.
True, if you made statements in front of us that were
inconsistent, it would go to your issue of veracity in
litigation. If you revealed something that perhaps we all
didn't know, it might expedite the process of litigation.
But speaking in front of a congressional hearing and
telling the American public truthfully what happened with their
tax dollars and the administration's decisionmaking, does not
affect the outcome of litigation. It is only for your
convenience.
Mr. Chairman, I encourage you to continue investigating
this matter and bringing to light what occurred here. Thank
you.
Mr. Jordan. I thank the gentleman.
We go next to the ranking member of the full committee, the
gentleman from Maryland.
Mr. Cummings. Yes. Just in the last set of questions, it is
not, I would say to the gentleman, it's not that simple. Having
been a trial lawyer for 20, for almost 30 years, it's not that
simple. I am not trying to defend Mr. Bloom. When you are in
litigation, it's just not that simple.
But let me go to you, Mr. Bloom. President George Bush
extended the first Federal aid to GM, totaling $9.4 billion.
What did the President require as a condition of that initial
aid; do you know?
Mr. Bloom. I believe, Congressman--thank you for that
question. I believe, actually, the total assistance provided by
the Bush administration to General Motors was actually $13.4
billion. The only requirement of that was that the companies
come forward with restructuring plans and those plans were to
be--come forward by, first, the 17th of February, and then
judged on by the 31st of March. So that was the only condition
of those loans. There was no condition that the company in any
way restructure, actually restructure or address its long-
seated--deep-seated problems.
Mr. Cummings. So when President Obama came into office, he
required both GM and Chrysler to develop plans to restructure
their businesses so they could be competitive. And GM's initial
plan was reviewed, I take it, by the Auto Task Force which you
advised, and that plan was rejected.
And so can you--you said that the first plan was not, was
it--did you say viable? And what did you--I am not trying to
put words in your mouth, but you all made--that's basically a
judgment call?
Mr. Bloom. Yes, Congressman. I mean, look, the President
very much wanted to find a way to stand behind General Motors
and Chrysler if he could, but he also recognized that these
companies had made a lot of mistakes over prior years and had
gotten themselves insolvent. And, as I said earlier, we are not
in a position to honor the promises they had made. That is a
tragic situation that faced all the stakeholders of the
company, but that is the situation that we were handed.
And so what he insisted is that they make the difficult
decisions that included, tragically, having to close factories
and put blue collar workers out of work. That's a terrible
thing to have to do. But the alternative was either, A, do
nothing and have the companies liquidate in their entirety, in
which case every single stakeholder would have done worse than
they did, or just simply hand them a blank check and say--
because many of these stories are heart-rending--we are going
to give you all the money that you asked to meet all those
promises. Tragically, that would have been a multiple of the
money that the President, in fact, extended.
So in that light. We chose the middle path. We forced the
companies to come up with very tough-minded restructurings as a
condition of further assistance.
Mr. Cummings. So you all gave GM 60 days to resubmit--is
that right--a plan?
Mr. Bloom. Approximately 30--60 days after the 31st of
March.
Mr. Cummings. And was that plan accepted, the next plan?
Mr. Bloom. The subsequent plan, yes. The subsequent plan,
we did choose to back the company and its management who had
put forward that plan. We did choose to back that plan and to
help them get through bankruptcy in order to effectuate that
plan. That's correct.
Mr. Cummings. So what sort of support did the government
give GM during the current administration?
Mr. Bloom. The total funds extended by this President to
General Motors are approximately $36.1 billion, Congressman.
Mr. Cummings. Okay. The U.S. Government became the dominant
shareholder of GM, owning more than 60 percent of the company
at one time. Was the United States an active or a passive
shareholder?
Mr. Bloom. That's a very good question, Congressman. We
made a very conscious decision that while we did have to do
this intervention because we are in an extraordinary moment in
our Nation's history, the greatest recession since the Great
Depression, etc., that we wanted to minimally involve ourselves
in the operations of the company.
And so after the bankruptcy, we were involved in choosing
an exemplary group of men and women to be on the board of
directors, but we did not involve ourselves in any way in the
day-to-day management of the company.
Mr. Cummings. And so the operational decisions of GM, you
basically weren't involved in that; is that right?
Mr. Bloom. We very consciously chose not to be involved in
those. We left that to the board of directors, who directs the
management who carries out their will.
Mr. Cummings. I don't know if you can answer this question
or not, but you have been accused of, in this hearing I think,
of picking winners and losers. Can you comment on that? When I
say picking winners or losers, I mean was there some political
considerations involved, to your knowledge?
Mr. Bloom. Congressman, there were no political
considerations. The admonition of the President was to be
commercial, to be tough-minded and to be fair. And that is
the--and that is the direction that the staff the Auto Task
Force, of which of I was a part, carried out.
Mr. Cummings. Mr. Bloom, the title of today's hearing is
``Lasting Implications of the General Motors Bailout.''
Wouldn't you say that the most significant lasting implication
is we were able to avoid a massive disruption in the U.S.
economy that would have been caused by the liquidation of GM?
Is that a fair statement?
Mr. Bloom. I think that's a very fair statement.
Mr. Cummings. All right. I see that I have run out of time.
Mr. Jordan. The chair now recognizes the gentleman from
Florida, Mr. Mack.
Mr. Mack. Thank you, Mr. Chairman. I too want to thank you
for this hearing. I believe that everyone back home certainly
has a big interest in this hearing.
You know, it strikes me as kind of interesting that there's
so much talk about winners and losers. How about, how about the
people in southwest Florida, where there isn't an automobile
manufacturer, who feel like the car industry was chosen over
maybe some of the businesses that they were in? So it's an
interesting conversation.
But my questions are going to go to you, Mr. Bloom, just so
I have perspective in this, because I am kind of new to some of
this. Is it true that you spent the vast majority of your
professional life prior to coming to the administration working
for or on behalf of unions?
Mr. Bloom. A good portion of it, yes.
Mr. Mack. And then let me ask you another question. Do you
believe that the free market is nonsense?
Mr. Bloom. No, I don't.
Mr. Mack. All right. Well, let me, if I could, ask for the
first clip to be played.
[Video shown.]
Mr. Mack. That is you, isn't it, Mr. Bloom?
Mr. Bloom. Yes, it is. Okay.
Mr. Mack. So do you believe that it is appropriate for
someone who has been a union leader and someone who doesn't
believe in the free market to then be picked by the President
and placed in charge of restructuring a private company and our
American free market?
Mr. Bloom. Well, first thing, I think a comment I made in
jest at a speech does not represent my view on this matter,
first thing.
Second thing, I would leave to others whether or not the
choice of my work--the choice for me to work on this is
appropriate or not. And I was part of a large team. There were
about a dozen people, staff, in the Treasury Department.
Mr. Mack. All right. Well, let me just get back to this.
But that was you making that comment, and you spent most of
your adult working life either working for unions or on behalf
of the unions. And I believe that you gave a speech in 2006 in
front of the International Association of Restructuring,
Insolvency, and Bankruptcy Professionals in Arizona, in which
you described a bargaining technique, the ``dentist chair''
bargaining technique.
Can you describe to us what the dentist chair bargaining
technique is?
Mr. Bloom. Yes. Again, in a light-hearted speech, I
indicated I thought it was important that all parties for the
bargain have skin in the game in order to produce the best
result.
Mr. Mack. What is the dentist chair technique?
Mr. Bloom. It's a reference to how a person might go into a
dentist's office and make sure that the dentist doesn't hurt
them.
Mr. Mack. And how would they do that?
Mr. Bloom. They would do that by making clear that they
also had a leverage on the dentist.
Mr. Mack. And how did they have leverage on the dentist?
Mr. Bloom. By grabbing him where it might hurt.
Mr. Mack. So you think the free market is nonsense?
Mr. Bloom. I didn't say that, Congressman. I explained that
comment.
Mr. Mack. Well, okay. People can see it for themselves.
Mr. Bloom. Right.
Mr. Mack. You worked as--either for or on behalf of unions.
You believe that there's a bargaining, a way to bargain by
making sure that the dentist feels the pain.
Do you think that--let me say this. There are some people
who might disagree with your approach. Would you agree with
that?
Mr. Bloom. There were a wide variety of views on the task
force about how to best carry this out. There were people on
the task force who had had experience on nothing but the
business side of the house. There were those of us who had had
some more experience on the union side of the house. We all
worked together and came to a consensus of the best way to do
this. We took it forward to our principals.
Mr. Mack. If we could we're going to play another clip here
for you and tell me what you think of this.
[Video shown.]
Mr. Mack. Did you really just talk about Mao now and that
somehow--well, let me ask you this, is that representative of
the culture in the unions, the leadership in unions?
Mr. Bloom. I think it is representative of trying to make a
point through exaggeration.
Mr. Mack. Well, you know--through exaggeration?
Mr. Bloom. Correct.
Mr. Mack. Excuse me, I don't think that Americans think
that exaggerating at a time when our economy is hurting so much
is the right way to go. Now you might have made these
statements earlier, but you did say that you think free market
is nonsense. You described a tactic of bargaining that is not
professional. You also talk about Mao and how political getting
things done is at the end of a barrel.
Do you think that maybe it was a mistake that you were put
in a position in the first place to be part of any kind of
restructuring of anything in the American free market?
Mr. Bloom. That would be for others to judge.
Mr. Mack. Who--how did you get into that position?
Mr. Bloom. I was asked to serve by people at the Treasury
Department.
Mr. Mack. Did President Obama pick to you serve?
Mr. Bloom. I do not know what the President's role was in
the choice.
Mr. Mack. Thank you, Mr. Chairman.
Mr. Jordan. I thank the gentleman. Before we turn to Mr.
Johnson, just let me ask this question. What is the status of
the Auto Task Force today? Is there still such an entity,
because I know your title has changed, but is there still--
obviously the taxpayers still have an interest, so what is the
status of the Auto Task Force?
Mr. Bloom. As I said in my opening remarks, Mr. Chairman, I
am not at the Treasury Department anymore. But my understanding
is there is--the Auto Task Force itself was actually a group of
members of the Cabinet who convened to provide oversight to the
overall effort. There was then is staff group set up at the
Treasury Department to do the day-to-day work. My understanding
is the Treasury Department still does have a staff group that
is providing oversight for our investments in those companies.
I am not a part of it.
Mr. Jordan. The individuals who were selected that we knew
publicly as part of the task force, you were on that, Mr.
Rattner first chaired it, others' names escape me right now
were part of it. That group of people is no longer meeting on a
regular basis having input and oversight of the auto industry
or are they?
Mr. Bloom. If you are referring to individuals like myself
and Mr. Rattner, on an individual basis we are not obviously,
but yes, there is a group at Treasury. I am not familiar with
who they are because I am not at the Treasury. But I know there
are a group of individuals at Treasury whose job it is to
look--to provide oversight to our remaining investments in the
automobile industry, yes.
Mr. Jordan. Okay. I thank the gentleman. I now recognize
the gentleman from Ohio, Mr. Johnson.
Mr. Johnson. Well, thank you, Mr. Chairman, and to the rest
of the subcommittee members, for allowing me to attend and
participate in today's oversight hearing.
As some of you may know, I represent Ohio's Sixth
Congressional District and a large number of a Delphi retirees,
both salaried and unsalaried, live in my district.
I think we have heard and will continue to hear about the
unintended consequences that occur when the Federal Government
bails out private industries and picks winners and losers.
Clearly the Obama administration picked winners and losers in
the bailout process. And I am especially thankful, Mr.
Chairman, that you are holding this hearing. Hopefully we will
get the administration to answer some of these questions,
although now I am seriously doubting that that will come.
I am kind of appalled by what I have heard. I have a list
of questions here, but I have to ask this first one. Did I
understand you, Mr. Bloom, that you said that those comments
that you made on that clip were in jest?
Mr. Bloom. I said some of them were in jest and some of
them were exaggerations to make a point.
Mr. Johnson. At what point did you start laughing to make
the joke? When did you deliver the punchline? Because I didn't
see any laughing in that video. I didn't see a punchline in
that video. I deliver speeches virtually every day. That looked
like a pretty serious speech to me.
Mr. Bloom. I thought my demeanor was quite lighthearted,
but I guess that would be for others to judge.
Mr. Johnson. I am passing judgment then, I don't understand
that.
Mr. Bloom, did you not say at the following at a
congressional hearing about 2 years ago from the beginning of
this process the President gave the Auto Task Force two clear
directions regarding its approach to the auto restructurings.
The first was to behave in a commercial manner by ensuring that
all stakeholders are treated fairly and receive neither more
nor less than they would have simply because the government was
involved. The second was to refrain from intervening in the
day-to-day management of these companies.
Did you say that?
Mr. Bloom. Yes, Congressman.
Mr. Johnson. Do you think that the Auto Task Force
accomplished the President's first direction, specifically that
all were treated fairly and received neither more nor less than
they would have simply because the government was involved?
Mr. Bloom. Yes, I think--feel very strongly that our
treatment, as I said in response to a prior question, that
our--our objective, our directive and I think the result was
that people were treated commercially and fairly.
Mr. Johnson. Mr. Bloom, I find it hard to believe that you
or anyone else could believe that everyone was treated fairly
considering that the Delphi retirees lost 30 to 70 percent of
their pensions, all of their health care benefits, all of their
life insurance, while hourly retirees retained their full
pension and health benefits. Frankly, that is almost as funny
as your comment during the video clip. But they must be
exaggerations, because how do you consider that fair?
Mr. Bloom. Congressman, I didn't see they were treated
equally, I said they were treated fairly.
Mr. Johnson. Define fair.
Mr. Bloom. I am going to try to.
Mr. Johnson. Define fair.
Mr. Bloom. I am going to try to, sir.
What the companies did is came forward with business plans
that in their commercial judgment provided the treatment that
was required in order to successfully effectuate the
bankruptcy. We looked at those plans and, as the earlier
question indicated, we rejected the first version and then
approved a second version. Those plans were then brought
forward to bankruptcy courts. And in both cases, General Motors
and Chrysler, bankruptcy judges reviewing that, with nothing
other than the question of legal, of accordance with the law in
mind, judged that both that both those plans were reasonable
and both those plans were in full concert with bankruptcy law.
Mr. Johnson. In full concert maybe with bankruptcy law, but
where does the word ``fair'' come into play? How can you
consider that taking away pensions, life insurance and benefits
from one group and not having that same treatment to another
group be considered fair?
Mr. Bloom. Because the different situation that the groups
found themselves in provided the opportunity for different
treatment which the companies believed was fair. For instance,
the suppliers.
Mr. Johnson. But it wasn't the company, it wasn't the
company. Did you not say just a few minutes ago that the
administration through the Auto Task Force approved and
disapproved of these plans?
Mr. Bloom. I said the companies tabled the plans and the
auto and the administration approved the plans.
Mr. Johnson. But basically where does the buck stop, Mr.
Bloom? The administration, right?
Mr. Bloom. Clearly we approved the plans and the plans had,
for instance, that the people who supplied parts to the
companies received almost in many cases 100 cents on the
dollar. We did that because the companies believed and
persuaded us that to provide that level of treatment to their
suppliers was critical to successfully reorganize. Likewise,
the claimants for warranties who received a complete 100 cents
on the dollars. We were also persuaded that while that was more
than other unsecured creditors got, it was necessary and fair
to effectuate the restructuring.
Mr. Johnson. Mr. Bloom, my time is up, I hate to cut you
off. I wish we could continue this all day because I have a lot
more questions. I would like to answer the question that my
colleague--that you would not answer, as to whether or not you
were the right person for the job. I am going to tell you, I
don't think so, because of what has happened to the people that
live in my district. Your idea of what is fair and what is not
fair defies my understanding of the word.
We teach our children that if you tell the truth, you have
done nothing wrong, everything will be okay. And yet you don't
want to talk about the Delphi situation here because of
litigation, which certainly leads me to have some big
questions. I am going to assert to you that I am going to
continue digging, I hope our chairman will continue digging.
One way or another we are going to get these answers. If it
were up to me, those who refused to answer would be found in
contempt of Congress. And if I have anything to say about it,
that is exactly what is going to happen.
Mr. Chairman, I yield back.
Mr. Jordan. I thank the gentleman. I now recognize the
gentleman from Pennsylvania, Mr. Kelly.
Mr. Kelly. Thank you, Mr. Chairman. Mr. Bloom, thanks for
being here today. I would like to play a clip for you because
in April 2010 General Motors began a national media campaign
claiming that it had repaid the government loan in full, 5
years ahead of schedule. And here is a look at the clip and I
just want to get your opinion on this, whether it is
disingenuous or not.
[Video shown.]
Mr. Kelly. I think you have seen that before.
Mr. Bloom. I have.
Mr. Kelly. Okay. Your opinion, disingenuous?
Mr. Bloom. It might not have been the way I would have
worded it, but we made a decision.
Mr. Kelly. So you would agree that it is disingenuous then?
Mr. Bloom. No----
Mr. Kelly. No, no. Seriously, being an automobile dealer
all my life, you know, and I served on several national
committees for the automobile manufacturers, you know one of
the things we come out with media campaigns and marketing
campaigns, you know the critical part of those campaigns?
Making sure that everything we say is in fact true and factual.
And that is put through scrutiny, great scrutiny. So I would
suggest if we are going to use taxpayer funds to run a
marketing campaign that we should spend it actually on product
and not in propaganda.
Now, at this time this advertisement ran Secretary Geithner
said, we are encouraged that General Motors has repaid its debt
well ahead of schedule and confident that this company is on a
strong path of viability. You were quoted as saying that the
Treasury Department has tried to be as straight as humanly
possible, and we watch this clip and the question is, was the
Treasury Department being as straight as humanly possible?
Mr. Bloom. The Treasury Department didn't make that ad,
sir. The Treasury Department made a decision on behalf of the
administration to not intervene in the day-to-day operations of
the company, including providing oversight----
Mr. Kelly. I would disagree, I have a lot of friends who
are no longer in business because of decisions that were made.
I know you weren't responsible for it directly, but you did
steer the whole program.
Now in an article, and this is from a very conservative
paper called the New York Times, Repaying Taxpayers With Their
Own Cash. New York Times wrote that what neither General Motors
nor the Treasury Department disclosed was that the company
simply used other funds held by the Treasury to pay off its
original loan. Furthermore, the Special Inspector--Inspector
General for TARP wrote in its quarterly report to Congress in
April 2010 that the source of funds for these quarterly
payments were the other TARP funds currently held in escrow
account.
Now my question, do you think that General Motors ad
campaign and the statements made by the Treasury Department
told the complete truth about these loan repayments?
Mr. Bloom. Congressman, I am happy to answer questions
about what the Treasury Department said. I indicated to you
that we didn't make the General Motors ad and whether we would
have made it that way is something I can't comment on. I will
tell you what the Treasury Department----
Mr. Kelly. Just as an average guy who watches a lot of TV--
no, no, no, this is easy.
Mr. Bloom. I don't watch a lot of TV.
Mr. Kelly. You don't?
Mr. Bloom. No.
Mr. Kelly. Okay. Well, I don't watch as much as I used to.
Mr. Bloom. Nor I.
Mr. Kelly. But I have to tell you, when I see this type of
thing going on and we told the public, geez, General Motors is
working so hard and they are paying back all the money. What we
didn't tell them was they were using taxpayer money to
disingenuously make a statement they were actually paying off
their loan. They in fact did not.
Mr. Bloom. Congressman----
Mr. Kelly. I have to tell you, I lived that, I walked that
walk, and I understand the difference between taxpayer funded
loan repayments and private individuals paying back the loans
that they took out and they are responsible for.
I will tell you this was not a good program. It did in fact
pick winners and losers. It did in fact use taxpayer money.
Every penny of this money came out of taxpayers' pockets and we
have huge loans. I like what you said earlier about part of the
problem with these companies were they made promises they
couldn't keep, and I have to tell you, I hope we use that same
type of philosophy when I read about how the President made his
decision, they weren't going to allow these companies to
continue to operate the way they operated knowing it was
leading to a path of destruction. They weren't going to lend
the money to do that. I hope we use that same philosophy when
we talk about raising the debt ceiling on a business that
really General Motors pales in comparison to the way this
business is being run and it is all being done the same way
with taxpayer dollars.
Mr. Chairman, I am going to yield back my time. But I have
to say this is one of the most disappointing examples of how
the government gets involved and in over its head and putting
people in a position that they absolutely did pick winners and
losers. The biggest losers in this whole thing, the American
taxpayer.
Mr. Jordan. I thank the gentleman. I now recognize the
ranking member, Mr. Kucinich.
Mr. Kucinich. I want to say to my friend Mr. Kelly some of
the questions that he raises, someone who has been involved
with auto dealers, are questions that I raised with Mr.
LaTourette in the last Congress and those are legitimate
questions.
Now I have a slightly different take on this, and Mr. Bloom
rather than an outright bailout wasn't in support of GM and the
auto industry, truly an investment, not only in auto companies
themselves but in communities in the country. And America's
overall skill set to continue with manufacturing sectors, that
could have been lost actually if the Big Three had gone down.
Mr. Bloom. I think a number of independent observers,
Congressman, have indicated that if General Motors and Chrysler
had failed the auto supply base would have likely quickly
failed with it. Ford could have very well gone down after that.
The CEO of Ford supported the auto restructuring for that very
reason. I think the entire ability of the United States to make
cars was at risk at that time.
Mr. Kucinich. Well, my colleague is right about the role of
the taxpayers, but the taxpayers put in value. Did the
taxpayers receive value back?
Mr. Bloom. I think what the taxpayers got back is hopefully
they have an automobile industry, they have all those people
working, they have all those communities with that support, all
those dealers who--and some dealers unfortunately were not able
to keep their dealerships, but the overwhelming majority were
and if General Motors could----
Mr. Kucinich. That was a private decision, was it not?
Mr. Kelly. That was a decision by General Motors.
Mr. Kucinich. And I wasn't happy with many of those
decisions. We had some good people in the greater Cleveland
area who lost their dealership.
Mr. Bloom. No one could be happy with those decisions, but
it was worth noting that if General Motors had failed every
single dealer would have lost their dealership.
Mr. Kucinich. Mr. Speaker--speaker already. Mr. Chairman, I
ask unanimous consent for a November 2010 report published by
the Economic Policy Institute to be put in the record.
Mr. Jordan. Without objection so ordered. And while we are
here, again our colleague Mr. Kildee has a letter that he would
like to submit for the record, too.
[The information referred to follows:]
[GRAPHIC] [TIFF OMITTED] T1295.013
[GRAPHIC] [TIFF OMITTED] T1295.014
[GRAPHIC] [TIFF OMITTED] T1295.015
[GRAPHIC] [TIFF OMITTED] T1295.016
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Mr. Kucinich. Thank you.
I just want to quote from that report which I have asked to
be submitted in the record. It said, ``The return on investment
for the public from the restructuring of the domestic auto
industry was extraordinary. Federal, State and local government
stayed between $10 and $78 for every dollar invested in the
auto industry restructuring plan. Federal taxpayers are likely
to recoup most of all their investment in GM and will enjoy a
net gain of at least $61 billion on their 5 billion to 7
billion investment in the auto industry recovery plan.''
Now, back to Mr. Bloom, would you agree that the actual
return on Treasury's investment of the domestic auto industry
in terms of actual return, plus amount saved, would be greater
than the amount of financial taxpayer assistance extended to
companies?
Mr. Bloom. I think a number of independent studies have
indicated that, Congressman.
Mr. Kucinich. And you say a number of independent studies,
can you present the committee with any independent studies that
indicate that?
Mr. Bloom. We would be happy to provide you with additional
data on that.
[The information referred to follows:]
[Note.--The information referred to was not provided to the
subcommittee.]
Mr. Kucinich. So would you tell this committee what are the
taxpayers getting out of their investment in GM besides just
monetary payback?
Mr. Bloom. Well, again I think they are getting the fact
that we have an automobile industry here in America, General
Motors employs tens and tens of thousands of people, the supply
base employs three times what GM employs. There are tens and
tens and thousands of dealers. There are numerous communities,
small businesses. When a large manufacturing plant closes,
wherever it is, the impact on the overall community is
enormous. And so all those communities that have GM plants, all
of which would have lost those employers would have suffered
far, far greater harm than in fact they have suffered during
the recession. And your example of large town, for better or
worse, is only one of dozens of what we would have seen across
this country if we had allowed General Motors and Chrysler to
fail.
Mr. Kucinich. I want to say again that my colleagues in
this room have complained quite correctly about the government
picking winners and losers. I join them on that theme with
respect to what happened on Wall Street, because I not only
voted against the bailout, I was one of the leaders against the
bailouts. But I am looking at something a little bit different
from the finance economy which has paper transactions and
actually works to put people out of work. This is American
manufacturing, this is our core, this is part of our strategic
industrial base. And while some could argue that what the
government did was actually pick a winner, if that is true, the
winner it picked was the American automotive industry and the
American auto workers, and all of the small businesses that
depend on that industry.
So I just want to mention that, and I have a great deal of
respect for my colleagues who are concerned about how
taxpayers' money is being spent here. And I think in this one
it sounds like the Auto Task Force was cognizant of their
responsibilities.
Mr. Jordan. I thank the gentleman. Mr. Snowbarger, we
haven't forgotten about you. I guarantee I will have at least
one question for you at some point.
I first want to go to Mr. Bloom. You said earlier, we did
not involve ourselves in the day-to-day operations. That is
your statement.
Mr. Bloom. Yes, sir.
Mr. Jordan. Can we put up on the slide the e-mail from Mr.
Feldman to--okay, good, can you look at this e-mail?
Mr. Bloom. I would like to, sir, but I can't.
Mr. Jordan. I will read. This is from Mr. Feldman, part of
the Auto Task Force, correct?
Mr. Bloom. Yes.
Mr. Jordan. You know him.
Mr. Bloom. Yes.
Mr. Jordan. Served on the task force with him, okay.
Have you guys begun a dialog--this is to General Motors--
have you begun a dialog with the UAW over your desire to see
the hourly plan terminated? At a minimum this could be messy
and UAW should probably be brought into the loop.
Are you aware of this correspondence between the Auto Task
Force and the group you served on?
Mr. Bloom. I was, and I don't think I am copied on this e-
mail.
Mr. Jordan. Well, let me just ask this question, is that
involvement of the Auto Task Force in day-to-day operations?
Mr. Bloom. I think this is a matter that touches on the
Delphi litigation, so I am unfortunately not in a position----
Mr. Jordan. Let's go to the next one, let's go to the next
one. We have the next one. This is I think from Jennie
Ingbretson to Greg Martin at General Motors: Greg, we would ask
that you move the reference to Treasury down to the third
paragraph taking it out of the lead.
So this is on a press release that was going to go out
where we now have the Auto Task Force involving themselves with
General Motors on a press release. So again, I just want to
ask, is this involvement in day-to-day operation?
Mr. Bloom. No, I think what this is is involvement
regarding the Treasury Department. So in other words, when the
company is talking about us, meaning the Treasury Department, I
think it is proper that we would have interest in how we would
be characterized.
Mr. Jordan. Some would argue this, Mr. Bloom, some would
argue if Treasury is involving themselves in press releases
that the company is doing, but not making any other decisions,
not picking winners and losers and not deciding which
manufacturing facilities stay open and which stay closed, even
though we have taxpayer dollars at risk, some would say that is
really what is going on? This is what the Auto Task Force did
they were coordinating how press releases went out, but we--GM
made the decisions which facilities stayed open and which ones
were closed.
Mr. Bloom. What we were doing is----
Mr. Jordan. I am just asking you this, do you see how
someone could gather and reach that conclusion?
Mr. Bloom. No, I wouldn't, Congressman.
Mr. Jordan. Really? Really?
Mr. Bloom. Yes, I would answer the question, what we did is
if General Motors was going to talk about the Treasury
Department we would obviously want it to be done properly.
General Motors came forward to the Treasury Department with a
restructuring plan. We scrutinized that plan, we criticized
that plan, we examined that plan. But we did not----
Mr. Jordan. Let me ask you something, can we look at that
plan? Let me ask you this, the first restructuring plan that
you guys gave the thumbs down to, are Members of Congress
allowed to see that?
Mr. Bloom. I believe those plans were actually posted on
the Web, the February plan.----
Mr. Jordan. The last time I got a chance to talk about this
in the Judiciary Committee we were told that was proprietary
information, we couldn't look at that.
Mr. Bloom. To the extent the companies provided us
information under confidentiality agreements----
Mr. Jordan. So, oh, oh, we can't see what you saw.
Mr. Bloom. I didn't say that. I said to the extent the
companies provided us information that they believed implicated
their proprietary technologies or business plans, we were not
in a position.
Mr. Jordan. Well, answer my question. We won't be able to
see the same thing you saw?
Mr. Bloom. I am happy to take that----
Mr. Jordan. Yes or no.
Mr. Bloom. I am happy to take back a particular request.
And if there is a document----
Mr. Jordan. If it is changed, because it was no before. I
would like to see what you saw. You made a decision. GM had a
restructuring plan, you said no, yet you are not involved in
day-to-day operations, yet you are influencing press releases
and everything else. We would like to see the same plan you
saw.
Mr. Bloom. If you have documents you wish to see, I am
happy to review the list. I am not at Treasury, but I am sure
Treasury would be happy to review the list and provide you
those documents that would be appropriate.
Mr. Jordan. Let me put up one more e-mail. This is from
General Motors to Treasury. As indicated in this morning's
call--so I understand, you probably had daily calls, weekly
calls, it says in this morning's call, so there was some
reference to a call that was taken. I assume some kind of
conference call: We will await a further, ``temperature check
from Jennie on whether to go Friday.'' This is an announcement
on your new small car.
So again timing when the company will announce what it is
going to do while the task force was giving the thumbs up or
thumbs down to that. Yet no influence, no picking winners or
losers, no involvement in day-to-day operations. Do you still
stand by that statement?
Mr. Bloom. Yes.
Mr. Jordan. You see this here, though? Temperature check,
getting a temperature check from the Auto Task Force before GM
can release another press release.
Mr. Bloom. Again if General Motors----
Mr. Jordan. They are not talking about Treasury, they are
talking about the new car they are building. You can't say that
this involves Treasury.
Mr. Bloom. I believe this press release was--again, I don't
know the specifics of this particular press release. We
obviously communicated with General Motors on a regular basis,
particularly prior to the bankruptcy. We communicated with them
on a regular basis regarding their plans. But that did not mean
that we gave them direction about which plants to close or
which cars to make.
Mr. Jordan. It seems to me you just can't--common sense
says you can't have it both ways. You can't have all this
taxpayer money at risk, an Auto Task Force selected by the
President, you replaced the board, you replaced the CEO of
General Motors, and say we are not running the company. It just
has to be one or the other.
Mr. Bloom. We absolutely did.
Mr. Jordan. Yet you maintain this fine line and yet you are
influencing how they write the press release.
Mr. Bloom. What I said was--I said in my statement we
absolutely were involved in picking the Board of Directors at
the conclusion of bankruptcy. And as I said, after the
bankruptcy we relied on the Board of Directors to be
responsible for overseeing the day-to-day operations----
Mr. Jordan. Let me do one question, and I will go a second
round first to Mr. Kucinich and then Mr. Kelly and Mr. Johnson.
Mr. Snowbarger, throughout this process what kind of
interaction was there between the Auto Task Force and--because
were you heading up the Pension Guaranty board then. Well,
throughout this process you were running--you were involved
with Delphi in this process. So what kind of interaction took
place between the two of you?
Mr. Snowbarger. In regard to General Motors?
Mr. Jordan. In regard to both, Delphi General Motors
overall.
Mr. Snowbarger. My recollection was that very early in the
process PBGC had a conversation with Mr. Rattner, I believe.
Mr. Bloom was invited to that meeting but it was held up at
another occasion, at which we discussed the consequences of the
General Motors failure on the pension system of General Motors
and what the impact of that might be on the pension insurance
system.
Mr. Jordan. What discussions did they have with you
relative to the hourly being topped off and not the salary?
Mr. Snowbarger. None.
Mr. Jordan. Any comments, any correspondence that they gave
you on that specific question?
Mr. Snowbarger. I don't recall any, no.
Mr. Jordan. Okay. The ranking member is recognized for an
additional 5 minutes or a second round of questioning.
Mr. Kucinich. Thank you very much, Mr. Chairman. I just
want to say that, well, that the chair's line of inquiry here
whether or not the Auto Task Force was running GM is an
appropriate line of inquiry. He has an interest in knowing
that. I would have an interest in knowing that because the
outcome is so stunning it may give you more credit than at this
point you apparently are willing to want to claim. But I want
to say, Mr. Chairman--Mr. Chairman, I am going--okay--When the
chair comes back, I am going to state this for the record
because it relates to something that he said and I will be glad
to enter it into a colloquy with him if he has any response,
but the e-mail that was put into evidence that the chair had
quoted about the press release may inadvertently prove Mr.
Bloom's case because the e-mail shows that Treasury is actually
not in control. If you look, ``Greg, we would ask that you move
the reference to Treasury down to the third paragraph taking it
out of the lead.'' If they were in control they wouldn't have
asked. They would tell, they would be dictating. That didn't
happen. Just a subtle difference, but I just want to call that
to the attention of the committee.
And what the e-mail does is it concerns GM's
characterization of Treasury and of course you can have an
interest in a characterization without actually dictating the
policy. That is a point that I wanted to make.
I have a few questions to Mr. Snowbarger. The PBGC takes
over a pension when a corporation decides to stop offering the
pension to its retirees, either through a bankruptcy or
corporate decision not to do so. Can you briefly describe the
circumstances that led to the creation of the PBGC to protect
defined benefit pensions?
Mr. Snowbarger. First of all, let me correct a
misimpression there. Companies can't just decide not to
continue their pension plan.
Mr. Kucinich. They have to file.
Mr. Snowbarger. Well, but they have to show they cannot
continue their business and maintain the plan.
Mr. Kucinich. Okay, can you tell us what----
Mr. Snowbarger. Well, I don't know how far back you want to
go.
Mr. Kucinich. Let me go--no, for the retirement plans that
have taken over by the PBGC have you found that their original
sponsoring corporations had been making the appropriate
contributions to their retirement funds to keep them fully
funded or not?
Mr. Snowbarger. Pension plans don't come to the PBGC if
they have been properly funded.
Mr. Kucinich. My understanding is that Delphi Corp. failed
to make necessary contributions to its retirement plans and
when PBGC assumed trusteeship of them you found them to be
underfunded, is that true?
Mr. Snowbarger. That is correct.
Mr. Kucinich. And when PBGC takes over an underfunded
retirement plan how does the PBGC meet its funding obligations
particularly when a pension fund for which it assumes
trusteeship does not have enough assets even to pay the
benefits that PBGC is allowed to pay under law?
Mr. Snowbarger. We basically have four sources of revenue.
One is premiums, they are set by Congress. The second is
recoveries and recoveries from bankruptcies and from
settlements with corporations, investment income and then
bankruptcy recoveries which are typically pennies on the
dollar.
Mr. Kucinich. So do you have the ability in the bankruptcy
process to recover assets that can be put to use to pay
benefits?
Mr. Snowbarger. We are unsecured creditors in a bankruptcy
for most purposes.
Mr. Kucinich. And that means?
Mr. Snowbarger. That means we get pennies on the dollar, if
there are assets at all.
Mr. Kucinich. Does Congress normally provide top-up support
for insufficient pensions that PBGC has taken over?
Mr. Snowbarger. No.
Mr. Kucinich. Would that require special legislation?
Mr. Snowbarger. Yes.
Mr. Kucinich. Can you meet your current--the long-term
obligations with your current assets?
Mr. Snowbarger. If you look at the long-term picture, at
this point we are $23 billion in deficit. We have plenty of
money for meeting immediate obligations, but over the long term
we are $23 billion short assets to liability.
Mr. Kucinich. And could you translate that, how many
millions of retirees are actually looking at receiving or
having retirement benefits that are far below what they
anticipated when they were in the work force?
Mr. Snowbarger. Well, we cover the pensions of
approximately 1.5 million people. Approximately 80 percent of
those we pay the full amount of their benefits and so they
aren't reduced, more like 84 percent. So it is only 16 percent
that receive some reduction in benefits although that can be
fairly substantial.
Mr. Kucinich. So just to wrap it up, Mr. Chairman. Those
1.5----
Mr. Snowbarger. One and a half million.
Mr. Kucinich. They are in trouble and the PBGC is in
trouble because the corporations who had made a commitment to
fund those programs didn't keep their end of the deal, isn't
that right?
Mr. Snowbarger. Again, plans don't come to PBGC unless they
are underfunded.
Mr. Kucinich. So is that right?
Mr. Snowbarger. Yes.
Mr. Kucinich. Okay. I want to thank Mr. Chairman.
Mr. Kelly [presiding]. I would like to thank the ranking
member also.
Mr. Johnson, give you 5 minutes.
Mr. Johnson. Thank you, Mr. Chairman. Mr. Bloom, did you
know when you were working at the Treasury that GM was paying
their loan with the taxpayers dollars from one pot to another,
did you know that?
Mr. Bloom. When General Motors----
Mr. Johnson. That is a yes or no. Did you know that?
Mr. Bloom. I am going to try to give you a complete answer.
Mr. Johnson. I would just like a yes or no. Did you know
they were taking out of one taxpayers' pot and putting it into
another?
Mr. Bloom. We knew that they were using their corporate
resources, which were legally theirs, to repay the loan.
Mr. Johnson. And it was taxpayer funding, you knew that,
right?
Mr. Bloom. We knew that all funds invested in General
Motors had come from either ourselves or the Canadian
Government.
Mr. Johnson. Did you have any sense of responsibility to
the American people to divulge that? I mean this is the
Treasury, this is the group that handles and manages the
Nation's wealth and it is being pillaged. Did you not have a
sense of responsibility to let the American people know that a
corporation that had defaulted was playing a shell game with
taxpayer dollars?
Mr. Bloom. I don't think in any way, shape, or form we
deceived the American people, and I don't think anybody was
being pillaged in any way, shape, or form.
Mr. Johnson. Do you think it was appropriate to claim that
they were paying down their debt from one part of taxpayer
dollars that was essentially a pop up in the first place into
another?
Mr. Bloom. I think the Treasury's characterization of what
General Motors did, which is that we invested money in this
company, after we made the investment the money was the
property of the company. At that point they chose to use some
of their corporate resources to repay a debt that they had
taken out from the Treasury.
Mr. Johnson. You called it an investment, I think the
American taxpayers saw it as a bailout, right? That was money
that was supposed to be paid back, correct?
Mr. Bloom. The money was invested in three forms, some of
it was in the form of preferred stock, some of it was in the
form of common stock, and some of it was in the form of a debt
instrument.
Mr. Johnson. We have to move on. I have another e-mail clip
that I want to have shown up here if it could come up. You said
a few minutes ago that you had no specific knowledge of the
small car--what is it called, the revised small car release?
Look at the cc line up there that is highlighted in red. Who is
ron.bloom?
Mr. Bloom. No, I didn't say that, Congressman. What I said
is I wasn't on the e-mail you referred to Mr. Feldman.
Mr. Johnson. You said you had to no specific knowledge of
that release?
Mr. Bloom. No, I did not.
Mr. Johnson. Oh, that is what you said. We can have it read
back.
Mr. Bloom. We can have it read back, yeah, that would be
fine. If I said that, I misspoke. What I said was I was not
involved in the e-mail that was asked about Mr. Feldman. I was
aware that General Motors had made decisions regarding the
construction of a new facility or the revitalization of the
facility to make small cars. Yes, I was aware of that.
Mr. Johnson. I think it is pretty clear that you jest with
a very straight face because I am having trouble understanding
when you are joking and when you are not, because this all
looks like a joke to me and to the American taxpayer.
Mr. Snowbarger, was the PBGC pressured by the Auto Task
Force or anyone else involved in the bailout process to make
the determination to terminate the Delphi salaried employees
pension plans?
Mr. Snowbarger. No.
Mr. Johnson. If not, why then did the PBGC decide to
terminate a plan that was funded in a similar manner and at a
similar level at the average of the top 100 pension funds in
America at the time? Why was that decision made?
Mr. Snowbarger. Well, I disagree with your characterization
that it was funded at that level. We applied the same standard
to all of the Delphi plans and the standards are in ERISA, and
by statute in other words, and we made the decision on that
basis, as well as the fact that Delphi was no longer----
Mr. Johnson. We have a short time fuse here. Why then is
the PBGC fighting so hard against releasing the records of the
PBGC decisionmaking process that led up to that determination?
Mr. Snowbarger. I disagree with that characterization.
Mr. Johnson. Have you released those records?
Mr. Snowbarger. I believe we have.
Mr. Johnson. You have released those records?
Mr. Snowbarger. I believe so, yes. We released them to this
committee as well as to the IG, Special IG for the TARP, as
well as to GAO, as well as Freedom of Information Act requests
from Barry Selfikes, hourly employees, and in the court case as
well.
Mr. Johnson. Okay. Well, I apologize then, I was
misinformed. Thank you for clearing that up.
I have no further questions, Mr. Chairman. I think this is
regrettable and I can assure you that I am going to continue to
look for the answers to find out how we rectify this and bring
justice to the Delphi retirees.
Mr. Kelly. Thank you, Mr. Johnson. Mr. Burton from Indiana.
Mr. Burton. I apologize for just getting here, Mr.
Chairman, but one of the concerns that I have had, and I am not
sure who can answer this question, is why the salaried
employees--and I have heard that you can't comment on this
because it is in litigation, but to the degree that you can
answer any questions, I would like to know why the salaried
employees got chopped up so badly compared to the others that
were under contract. It just doesn't make any sense to me and
it doesn't seem fair.
When I look at--I don't know if there is a chart. Do we
have any of those charts? There was a chart or a slide we could
show. Hello--oh, there we have it. If you look at this slide I
just want to concentrate on the last column there, those are
the salaried employees. You see they took 100 percent cut in
their life insurance, 100 percent cut in their health care, 100
percent cut in their vision and dental, 100 percent cut in
medical, and between 30 and 70 percent cut in their base
pensions. And I just don't understand why. What did they do
that was so bad that they didn't get the same consideration as
those that were under contract?
Mr. Bloom. Well, Congressman, as I indicated earlier I am
not in a position to comment specifically on the allegations in
the Delphi litigation. I can----
Mr. Burton. Excuse me, I don't think it is allegations. You
may not be able to comment, but these aren't allegations. A lot
of these salaried employees live in my district and I have
talked to them about that, so this isn't allegations. They were
cut. So anyhow go ahead.
Mr. Bloom. Again, I am not in a position to comment on
that. I am certainly in a position to agree with you that many
stakeholders in the entire General Motors and Chrysler
bankruptcy unfortunately received far, far less than they were
promised and not everyone received the exact same amount as a
percentage of what they were promised. As I indicated earlier,
for instance, the number of the suppliers, probably many of
whom do business in your district, received 100 cents on the
dollars. And that was because the company came forward with a
restructuring plan that they believed provided the treatment of
the various stakeholders that was required in order to
successfully effectuate the bankruptcy. We did not insist that
they pay everybody 100 cents on the dollar because that would
have cost the taxpayer a multiple of what was eventually
invested in General Motors. And we did judge that the
management had made a good faith effort to be commercial and
fair in their judgments about how to treat people.
Mr. Burton. Let me interrupt here. I mean this is pretty
damning when you look at this, because the union workers that
were under contract and the others that were under contract
they were treated at least somewhat fairly. In fact, some of
them were treated very well considering the bankruptcy. But the
salaried employees, just for what reason I know not, just got
killed, and it just seems almost un-American that you would
show deference to one segment of the employee population for a
company like General Motors and then throw the rest of them to
the dogs. And it just seems really bad.
I am not saying this because they are from--Delphi has a
plant near Kokomo in our district. I would say this about any
company in the United States. If there is a bankruptcy, it
seems like it should be shared pain. And there certainly is no
shared pain as far as the salaried employees were concerned.
Mr. Bloom. It may be, Congressman, that the bankruptcy laws
of the Nation should be reviewed on that question, but the
company's action were entirely consistent with bankruptcy law.
Two judges ruled over that very, very carefully, extensive
hearings, and judged that the company's actions were completely
in concert with bankruptcy law. I agree with you that it is
terrible when any individual or business isn't able to receive
the entire promise that they were made. All stakeholders to
this tragedy had to take sacrifice. And there were
circumstances where some received more than others. It was
based on the commercial judgments, as I said.
Mr. Burton. Well, if judges rendered that kind of a
decision based upon current bankruptcy laws we probably ought
to take another look at them, because if a major corporation
goes bankrupt like this and leaves one segment of the employee
population hanging out to dry, that needs to be reevaluated.
So I will talk to my staff. Thank you, Mr. Chairman, for
the extra time. I will talk to my staff about taking a look at
the bankruptcy laws. Thank you.
Mr. Kelly. I thank the gentleman from Indiana. Also back to
the ranking member, Mr. Kucinich.
Mr. Kucinich. I want to thank the chairman. And I want to
thank the gentleman from Indiana because of a point that he
makes about people in his district and Delphi employees who
were not protected in the bankruptcy is well received here. And
as I mentioned earlier when Chairman Jordan was in the chair, I
look forward to working with my colleagues to see what we might
do to be able to provide some relief to those individuals who
were essentially left out, because all we are trying to do here
is to make sure that our constituencies who may have been
involved in this are not going to be destroyed financially.
Which goes to the question, Mr. Bloom, that the concern
that so many Members have expressed here about what has
happened in dealerships. Now the Auto Task Force didn't deal
with that question. I understand that, you have testified to
that. But, you know, in my district and other places around the
country GM essentially put people out of business like that,
people who had auto dealerships in their families for
generations. And there is a lot of hard feelings about that.
Those feelings are not going to easily go away, because there
were people who were embedded in a community, gave everything
they had to a business and then suddenly with the government
providing the money this is what gets people. The government
provides the money, you save the corporation, the corporation
turns around and destroys dealerships so--you can respond.
Mr. Bloom. Congressman, nobody again is glad that General
Motors believed that in order to survive it had to
substantially restructure its dealer base. But General Motors
unfortunately had become a much smaller company than it was
when it had the number of dealers it had. The company believed
that in order to be successful and to not have the investments
that the President made simply be for naught that they needed
to rationalize their dealer network. We examined that
proposition in addition to many other propositions, including
that they close factories. And the chairman pointed out earlier
that one of the factories was closed in his district. That is a
terrible thing when a factory is closed and all those workers
are told to go home. But the alternative was no General Motors
at all. And if there had been no General Motors at all, then
everybody would have lost their job, everybody would have lost
their pension.
Mr. Snowbarger began to talk about what would have happened
to the PBGC if the General Motors pension plan had terminated
or the Chrysler plan had terminated. They have a million and a
half beneficiaries; General Motors all by itself has almost
that many. So we have to evaluate this against the real world
alternative and the real world alternatives is if General
Motors is allowed to entirely liquidate and everybody loses----
Mr. Kucinich. I understand, but you need to understand from
our side of the table here is that a whole lot of this looked
arbitrary to us. Just so you know. I am not putting this on
you, I am just saying that is the way it looked. You need to be
aware of that. I just want to----
Mr. Bloom. I appreciate that.
Mr. Kucinich. For the record here, Mr. Chairman, my friend
Mr. Johnson inserted into the record an e-mail from Greg Martin
referencing the revisions made by Frederick Henderson. And I
think it is important to identify who the people are. Greg
Martin was an official at General Motors, Frederick Henderson
was the CEO of GM, and the fact that Mr. Bloom was on a cc
really doesn't prove anything here, I don't think, other than
the fact that GM was in control of GM. The Treasury Department
represented observers having to ask not having to dictate to
GM. And frankly I think that is what we found here, that GM
throughout the bailout remained under private control. And I
don't see from this memo which has Mr. Rattner and Mr. Bloom up
here as a cc, that this coming from GM officials, that this in
any way indicates that it was--that it was non-GM officials who
were leading the dance.
So I just want to point that out. And I again I do that
because I understand the concerns that my colleagues have,
share many of those concerns, I would just want to correct the
record, and I thank you, Mr. Chairman.
Mr. Kelly. I thank the ranking member.
I am going to allow myself 5 minutes, Mr. Bloom and Mr.
Snowbarger. I think today the most important thing we can
understand about this hearing is it is not about Democrats and
it is not about Republicans, it is about the American people,
and I would think that this hearing is indeed essential when we
talk about taxpayer dollars being invested.
If you could, Mr. Bloom there was $50.2 billion in total
TARP assistance. Can you tell me how that was divided up?
Mr. Bloom. Congressman, I am not familiar with that
particular number. There is $49.5 is the total assistance to
GM. I am familiar with that number. I am not--I am trying to be
responsive to your question. I am not familiar with a $50.2
number.
Mr. Kelly. Do you know how that was divided up?
Mr. Bloom. Well, the 40--again the rough numbers are that
had the total assistance provided to General Motors was $49.5
billion. The total assistance provided to Chrysler was $12.5
billion, there was $1.5 billion provided to Chrysler Financial,
$17.2 billion provided to General Motors Acceptance Corp., now
called Ally Financial, and there is about $4.1 billion between
assistance provided to suppliers and to guarantee warranties.
Not all of those funds were drawn down and so the amount of
funds that were drawn down is about $4 billion less than that,
but that is roughly the total amounts that were at one point
allocated to those companies.
Mr. Kelly. Well, I know quite a bit of money was put in
escrow. And as we referenced early, some of the moneys that
were put in escrow were used to pay down the loan with
interest. I am just going to walk you through something, I have
done this for many, many years, I am sure most the people in
the gallery have done the same thing. When you buy an
automobile there are stipulations put in--there are
stipulations put in what we would call putting a deal together.
A lot of it has to do with the total amount of money you are
going to borrow and the stipulation in most cases requires some
down payment money. And I am just trying to relate this so that
the American people understand this. The down payment money
required at the time an individual buys a car is usually
referred to as cash. And it is truly cash. It is not part of
another loan structure because that in fact does distort the
total amount that that car is owed on. I think what bothers me
more than anything else, we used borrowed money, taxpayer money
in order to pay off a loan. It wasn't cash that was paid down.
I don't know I am getting that across.
My point is, again this is for the American people to
understand, this truly was a very odd and very strange
bankruptcy and one that is so complicated that in 40 days it
could right from the dead and be on its feet again and be no
problem, no problem. That is truly--that was a remarkable
activity. I know myself that had I declared bankruptcy, I don't
think I would be given that same opportunity.
So the American people really do need to know that this was
in fact as the President described, a historic structuring of a
loan. But the bottom line is these are all taxpayer dollars and
I think that is the thing most discouraging. And you made a
reference earlier that the new GM, I have absolutely no idea
that the old GM is still in bankruptcy and the new GM is not.
General Motors has survived, it would have survived in some
form having going through bankruptcy on its own. Old GM is gone
forever and we know that because it did follow a little
different route and bought into a program that absolutely led
it down a road that it could never recover from. It is just
difficult to sit here and listen to the premise that General
Motors in its wisdom was able to eliminate private businessmen,
people who had franchises. I was one of them. One of my
franchises was taken away, not because I didn't know how to run
it, not because it wasn't profitable, not because I wasn't
hitting my market share and doing all the things I had to do. I
had friends who absolutely--not only were they terminated as
dealers, they chose to exit as individuals. Some people took
their own lives because a business was taken from them by a
procedure that had absolutely nothing to do with natural
events.
So while this may have been historic in the President's way
of talking about it, it was absolutely catastrophic for small
business people. And I am not blaming you, but I am saying the
American people better understand that there is something going
on right now that makes absolutely no sense to me. I have to
tell from you somebody who was a General Motors dealer now for
60 years, General Motors never gave me anything. Every car,
every car, every part, everything I have ever done was
purchased with my own money or my family's money. So to sit
there--and I am not blaming you again, I am just saying this
premise that General Motors could not afford its dealers is
absolutely ridiculous. We were all on our own, we were living
outside of that home and we were supporting our own families.
So I think the American people have always believed that
they want what is fair, not what is legal because at 63 years
old I know there is no correlation between what is fair and
what is legal. It is absolutely horrendous that we were able to
do these type of thing to individuals who had made such great
contributions in their communities. And if you don't believe
that, I would suggest you go into any of these little
communities and find out these dealerships that are no longer
there. Their names are still on the outfield fences of all the
Little Leagues, they were the people who supported the Girl
Scouts, the Boy Scouts, their local bands, everything that was
going on in their high schools. These are the guys they go to
first.
To me picking and choosing winners and losers is absolutely
up to the free market, it is not up to the government. The
government made a very serious mistake and overstepped their
bounds. I do appreciate your being here today.
I will recognize Mr. Issa for 5 minutes, please.
Mr. Bloom. I will just say one thing, and I would agree
with almost everything you said. Where I would respectfully
disagree is if the government had not stepped in I do not
believe General Motors would have faced a fate other than a
complete liquidation and the elimination of all dealerships who
sold General Motors cars.
Mr. Kelly. But we will never know.
Mr. Bloom. We won't know, sir. But at the time I think we
could find no evidence whatsoever that private capital markets
financed this company in bankruptcy.
Mr. Kelly. And I do understand that but there were
bankruptcies they could go through, a structured bankruptcy.
Unfortunately it was taken out of their hands and it was taken
care of by the government. I have to tell you, I was there, I
walked the walk, and I know people who lost not only their
dealerships, but they took another exit, too. And I got to tell
you it was absolutely horrible and should never, ever, ever
happen again. And at that point I am going to recognize Mr.
Issa for 5 minutes.
Mr. Issa. I thank the chairman. Mr. Bloom, I am just old
enough and unlike the chairman I wasn't in the car business
directly, but I was a supplier to the car business. Do you
remember Potamkin Cadillac in New York? Do you remember ever
hearing that name? Largest Cadillac dealer in America, largest
limousine provider? Victor Potamkin once challenged General
Motors by trying to get a replacement of the President. You
know how General Motors fixed that? They paid him twice what
his dealership was worth, then handed it to Roger Penske, just
to get him out of the business. At that time they didn't have
you to do their dirty work, so they simply paid him a lot of
money to get rid of a thorn in their side who they felt was
agitating against the then President.
Do you think at least in some way that General Motors had a
reason to make selections that had something to do other than
with the absolute monetary hard core dollar and cents best
interest when they used you in order to cut their number of
dealers?
Mr. Bloom. Congressman, I am not familiar with the story
you have related, so I can't speak to it.
Mr. Issa. It's famous enough that I say it knowing that
Roger Penske is a dear, wonderful guy that I have raced
against. But the bottom line is General Motors over the years
hated some of their dealers, loved others, cut all kinds of
deals. The difference is they didn't have the government to do
it free for them.
Mr. Bloom. Congressman, as I said, I don't have any
evidence one way or the other. I am not doubting the veracity
of your story. You asked----
Mr. Issa. But do you think----
Mr. Bloom. To your question which I can answer----
Mr. Issa. Since in retrospect we found dealerships that
made sense that were cut and others that were preserved. There
were huge amounts of mistakes in that decision process.
Mr. Bloom. I think what we did when we looked over General
Motors' plan to rationalize their dealer network is we
satisfied ourselves that the company had acted reasonably. We
did not review dealer-by-dealer decisions because again we did
not want to intervene in the day-to-day operations of the
company.
Mr. Issa. So in that case you were vulnerable to whatever
their underlying reasons were because you weren't able to audit
the legitimacy of something that was ordinarily not doable?
Mr. Bloom. Again we were not in the position and we did not
want to place ourselves, we did not think it would be
appropriate to put ourselves in the position to become the
management of the company and decide whether it be a dealership
decision or a factory decision.
Mr. Issa. Let me follow up with a question. I chair this
committee but I also serve on the Judiciary Committee. And I
was there for the revisions to the patent or to the--I was
there for the patent, but I was there for the revisions to the
bankruptcy laws. Do you think that what you did in
circumventing the bankruptcy laws, what otherwise would
ordinarily have happened in any conventional bankruptcy and
bypassing the decisions that could have been made, not by you
but by a bankruptcy judge and other trustees, do you think that
you set a good precedent for a model for the future, a bad
precedent, or do you think you are simply a one-time event?
Mr. Bloom. I think that two bankruptcy judges have found
that we did absolutely nothing to circumvent the bankruptcy
laws, that this was in fact an ordinary course bankruptcy. So I
don't think there is any change in the basic status of our
Nation's bankruptcy laws.
Mr. Issa. So you think that maintaining the pensions for
union workers while screwing the salary workers was in the
ordinary course of what would have happened in any other
bankruptcy? Isn't it true in any other bankruptcy everybody
would have been in the same pot of losing their pensions? They
would have been all or nothing? This differentiation has never
happened in bankruptcy to my knowledge. Has it happened to your
knowledge?
Mr. Bloom. Yes, It has quite a bit actually.
Mr. Issa. Oh, really?
Mr. Bloom. Yeah.
Mr. Issa. And your basis is salary people are not important
but union workers are?
Mr. Bloom. It is not my basis. My basis is companies make
decisions how to best effectuate bankruptcies and sometimes
that decides that certain unsecured creditors, sometimes like
suppliers, sometimes like warranty holders are treated
differently because the company concludes in order to maintain.
Mr. Issa. I suspect you probably find that bond holders
getting a haircut ahead of general creditors is also typical.
The gentleman, the former chairman wants a little time. So
I yield the remaining time to him.
Mr. Kelly. Mr. Burton.
Mr. Burton. I thank the gentleman for yielding.
But the bankruptcy judge just approved the plan. They
didn't actually make any decision on how the funds were to be
disseminated. They just approved the overall plan.
Mr. Bloom. I think what they did, Congressman, was
determine that the bankruptcy laws of our country had been
followed.
Mr. Burton. Well, okay. But they made no changes; they just
said the bankruptcy laws had been followed?
Mr. Bloom. Yes.
Mr. Burton. But they didn't actually make any determination
on whether there was fairness or not.
I ask unanimous consent for another minute or so.
Mr. Kelly. Without objection.
Mr. Bloom. I think the determination was that the
bankruptcy laws had been followed, that they hadn't been turned
on their head, or any phrase like that.
Mr. Burton. Okay. You were on the Auto Task Force. You were
a part of that. I am looking here at some notes. It says in a
piece of correspondence: Have you guys begun a dialog with the
UAW over your desire to see the hourly plan terminated? At a
minimum, this could get messy, and the UAW should probably be
brought into the loop.
Do you know about that comment?
Mr. Bloom. Yes. I answered a question about that earlier.
Mr. Burton. Well, answer it again. I didn't hear it.
Mr. Bloom. No, I am happy to, sir.
Yes. I wasn't on that particular e-mail chain, and given
that that is part of the litigation, I am not in a position to
comment on it.
Mr. Burton. Well, did you say this at a dinner? There was a
dinner, and it was reported by David Shepardson, Washington
correspondent for the Detroit News, at a farewell dinner of the
Auto Task Force held in the restaurant Rosa Mexicano in late
July 2009, that you allegedly said, ``I did this all for the
unions.''
Mr. Bloom. No, I did not say that.
Mr. Burton. You did not say that?
Mr. Bloom. No, sir.
Mr. Burton. So you were misquoted?
Mr. Bloom. That's correct.
Mr. Burton. Well, I am going to call that guy up and ask
him if you said that. You know that you are under oath here?
Mr. Bloom. I am fully aware.
Mr. Burton. You made no comment like that at all?
Mr. Bloom. No, sir.
Mr. Burton. Well, Mr. Chairman, we will check that out. I
am going to call this reporter and we will just see what he
said.
The other thing, though, is you did see the graph and you
did see how the salaried employees were treated as opposed to
the union workers.
Mr. Bloom. I did.
Mr. Burton. You did. And you were involved in that
decisionmaking process?
Mr. Bloom. No, I was not.
Mr. Burton. Who was involved in the decision?
Mr. Bloom. General Motors came forward with a plan. As I
said, I am not in a position to comment on the particulars of
the Delphi situation. But like, as in all the aspects of this
bankruptcy, General Motors came forward with a plan about how
they thought best to reorganize themselves. We looked at that
plan.
Mr. Burton. And the Auto Task Force had nothing to do with
that?
Mr. Bloom. No. I said no, we had very much to do with it.
Mr. Burton. But you can't comment because it's in
litigation?
Mr. Bloom. This particular question about the treatment of
the Delphi salaried employees I am not in a position to comment
on. I would be delighted to talk with you about the treatment
of other stakeholders, about other groups, about other aspects
of the bankruptcy. I am happy to talk with you about that at
whatever lengths you would like.
Mr. Burton. Well, if you look at the graph, the other
employees weren't treated all that badly. The union workers,
the UAW was treated extremely well. Some of the others were
treated a little less well, but the salaried employees really
got screwed.
And if you were on the Auto Task Force and had anything to
do with that, you ought to be ashamed of that. That's terrible.
Those people should never have been treated like that.
Thank you, Mr. Chairman.
Mr. Kelly. I thank the Member.
Just 1 minute, Mr. Bloom, and we are going to be finished
here. We have had references to the fact that it was the board
of directors, the General Motors board of directors that made
these decisions.
Mr. Bloom. Let me try to be more accurate. What I said was
we were involved in putting a new board of directors in after
the bankruptcy.
Mr. Kelly. Okay.
Mr. Bloom. During the runup to the bankruptcy, it was the
management. There was a board of directors, but it was the GM
management board.
Mr. Kelly. If you could, because I know you know the answer
to this.
Mr. Bloom. Yes.
Mr. Kelly. Under the old GM, how was that board of
directors determined?
Mr. Bloom. Elected by the shareholders.
Mr. Kelly. And under the new GM, how was that board of
directors determined?
Mr. Bloom. The original board, the original board of the
new GM, was put forward by the Treasury Department as the
largest shareholder.
Mr. Kelly. So to say that, really, the decisions were not
made by the Treasury Department--these are all folks that were
appointed, in fact, by this administration. These were not
elected by shareholders; is that a correct statement?
Mr. Bloom. We were the largest shareholder.
Mr. Kelly. I understand.
Mr. Bloom. But I think the distinction I was trying to
make, Congressman, was that as the employees of the
administration, we did not make these decisions. After the
bankruptcy, we entrusted a group of independent men and women.
Mr. Kelly. And I understand that, but I also know that the
appointments came out of the administration, and I think you
and I both know that. So having said that, there's a huge
difference between a shareholder, the old GM that was elected
by shareholders, board of directors, and the new GM that,
because of the way you divvied up the company, you established
who the board of directors would be. So it wasn't really done
in the same way it had been done in the past. So I think it's
important to be honest about it.
I am going to recognize the ranking member for 1 minute.
Mr. Kucinich. Just briefly, and I thank the gentleman for
yielding because, you know, this question about whether or not
the government controls GM's decision, that's the focal point
here, and the points that the chair just made, Mr. Kelly just
made, the relationship between the new board decisionmakers
that resulted in a lot of dealers closing, I see that as a
legitimate line of questioning. But one of the things it does
not establish--and I just want to say this for the record--and
if Mr. Bloom himself had anything to do with it, and you kind
of indicated that when you were charging the--on behalf of
those who lost their dealerships, and it's not necessarily that
Mr. Bloom had anything to do with it, but I think the chair is
well taken in probing further how those decisions were made. I
think the public has the right to know. I think the public has
the right to know.
Thank you, Mr. Chairman. Thank you.
Mr. Kelly. With that, I am going to thank the panel. Mr.
Bloom, thank you very much. Mr. Snowbarger, thank you very
much. We are going to recess for 1 minute, and then we have a
final panel after that. Thanks so much.
[Recess.]
Mr. Jordan [presiding]. I want to welcome our second panel
of witnesses. Again, I apologize for today's schedule. And as
you see, unfortunately, all your great wisdom is only going to
get to a couple of Members of Congress, it looks like, because
there are so many different things at this hour, but we really
wanted to get this hearing in.
Our first witness is Mr. Dan Ikenson, associate director of
the Herbert A. Stiefel Center for Trade Policy Studies, Cato
Institute. We appreciate you being here.
Mr. Bruce Gump, vice chairman of the Delphi Salaried
Retiree Association; Dr. Thomas Kochan, did I get it right?
Mr. Kochan. Pretty close.
Mr. Jordan. Pretty close. That means I didn't get it right.
I know you are being kind.
Dr. Kochan is the George Maverick Bunker professor of
management at the Massachusetts Institute of Technology. And
Ms. Shikha Dalmia, senior analyst at the Reason Foundation.
As I said, if you were here earlier, it's the custom of the
committee to swear everybody in. So would you please stand and
raise your right hands.
[Witnesses sworn.]
Mr. Jordan. Let the record show everyone answered in the
affirmative.
Let's go right down the list. Mr. Ikenson, you are up
first.
STATEMENTS OF DAN IKENSON, ASSOCIATE DIRECTOR, HERBERT A.
STIEFEL CENTER FOR TRADE POLICY STUDIES, CATO INSTITUTE; BRUCE
GUMP, VICE CHAIRMAN, DELPHI RETIREE ASSOCIATION; THOMAS KOCHAN,
PROFESSOR, MASSACHUSETTS INSTITUTE OF TECHNOLOGY; AND SHIKHA
DALMIA, SENIOR ANALYST, REASON FOUNDATION
STATEMENT OF DAN IKENSON
Mr. Ikenson. Thank you. Good afternoon, Chairman Jordan,
Ranking Member Kucinich, and members of the subcommittee. I am
Dan Ikenson, associate director of the Herbert A. Stiefel
Center for Trade Policy Studies at the Cato Institute.
Since 2009, I have followed closely the events surrounding
the auto company bailouts and bankruptcies, and I am grateful
for the opportunity to share my concerns regarding the lasting
implications of the GM bailout. The views expressed today are
my own and should not be construed as representing any official
positions of the CATO Institute.
With help from some pundits and various media outlets, the
administration is pitching the narrative that the auto bailouts
were successful. The evidence in support of that conclusion
seems to be limited to the fact that GM has been profitable
over the last five quarters and that Chrysler has repaid much
of its debt to the U.S. Treasury.
But calling the bailout successful is to whitewash:
One, the diversion of funds from the Troubled Asset Relief
Program by two administrations for purposes unauthorized by
Congress.
Two, the looting and redistribution of claims against GM's
and Chrysler's assets from shareholders and debt holders to
pensioners.
Three, the unprecedented encroachment by the executive
branch into the finest details of the bankruptcy process to
orchestrate what bankruptcy law experts describe as sham sales.
Four, the cost of denying Ford and the other more deserving
automakers the spoils of competition.
Five, the costs of insulating irresponsible actors such as
the United Autoworkers from the outcomes of an apolitical
bankruptcy proceeding.
Sixth, the diminution of U.S. moral authority to counsel
foreign governments against similar market interventions.
And, seven, the lingering uncertainty about the direction
of policy under the current administration that pervades the
business environment to this very day.
I think if the President wants to take credit for saving
the auto industry, he should also take responsibility for the
regime uncertainty that has persisted during his
administration, since much of that uncertainty, which is
manifest in weak business investment and hiring, flows from
lessons learned from the auto intervention.
Acceptance of the administration's pronouncement of auto
bailout success demands profound gullibility or willful
ignorance. If proper judgment is to be passed, then all of the
bailout's costs and benefits must be considered. Otherwise,
calling the bailout a success is like plotting the recovery of
a drunken driver after an accident while ignoring the condition
of the family he severely maimed.
The lasting implications of the bailout will depend on
whether or not Americans ultimately accept the narrative that
the bailout was a success. If it is considered a success, the
threshold for interventions will have been lowered and
Americans will have to judge even more bailouts in the future.
If it is considered a failure, as it should be, the lasting
implications will be less destructive because the threshold
that tempts interventionists will be higher.
On that score, contrary to what the administration would
have the public believe, gauging the success of the GM bailout
requires consideration of more than just the ratio of finances
recouped over financial outlays. There are numerous other costs
that don't factor into that equation.
If the bailout is considered a success, some of the lasting
implications likely will include the following:
One, an increase in government interventions and bailouts
of politically important entities.
Two, fear-mongering will be considered an effective
technique to stifle debate and enable a stampede toward the
politically expedient outcomes.
Three, Americans will be more willing to extend powers
without serious objection to the executive branch that we would
not extend in the absence of a perceived crisis.
Four, a greater diversion of productive assets is likely to
occur, from productive assets to political ends, such as
resources for research and development engineering to lobbying
and lawyering.
Five, a greater uncertainty to the business climate as the
rule of law has weakened and higher-risk premiums are assigned
to U.S. economic activity.
Less prudent decisionmaking from Ford Motor Co., for
example, knowing that it has banked its bailout.
A greater push for the administration for a comprehensive
national industrial policy and less aversion to subsidization
of chosen industries abroad.
The objection to the auto bailout was not that the Federal
Government wouldn't be able to marshal adequate resources to
help GM. The most serious concerns were about the consequences
of that intervention, the undermining of the rule of law, the
property confiscations, the politically driven decisions, and
the distortions of market signals. Any verdict on the auto
bailout must take these crucial considerations into account.
GM's recent profits speak only to the fact that politicians
committed more than $50 billion to the task of subsidizing and
reconfiguring GM. With debts expunged, cash infused, and
efficiencies severed, ownership reconstituted, sales rebates
underwritten, and political obstacles steamrolled, all in the
midst of a recovery in U.S. auto demand, only the most
incompetent operations could fail to make profits.
But taxpayers are still short a minimum of $10 billion to
$20 billion, depending on the price that the government's 500
million shares of GM will fetch. That is a lot of public money
in the balance. Nevertheless, the administration should divest
as soon as possible without regard to the stock price.
Keeping the government's tentacles around a large firm and
an important industry will keep the door open wider to
industrial policy and will deter market-driven decisions
throughout the industry, possibly keeping the brakes on the
recovery.
Yes, there will be a significant loss to taxpayers, but the
right lesson to learn from this chapter in history is that
government interventions carry real economic costs, only some
of which are readily measurable. Thank you.
Mr. Jordan. Thank you, Mr. Ikenson. We appreciate the great
points you made in your testimony.
[The prepared statement of Mr. Ikenson follows:]
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Mr. Jordan. Again, just so you know, obviously your
testimony will be part of the record. We will get that to each
Member so they can hear your good words.
I do have to leave here in a couple of minutes. I want to
preside for Mr. Gump's testimony, and then Congressman Kelly
will take over for our last two witnesses.
Mr. Gump, you are recognized for 5 minutes.
STATEMENT OF BRUCE GUMP
Mr. Gump. Thank you. Chairman Jordan, Ranking Member
Kucinich and members of the committee, thank you for the
opportunity to represent the thousands of Delphi retirees who
were in fact mistreated by the Obama administration during its
unprecedented intervention in the auto industry, particularly
in respect to the remaking of General Motors.
I know you have had an opportunity to read my written
testimony, so I will summarize quickly.
And I want to start off by saying that I am not a lawyer, I
am an engineer. I will do the best I can with some of this, but
you have to understand that I may not be able to get all of it
right.
From the time Candidate Obama said in May 2008 that if a
company goes bankrupt and workers need to be our top priority,
not an afterthought, to the weekly radio address by Vice
President Biden just a few weeks ago when he said, We are
focused on making sure that if you work hard, play by the
rules, you will be able to get ahead, put your kids through
college and retire with dignity and security, we have learned
that talk is cheap in this town and action and determination to
do what is right is hard to come by.
In this situation, a purposeful decision was made to create
a government that was commercially minded instead of being
bound by the precepts of our Constitution, such as due process
and equal protection.
Decisions were discriminatory and politically motivated
that were made behind closed doors, out of sight of any
supervisory board or committee. And for the last 2 years the
records of those decisions have been protected and fiercely
guarded by both the PBGC and the Treasury. The only explanation
so far was that there was no commercial necessity to do
anything for those people. In reality, it was done for the
expediency of GM's bankruptcy exit, not for the benefit of the
people of the country.
A quick chronology would include the fact that GM was
forced into Chapter 11 bankruptcy by the administration.
Delphi, a GM spinoff, had already been in bankruptcy for
several years but remained a major supplier to GM, and so was
needed in order for GM to be able to survive. Because Delphi
had not made contributions to their pension plans, the PBGC had
placed liens on Delphi's foreign assets which made it
impossible for Delphi to sell those assets. So the Treasury cut
a deal with GM, the PBGC, and Delphi such that the PBGC gave up
their liens in favor of an equity position in new Delphi, a
one-time $70 million payment from GM, and a $3 billion
unsecured claim. Thus, GM could keep their major supplier, but
the participants in the pension plans lost a great deal, unlike
the pensioners at General Motors.
In May 2009, the PBGC met along with Treasury, Delphi, GM
and the UAW to come to a mediated settlement on the GM and
Delphi bankruptcies. We were not represented, even though our
government is charged with equally protecting all of the
citizens of this country. They did nothing for the groups of
workers, especially the salaried workers who were considered
too weak to retaliate at the bad treatment that they planned,
but they well cared for the groups that were well organized,
rich, and large enough to retaliate. That is what is meant by
commercial necessity.
The PBGC also followed an involuntary termination process
whereby they simply took over without any adjudication or
outside review, thus denying us the opportunity to be
represented or follow any kind of due process. Simply put, our
decades of effort for the company were considered to be
valueless to this administration, and so they kicked us to the
curb while taking good care of their supporters, the only
worker group represented at the negotiating table.
In short, this administration's unprecedented involvement
from the perspective of the retirees who could not protect
themselves was political, illegal, unethical and immoral. They
had the ability to treat every worker in a fair and equitable
manner, and they still can, but they refused then and they
continue to refuse to do so.
The long-term effects of these decisions are horrendous,
indeed. According to a study by Youngstown State University
extended to include the national consequences, every year, $1.6
billion of economic activity has been lost and will continue to
be lost every year for the next two decades or more.
Clearly, in violation of the requirements of TARP,
thousands of retirees have completely lost their futures. They
will struggle to survive at or near the poverty level for the
rest of their lives. The lost health care insurance on top of
the reduced pensions results in many not being able to pay
mortgages or put their kids through college. They have to
compete for the same nonexistent jobs that so many others are
trying to find.
One such person is here with me today. She has to deal with
several other issues, including a husband who is fighting a
debilitating disease. She and thousands of other retirees are
in an unsustainable situation.
Others have seen their homes foreclosed. They have had to
declare personal bankruptcy. Some have seen their families
break up, or worse.
This is simply shameful and it must be corrected.
We need help, your help, to bring true transparency to this
issue, to reveal for all to see the records of the agreements
that helped some, but excluded others. We need your help to
achieve a fair and equitable settlement for all the Delphi
retirees, especially the salaried retirees who worked just as
hard, contributed just as much, and depended on the company and
our government, to live up to the promises made over decades.
We are here because the administration believed that we
were too weak to fight back, but this is an issue of right and
wrong. It is not Democrat or Republican or administration
versus the legislature. We must not allow a precedent that
allows the U.S. Government to classify citizens based on their
perception of political strength to stand, nor should we allow
an unprecedented step to be done in such a nontransparent
manner. We will stand on this side of right, and we will fight.
That is why we are here, and we need your help to win.
Mr. Jordan. Thank you, Mr. Gump.
[The prepared statement of Mr. Gump follows:]
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Mr. Jordan. Dr. Kochan.
STATEMENT OF THOMAS KOCHAN
Mr. Kochan. Thank you, Mr. Chairman, and members of the
committee. Thank you for the opportunity to testify today.
I am going to make three points in my testimony.
First, government actions to restructure General Motors and
Chrysler through controlled bankruptcy processes were essential
to and successful in saving between 1 and 3 million jobs,
avoiding a potential second Great Depression, and providing the
pressure and the opportunity for U.S. firms to reemerge as
world-class competitors in the global auto industry.
Two, support of the UAW and other unions with ongoing
relationships with GM during this restructuring process was
critical to the survival of these companies and to the entire
U.S. automobile industry. Further support and cooperation
between the company and the union are essential for GM as well
as for other auto industry companies for building sustainable
jobs and enterprises.
Three, the specific top-up provisions governing Delphi
hourly workers were negotiated as a part of a complex, multi-
issue, multi-party agreement governing the creation of Delphi
in 1999, and again in the restructuring negotiations during the
Delphi initial bankruptcy proceedings in 2006.
To retrospectively single out and renege on this provision
during the 2008 and 2009 restructuring and bankruptcy processes
would have materially harmed the ongoing relationship between
the union and company and would have jeopardized the industry's
restructuring and rebuilding process.
Let me expand on these points a bit.
The combined actions of the Bush and Obama administrations
to support the restructuring of the auto industry is likely to
be assessed by historians as one of the most important and
effective steps taken during that perilous time to avoid the
great recession from descending into a Great Depression. The 1
to 3 million jobs saved in 2009 were probably expanded in
subsequent years.
The actions also avoided setting off a cascading set of
costs and losses of revenues to State, Federal, and local
government budgets which would have resulted from increased
unemployment insurance costs of between $8 billion and $25
billion, losses in GDP that would have in turn reduced revenues
of State governments between $15 billion and $48 billion, and
reduced Federal revenues somewhere between $59 billion and $170
billion.
The combined effects of the loans and the structural
adjustments and the additional concessions from workers and
creditors, the leadership changes that were put in place, and,
in the case of Chrysler, the joint venture with Fiat, have now
positioned the automobile industry to reemerge as a world-class
competitor.
For the first time in a decade, the three companies are
reporting profits, are expanding capacity, hiring workers, and
collectively gaining market share.
I emphasize the effects of these actions on the entire
automobile industry in the United States because of the high
degree of interdependence that exists across assemblers,
suppliers, and dealers.
The effect of the largest firm, in this case General
Motors, entering a bankruptcy without a debtor-in-possession
financing option would have produced at best a long and
uncertain restructuring process and at worst a potential
liquidation of the company. Either of these outcomes would have
set off a chain reaction that would likely have brought down a
significant number of automobile suppliers and significantly
harmed other assembly firms and even more dealers than were
already harmed across the country.
Indeed, it's the interdependence across these major
assemblers and suppliers that have grown over the years as more
output has been outsourced to the supplier base.
In 1980, it was about 1.2 to 1, where jobs from the
supplier base to the assemblers existed. In 2008, this has
grown to 3.5 to 1. Moreover, most of these suppliers provide
components to multiple assemblers. Delphi, for example, is the
sole-source supplier of cockpits for vehicles in the Mercedes
plant in Alabama. If Delphi had been forced into liquidation,
Mercedes production would have been shut down.
This is only one of many examples of this nature. Ford, in
particular, would have been put at risk by an extended and
uncertain outcome of a GM bankruptcy because it outsources a
higher proportion of its components to outside suppliers than
does Chrysler or GM. Instead, Ford not only avoided bankruptcy,
it used its time gained in these past several years to build a
very strong partnership with the UAW that will serve as a model
for the industry in years ahead.
Let me speak to the role of the UAW in this industry. The
survival of GM and Chrysler through these processes required
the support of the UAW and other key unions with ongoing
relationships with the companies. Moreover, for these companies
to prosper and to build sustainable jobs and enterprises in the
future, labor and management relations will need to continue to
be transformed, that transformation process that began prior to
the crisis. This involves not only deep economic concessions by
the work force, it also involves joint union-management efforts
to work together to pull--to improve quality on the shop floor,
to improve the quality of the negotiations process, and to
engage in consultation and information-sharing processes at the
highest levels of the companies and the unions.
In 2007 negotiations, prior to this crisis, all three of
the major companies in the United States and the UAW agreed to
restructure and lower the costs of health care, of pensions for
current and retired employees, and cut wages of starting
salaries in ways that matched or came close to matching their
major competitors.
Each of these companies, to varying degrees, has also been
working to engage its workers in building the kind of
knowledge-based work systems that foster innovation,
productivity, and quality improvements. Years of research and
evidence and experience has demonstrated that, to these
companies and to the union, that they need to work together as
partners in leading and sustaining this kind of transformation.
Finally, this issue of the top-off, is worth some
commentary and it needs to be put in its historic context.
The UAW negotiated provisions to protect its members'
pensions in 1999 when Delphi was initially severed off as a
separate company from GM. At that point the union recognized
there was significant risk that Delphi might not survive. And
as a responsible union, it negotiated a number of contingency
provisions to protect its members and retiree benefits.
These negotiations and subsequent ones that took place
when, indeed, Delphi was forced to declare bankruptcy in 2006
involved multiple issues, multiple tradeoffs, economic
concessions, and sacrifices by of the stakeholders: current
workers, salaried workers, future employees, retirees.
Mr. Kelly. Dr. Kochan, I am going to ask you to----
Mr. Kochan. Yes, I will. I will finish in 30 seconds.
To single out one provision to the so-called top-out clause
for scrutiny at this late, without considering this overall
package in tradeoffs, would be inappropriate and highly
counterproductive. Moreover, there is a well-established
provision in the Bankruptcy Code of honoring contracts of
suppliers and other shareholders with critical ongoing
relationships with the company. This is exactly the case here.
Finally, I will close with one comment. And that is, this
statement has nothing to say about the question of fairness to
the salaried employees. As an individual, as a professor who
studies and works with all members, all segments of the labor
force, I find it very upsetting that the salaried workers were
left out of this process. My testimony has nothing to say about
the fairness or unfairness of that, other than what I have just
referred to.
Mr. Kelly [presiding]. Thank you. Thank you very much.
[The prepared statement of Mr. Kochan follows:]
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Mr. Kelly. Ms. Dalmia.
STATEMENT OF SHIKHA DALMIA
Ms. Dalmia. Thanks for having me here.
I am a senior analyst at Reason Foundation, a nonprofit
think tank. I have lived in the metro Detroit area for the last
23 years--I think I am the only one here on the panel who lives
in Michigan--and written extensively about the auto industry.
As a homeowner in the area, my fate is intimately tied to
that of the auto industry and, hence, I am among the region's
hundreds of thousands of homeowners who are rooting for the Big
Three.
But I don't think that the $95 billion or so taxpayers--
that the taxpayers have spent to bail out GM and Chrysler has
positioned them for future success. Taxpayers stand to lose $28
to $34 billion dollars. But beyond that, there are at least
four hidden costs that would plague the U.S. economy in the
years and decades to come, and I will address each of them very
briefly.
The first is--and in my view, the most unfortunate aspect
of the bailout--is that it has completely undermined the rule
of law in bankruptcy. One of the main arguments for the bailout
was that GM and Chrysler didn't have the cash on hand, nor
could they raise it from moribund financial markets to finance
a Chapter 11 bankruptcy. Hence, if the government did not step
in and bail out the companies, they would face liquidation.
Many experts doubt that liquidation was a plausible
scenario for GM. But if it were, and GM were unable to raise
private bankruptcy financing, there was an argument for the
government to guarantee the loan amount to private lenders--
which arguably would have been a lot less than the bailout
amount--and then let longstanding bankruptcy law determine how
much of a loss the various stakeholders--unions, lenders,
shareholders--would have to suffer.
Instead, this administration essentially wrote its own
bankruptcy laws as it went along, throwing out longstanding
established precedent.
For example, and we have talked about this earlier,
normally secured creditors are paid back on a priority basis in
bankruptcy proceedings. But the government put unions, who are
regarded as low-priority unsecured creditors ahead of them. The
whole processes was riddled with myriad examples of unorthodox
practices.
Such flouting of bankruptcy law essentially signals to
future lenders that should they loan money to politically
important private companies, they can't count on the standing
rule of law to protect them.
Additionally, the other big unintended hidden cost of the
bailout is the opportunity cost. One of the ironies of the
bailout is that it constitutes a missed opportunity, not a
second chance for GM and Chrysler. At best, it has prepared
these companies to compete with the industry leaders of
yesterday rather than those of tomorrow.
American automakers have been losing market share to
foreign competitors even before the current recession began,
and one big reason was their uncompetitive labor costs.
Bankruptcy should have been an opportunity for them to
significantly rationalize their obligations to labor, clean up
their balance sheets, and start afresh.
GM and Chrysler's post-bankruptcy labor costs are
comparable to Toyota's, which are about $56 an hour. But Toyota
no longer sets the industry's cost curve. Smaller Asian firms
such as Hyundai and Kia, whose labor costs are $40, do. It is
an open question whether GM can compete with the Kias of the
future.
Also, GM did not get meaningful relief from its legacy
costs, something it would have under a normal bankruptcy.
Without the bailout, these companies would have carried on in
some form, but they would have looked very different from what
they do right now. The bailout has further entrenched the
status quo in the auto industry.
The third big problem with the bailout is that it has
unleashed a systemic moral hazard that will fundamentally
weaken America's market-based economy. In the 2 years prior to
the bailout, GM had accrued $70 billion in losses, thanks to an
unwieldy and bloated operation that supported eight brands. It
had amassed a debt that was 24 times its market capitalization.
Yet it had no cash on hand for product development or to
weather a rainy day.
By contrast, in those 2 years, Ford laid off workers, sold
money-losing brands, and mortgaged all its assets, including
its logo, the blue oval, to build $25 billion in reserves that
it invested in product development and for use in an economic
downturn.
But the bailout rewarded GM's irresponsible, reckless
behavior and penalized Ford's prudent, forward-looking one.
Given such precedent, any company that feels that it is too big
to fail, or is a national icon, or is deeply enmeshed in the
broader U.S. economy, or is a major regional employer, will
wonder whether it makes more sense for it to save for an
economic downturn or hold out for taxpayer assistance. Just as
the Wall Street bailout became a justification for the auto
bailout, the auto bailout will become justification for future
bailouts.
And the last problem with the bailout is that it has
legitimized increased government management of private
companies. Government help means government control, and given
the controls of the bailout are not identical to those of
returning the companies to profitability, it was inevitable
that there would be political meddling in the operations of the
companies in the name of protecting jobs, taxpayer investment,
and so on.
The Wall Street Journal has extensively documented what a
huge role politics played in determining which and how many
dealerships the companies would shutter. There are many other
examples.
The bailout has opened the door for a kind of direct
government involvement in private business that makes a mockery
of the constitutional scheme of a government of limited and
enumerated powers. Ultimately, this might be the most damaging
legacy of the bailout.
Mr. Kelly. All right. Thank you for your testimony.
[The prepared statement of Ms. Dalmia follows:]
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Mr. Kelly. I will grant myself about 5 minutes.
Mr. Ikenson, would you do me a favor and just kind of walk
through the metrics of this successful government intervention
in the free market? And I am trying to understand, because in
the real world there's a different way of defining success.
Mr. Ikenson. Yes.
Mr. Kelly. If you could tell me, at the end of the day, the
total taxpayer investment versus the total loss.
Mr. Ikenson. I believe there was $50 billion invested in
GM, and that doesn't count some of the tax exemptions that have
been granted. There's about $12 to $14 billion in tax
exemptions granted to the company to offset losses. It was an
unorthodox provision, given what transpired with GM.
GM also is getting--GMAC, was also kept afloat to the tune
of about $17 billion. And the main reason for GMAC's
preservation was to help facilitate the sales of GM cars. And
my understanding is that there is a tax credit to purchasers of
the Chevy Volt.
So the number that the public has grabbed a hold of is $50
billion, but I think it's probably more than that.
In November, there was an IPO, and 23--I think $23 billion
was raised, leaving taxpayers on the hook for about $27
billion. And GM still holds--the government holds about 500
million shares of GM.
In order to be made whole financially for that first $50
billion, the price of GM stock needs to be about $53, or the
average price for selling 500 million shares needs to be $53
million. As of this morning, it's $30, and it's been hovering
in that neighborhood for the past several months. And the
reason it's not going to appreciate substantially anytime soon
is because the market knows that the largest shareholder of GM
stocks wants to dump about 500 million, so that's keeping
downward pressure on the value. So I think it's a safe bet that
taxpayers will be stiffed about $10 to $20 billion on that. But
those are just the financial costs.
The other costs, which Shikha and I described in terms of
rule of law, in terms of denying the spoils of competition to
companies like Ford, Honda, and Hyundai, those are other costs.
There are plenty more difficult to observe, those costs which
are unseen, that need to be factored into this. It's not just a
financial cost.
Mr. Kelly. So if you could, the total figure that you come
up with.
Mr. Ikenson. Left right now? I am assuming that there's
going to be a sale of GM and the average price of that sale is
going to be around--in the thirties. So taxpayers are out about
$12 billion there. Then there is the tax exemptions, $12 to $14
billion; some of that is a direct hit on taxpayers, not all of
it.
And then there is the GMAC $17 billion which, to my
knowledge, has not been paid back. So if you have a pencil.
Mr. Kochan. That is 41.
Mr. Kelly. I do. I am up to $41 and pretty soon we are
going to get to some serious money, are we not?
Mr. Ikenson. Yes, that's right--and the $7,500 credit, tax
credit for purchases of Volts. I don't know whether General
Electric is going to be getting its major tax credit there.
They are on the hook for 50,000. I think Jeff Immelt told the
President that he would buy 50,000 of these volts. So it's a
lot of money. It's more than what----
Mr. Kelly. I will comment, I am a Chevrolet dealer. The
main purchasers of Chevrolet Volts are not the American public.
And I would suggest or submit to anybody that if it takes
$7,500 of taxpayer money to make that car viable, that's
probably not a car you really want in the market.
Mr. Ikenson. Right.
Mr. Kelly. I have a bad habit of only buying cars from
General Motors that I can actually sell and make a profit on;
which is an unusual concept in Washington, by the way.
Mr. Kochan. Mr. Chairman, may I comment?
Mr. Kelly. Just 1 minute, Doctor.
I do find it unusual that we are going through the pains of
the Dodd-Frank, and I have a lot of friends in the small banks.
I mean, can you imagine any bank being able to walk away from a
$41 billion loss and say, ``You know, that was a great
investment.'' Only in this Beltway do we come up with these
types of metrics, and I think it's absolutely astounding that
we can say that with a straight face.
And as far as the American car company recovery, are we
also taking credit for the disaster in Japan? Because a lot of
those cars would have been sold here, had they been able to be
produced. And I think that we are really, we are making a very
unstable argument for the recovery process.
Dr. Kochan, you wanted to make a comment.
Mr. Kochan. Thank you, Mr. Chairman.
The $41 billion is a good number to use as the total cost.
But you have to balance that against two things: first, just
the numbers on the low end of the savings of unemployment
insurance and other government expenditures, the loss of
revenue that would have resulted to State and local governments
and to the Federal Government; at the low end of all of those
estimates, from three different sources, comes to $82 billion.
And so you get really a one-to-two.
Mr. Kelly. But your premise is based on the idea that
General Motors would have failed completely had it gone--okay--
see, I don't----
Mr. Kochan. A long, unstructured bankruptcy would have had
substantial costs, and that's the low end. The liquidation
costs would have been a factor of about five more than that.
That's liquidation. This is only a long, unstructured debt.
Now, the second thing that has to be considered here, and
you know this as an experienced person in the industry, the
cascading effects across the industry would have been
devastating; not only your dealership, but many, many others;
not only Delphi but many other suppliers; not only GM and
Chrysler. Ford's CEO testified that he would put--he would see
his company at risk. So we have to take an industry
perspective, not just----
Mr. Kelly. I hear you. I hear you.
Mr. Kochan. I agree with my colleagues on the panel. We are
not in the business of saving specific companies. We are in the
business of protecting the American economy, jobs, communities,
and the future of the industry. And that's what was at risk.
Mr. Kelly. I appreciate the model that you are speaking of,
but I think there would have been some survival of General
Motors at some level. So a lot of this of is purely academic.
Mr. Kochan. No, it's not just purely academic, Mr.
Chairman.
Mr. Kelly. Mr. Kochan--Ms. Dalmia, please.
Mr. Kochan. Mr. Chairman, let me finish.
Mr. Kelly. No, I will come back to you. I will come back to
you. Ms. Dalmia.
Ms. Dalmia. You know, just to put this question of metrics
in some context, Toyota and Hyundai have lost 2.5 percent of
their market shares between January and May. Out of that, 1.4
percent of that market share has been picked up by Hyundai and
Kia. And automakers, the Big Three have picked up 0.8, out of
which a bulk of it is by Ford which is a non-bailed-out
company.
So the $80 billion, or however much we have spent, has gone
to protect about 0.4 or 0.5 percent of the market share of GM
and Chrysler. I just find it hard to believe that GM would not
have survived to capture that kind of market share at this
stage in the game, you know, when car sales have been going up
a little bit.
So, you know--I mean, these are all counter factuals--but I
agree with Dan that if we are going to credit GM and Chrysler
for saving jobs, then we also need to take the cost of the
broader economy of the jobs lost.
The very fact that the UAW's pensions and their wages have
been protected more than at a competitive level suggests that
we have fewer jobs in the economy, because the worker cost of
these workers is really quite high. If we were paying them a
little less, you might have had more jobs, in fact.
Mr. Kelly. Yes, and I can appreciate that.
But as I said earlier, the whole purpose of the hearing
today was for the American public to actually understand where
their tax dollars went. And there's an argument on both sides,
and I do understand it. But I do think a lot of what we are
talking about--and one of the things I don't understand is we
are willing to say that that is something we can write off.
Maybe somebody can explain to me, why is this
unrecoverable; the losses that we are projecting? I know as an
independent person if I borrow money, I am actually responsible
for the whole amount.
Mr. Ikenson. I am sorry; you are asking what?
Mr. Kelly. Well, we are saying, we are willing to write
off----
Mr. Kochan. I don't think anyone is willing. I think Mr.
Ikenson explained it; the real issue would be if the stock
value rises to the level to recoup the full investment, then
you would get it. But we can't control the stock market. I
think that's where the losses come.
I think the direct loans have been paid and there was a
debate about, you know, where those dollars----
Mr. Kelly. Where those dollars came from, right. I
understand that.
Mr. Kochan. The loans will be repaid, or have been repaid.
It's--the loss on the direct investment may come if the current
value of the stock stays the same. I think that's the
situation.
Mr. Kelly. And I would go back to the original purpose of
the hearing today was to talk about the government injecting
itself into a free market; and, again, whether we determine
right or wrong, it's up to the American people to determine was
their money spent properly, was it spent the right way. And at
the end of the day, did it do what it was supposed to do? And a
lot of it, there's differing opinions on both sides. And I can
appreciate that.
But I do know one thing. At the end of the day, every
single penny came out of the taxpayers' wallet, and that's my
main concern. And I just have this undying belief that free
markets really do determine where we are going to end up, and
things are going to rise and fall depending on conditions which
we don't really have the ability to do. And there's nothing
more dangerous than to, you know, project--figure out what the
future forecast, what the future is going to do.
Things do change, and they change very rapidly. And I know
in the automobile business, what looks like a really smart move
one day can turn around very quickly. A little thing like
Katrina blows in off the coast and all of a sudden gasoline
that was $2.39 or $2.49 goes to $4.09, and a market that was
one time stable goes completely upside down. So there's unseen
things in the future.
The question really does come down to the investment in
taxpayer dollars and the benefit, and I think there's something
to be said for both sides. And having said that, and I know
it's been a very long day, I really do appreciate your
appearing here.
And in the future I would appreciate also if you weigh in
and let us know, because it's really important to the American
people to understand this process and how their government does
make decisions and the consequences of those decisions. So I
want to thank you for appearing.
With that, we are going to adjourn. Thank you.
[Whereupon, at 5:06 p.m., the subcommittee was adjourned.]