good afternoon the committee will come to order this oversight hearing is one of a series that the judiciary committee has held on business bankruptcy reorganization in this congress and in prior congresses today's hearing consider a wide ranging ripple effect and possibly unintended consequences presented by automobile industry bankruptcy in particular i want to focus on how various constituencies are being affected the workers the retiree the auto dealers the automobile owners and consumers in general we have thousands of dealers many of whom are family run businesses that have been passed sometimes from one generation to the next being summarily terminated by chrysler and general motors some say it makes absolutely no customers are already anxious about whether their repair warning warranties will be honored now they'll also have to worry about whether their local dealer will even be in business long enough to service their car or whether they will have to drive a long distance to some other dealer or whether they just purchased their next from a foreign car dealer to have some assurance of continued service the lack of consumer confidence in american cars is largely what drove this industry into bankruptcy but what the industry now proposes to do to its dealerships may actually exacerbate the industry's financial difficulties by further undermining consumer confidence so we need to consider the consequences of these bankruptcies on american workers and their families right now thousands of americans are losing their jobs or at risk of losing their jobs and not just that g m and chrysler but also the thousands of suppliers and other businesses directly or indirectly connected to the automobile industry in some way in detroit the official unemployment rate is at an mazing twenty two percent three times the national average and the unofficial rate is assuredly even higher than that in addition many of the retiree's may lose or have already lost their hard won health medical benefits as a result of these bankruptcies some of these costs will be shifted to budget strains and local government witness california  will fall on to the already overburdened shoulders of the retirees and their families just the other day we learned that general motors may close more than  particularly in the light of the fact that american workers as taxpayers as loyal citizens are being asked to bear the burden of funding general motors financial we should consider how safe and legal accountability concerns will be affected by these bankruptcies and so i'm i'm happy and proud that this committee and those witnesses that we were able to assemble are here and the rest of my statement in the record and turn to our friend from texas the ranking minority member lemar smith for his comments thank you mr chairman the events the nation has witnessed with chrysler and general motors are very troubling and attorney for senior  creditors of chrysler has said quote one of my clients was directly threatened by the white house and in essence compelled to withdraw its opposition to the deal under threat that the full force of the white house press corps would destroy its reputation if it continued to fight and quote for a brief moment these creditors held firm refusing to hand over their property to the administration and united auto workers union they stood their ground until the president himself demonized them on april thirtieth before the white house press corps saying the threatened plan unfold before their eyes they backed down in short order creditors went with them let's be clear about what is happening to america's automakers union labor cost price these companies out of the market and drove them to the brink of bankruptcy what the president proposed solution deliver the companies over union ownership through bankruptcy for management is said to while the u a w is cashing in creditors and the american taxpayers who are being forced to cash out secured creditors pension funds for teachers firefighters and state workers like the dealers are being debt piggy bank the american people won't see a dime the administration's handling of chrysler and general motors should give all americans great concern in chrysler and g m the administration is replacing c e o s and strong arming senior secured fabric as a nation and our customers as the automobile everybody wants to get a car when they turn sixteen or soon thereafter and learn how to drive their cars inspire it's american cars and american cars are a lot about what our country has been about and what we have to find ourselves as which cars we drive and what we do general motors ford and chrysler produce those cars and millions of americans and been a great part of our engine at one time it was said what's good for general motors is good for the nation not sure we can say that today they've employed many people and they still do and they continue to employ hundreds of thousands of people and who work in the industry and for suppliers in a dealerships us automakers support thousands of retirees who are concerned about losing their pensions and their health care and we need to be concerned about how these people come out in this bankruptcy of chrysler and possible bankruptcy of general motors for these people gave their lives and expected payments there are literally tens and hundreds probably hundreds of thousands of individuals in this class the automobile industry is important for many areas in our country's economy and historically in east tennessee far away from my home but in my state people went from east tennessee to anderson indiana and places in michigan to gain employment and have since returned to to retire but their retirements are in jeopardy american automakers have stumbled badly some blame president obama for the situation i'd like to call me last week and say president obama has closed the chrysler dealership in southaven he doesn't know anything about how to run a car company well apparently the people who were running the car companies didn't know much either they failed initially to respond seriously to the challenge from ford competitors after until after those competitors had to stablish wrong foot holes in our country and taken over the marketplace with cars that had better fuel efficiency and better records as long lasting and safe vehicles they resisted fuel efficiency standards and this did making fuel efficient vehicles even last year there were folks coming to my district and opposing better fuel standards for our cars while american automakers have made great strides in addressing some of these problems they are suffering because their past missteps now one american icon chrysler is already in bankruptcy another g m faces into bankruptcy filing and while i hope to learn more of the details of both compan restructuring proposals i'm particularly interested in a few points based on matter saying if their proposals i'm concerned about reports indicate g m intends to shift a significant amount of its production out of the country while depending on american monies to keep it going out we don't end up subsidizing the shipping of american jobs to other countries additionally i wonder about the fate of g m stock holders particular retirees who will end up with very little in their investments and i wonder how chapter eleven is going to affect these people in that these experts could tell us that what they think the old chapter eleven would have been is addressing the concerns of the american automobile companies the workers the retirees and that might be different than under this new chapter eleven because chapter eleven is the bailey work upon which my committee is looking so i thank chairman conyers for all of the support nearing on the actual and potential bankruptcies of these automobile giants i thank our witnesses for make themselves available to testify on short notice and i'm eager to learn about their thoughts on chapter eleven and the possible consequences mr chairman i very much appreciate being recognized and i appreciate this hearing today this is a subject matter the american people need to know about and made me very interested in the perspective that each of the witnesses bring before this committee what's on my mind is how do we preserve free enterprise how do we preserve the rights of property the rights of contract their rights and franchise how what is happening to the capital investment in america if it appears that it will be taken over by the federal government or some machinery that results in the same as i look at the sequence of events we pass the and web over my objection that tarp funding last fall the seven hundred eighty seven billion dollars some of that went and a bailout investment companies some of the investment companies were secured holders of collateral in r and chrysler and general motors some of those investment companies were were leveraged out of their position to force a chapter eleven result which would have been a better result for the secured creditors if that had been the case but they were leveraged out of their position because they'd received tarp money one after another they dropped out until only about five percent of the secured creditors were left when they gave up their position and their shares a good proposed to be handed over to the unions rather than the secured credit creditors which turns this this collateral and property right upside now while that's going on we have franchise holders across this country that are told you're out of business and we handed your neighbor your assets of maybe a million or multiple millions of dollars in value that these franchise now the rights of property are essential to the the vigor of the free enterprise system and how a fold and we end up with companies that are run for the man over the people working for them rather than for the profit of the investors that runs its anathema to me and my entire philosophy about how the economy united states of america should work if you want somebody is business go buy it if you don't like that then start your own business and compete that's what's made america great and that's some of the things that i hope come out in this hearing today and i know there'll be differing viewpoints on the panel but i also and mr chairman i ask unanimous consent to enter into the record  colleague from new york thank you mr chairman i will not take more than a couple of minutes but i do want to welcome a constituent of mine who is one of the members of the panel randolph the henderson its chairman mr henderson is one of the many dealers in my district that had stories that concerned me and prompted the need to get together with a number of my colleagues and write a letter to the white house auto task force i would ask unanimous consent that that letter along with a full opening statement be submitted to the record without objection thank you very much mr randolph henderson randy henderson is the owner of webster chrysler jeep in webster new york which is just east of the city of rochester he has been selling chryslers for fifteen years and in fact in  hundred eight was named a five star dealer before opening up the dealership in rochester he worked his way up in retail business he is also very active in the community with his charitable work supporting many nonprofit organizations such as action for a better community late last year chrysler financial froze randy's floor line plan threatening his dealership and now he is one of the seven hundred eighty nine affected dealers who were given just three weeks in the middle of this recession to close their doors after being notified that chrysler was terminal terminating its franchise agreement so mr chairman i i want to welcome mr henderson here to the committee very very grateful that you would make the time to come along with the rest of the panel and i appreciate your story is so important to what we're doing back i think the gentleman we have a large panel but it's a distinguished panel we welcome the honorable bruce fein principle and the let's feel group mr andrew grossman senior legal policy analyst of the heritage foundation welcome mr rendell henderson president of henderson automotive family of the national automobile dealers association president damon thank you for your patience i we're going to reconvene the hearing on ramifications of auto industry bankruptcies we have just completed our opening statements because we are very interested in the very important chairman obviously saving the auto industry is very important at the same time we have to make sure that all creditors are treated according to the law i look forward to hearing how we can accomplish that and we're not straining too far to help those creditors that these auto companies are going to need to do business with in the future as opposed to those creditors who are not part of their future but are part of the i thank the chairman very much  panel of witnesses and to begin the process of reminding the entire world that we are a country of laws and that our bankruptcy laws and our contract matters and i hope by the time we leave today that people far and wide will begin to realize that regardless of the actions of the executive branch ultimately rule of law is paramount and must be obeyed and certainly chrysler seeking bankruptcy protection has never been more let me take my one minute very briefly i think the questions i've been raised by my colleagues are crucial but i'm here for one reason and that is the lack of appreciation and understanding of the utilization of chapter eleven and the negative impact this seemingly pointed impact on automobile dealers and in particular minority my automobile dealers my concern is how do you go into chapter eleven and harm those who have been part of the infrastructure of your business how do you go into chapter eleven and before you even go when you read your cell dealerships who are proven themselves to be financially worthy i find it to be unacceptable and i believe that even in this late time as these companies are in bankruptcy there should be an immediate legislative fix that we hope to be signed by the president pacifically designate and points  and certainly not defended so i hope that there can be some guy even beyond the instruction has been given by this government for chrysler and g m to fix itself why then is the burden falling heavy on the head of those in our community that are doing business and doing it right every single day so we will and i yield back we will now start with mr the puck and we would appreciate the presenting of your testimony for five minutes and we'd ask that you would revise their statement or to summarize your statement and be willing to submit the statement into the record in its compilation thank you thank you for the opportunity to be here  united states bankruptcy court have a progressive not diseases forum shopping and competition for big cases chrysler is a detroit company so is general motors chrysler has filed in about thirty percent of large public companies farm shop the last time i addressed this subcommittee two thousand and four the number was sixty five percent forum shopping and today it's seventy five percent seventy percent of all the large public company bankruptcies in the united states are filed now in just two courts delaware and new york the cases don't just come to those courts the courts have to do something to attract the cases the result is that chapter eleven is evolving a bias and it is a bias in favor of the people who control the choice of a court the manager of the company the professionals who represent the company and whoever finances the bankruptcy and here that is the united states the united states in the chrysler case the beneficiary of this bias but every bias in favor of someone has a bias against someone else and the people on the other side of this bias are the creditors the suppliers the employees the landlords the tax authorities the dealers the community literally hundreds of thousands of people it's not a level playing field for the rest i want to just give you two examples of this evolution chapter eleven takes about a year to two years if you go through the ordinary procedure managers want to get out more quickly though they'd like to be out in thirty to sixty days and there is a procedure that whereby someone can do that it's a three sixty three sale sale of the company it's an exception for unusual cases the unusual case where there is a buyer for this company where the companies actually being sold now g m and chrysler are presented in the form of a sale but they're really reorganization plans they shouldn't be approved by the court but everybody knows that they will be approved if the new york court did not approve the chrysler case the new york court would not get the g m case it would go to delaware instead and once those sales are approved then a lot of future debtors are going to want to do the same thing thirty to sixty day bankruptcy is not a year to two years and the court will be unable to deny them because if one court says no to them they'll simply go to a different court now the second example is professional fees they have been increasing at the rate of ten percent per year over a period of ten years i think that is higher than the rate of increase in health care costs the effect is to drain funds that could have been used in the reorganization could have made the company stronger if a court tries to control that again it has no effect because the cases will simply go to a different court that doesn't control the fees so the system that has been set up by congress for reviewing this has atrophied  the courts are simply ignoring the statutes rules we have documented this report was released a few weeks ago and it contains all it link to all of the evidence out of the court files that these laws are being broken the united states trustee is the agency that monitors compliance with the fee control system to date they have had no comment on our report and it is one of my hopes in coming here today that this committee or some member of this committee will ask them for a comment thank you very much thank you very much for your testimony we will now president of name at the national association minority automobile dealers name of represents ethnic minority automobile dealers in the united states which which currently there are a total of nineteen thousand new automobile dealers of which less than twelve hundred or five percent are owned by ethnic minority dealers in the united states since the auto bailout hearing last year and with the submission of both chrysler and general motors viability plan it has been well documented by these manufacturers to either rationalize or reduce their dealer body by consolidation and brand elimination in fact dealerships are independently owned independently finance franchises they are the middleman between the manufacturer and the consumer they represent the only distribution channel for manufacture products and they generate revenue for the manufacturers and are not an expense line item so the manufacturer so using the excuse for consolidating and eliminating brands as a reason to save  manufacturer money is simply not true today small dealerships throughout the u s are in a crisis and we need help now to help needed is largely due to the lack of consumer confidence the lack of confidence of retail credit the lack of lender confidence to provide loans to automobile dealers for both working capital and four point in loans even with government backed loan guarantee that since our government provided working capital loans to automobile manufacturers fair consideration should have also been given and needs to be given now to automobile dealerships directly from similar to what was done during the carter administration in one thousand nine hundred eighty s the chrysler bankruptcy filing and  dollars in local and state economic dealership contributions and employees taxes concern customer services suppliers and charities the bankruptcy filings will save wall street but will tear down main street as of these displaced employees do not have another option to seek employment quickly for minority dealers our representation has always been disproportionate compared to the entire dealer network at our peak we did a maximum o two thousand dealerships in the united states and today we are less than twelve hundred with another reduction due to the crisis and general motors terminations this reduction in our dealer body will and has began the elimination of well in the minority communit the bankruptcy filing will allow chrysler to evade the dealer franchise laws in various states more importantly the federal statute intended to protect automobile dealers day in court is negatively implicated by the recent filing it is because of the filings allows chrysler and any other manufactured that may file for bankruptcy to hide behind the bankruptcy code and the bankruptcy filing in order to terminate the deal as franchise agreements and reduce their body without providing reasonable and just compensation therefore we request that congress consider relieving the individual from personal liability as guarantors on floor plan and term loan green light is on but that's much better thank you i'm here today as a member of the national automobile dealers association the national association of minority automobile dealers the question of minority dealers association the chrysler corporation bankruptcy g m bankruptcy on the dealership watty to the lack of transparency and accountability in the taking of our properties and livelihood and three the disparate impact of the proposed dealership productions on the minority  people between three dealerships and generating revenues up to eighty five million dollars my wife and i have donated hundreds of thousands of dollars over the years churches and community and been an asset to christ of corp over the events that have developed around us recently have created an economic environment that is causing us financial ruin in my dealership franchise agreement and hundreds of others but terminations through the rejection mechanism of the bankruptcy process over the last year natural disasters gas prices and a drop in consumer spending made selling vehicles very difficult in fact chrysler told us we needed to order a needed and unwanted vehicles to help to keep the plants going if we want to see the company survive on june ninth could become a personal liability to many dealers as you know chrysler file for bankruptcy protection on aug thirtieth two thousand and nine there was a great deal of disappeared in the hard working men and women we employed through no fault veil on face the prospect of joblessness and inability for their families there's been no clarity or clear criteria presented to us their dealings with identical company received billions of dollars in federal loans and is currently receiving federal taxpayer dollars because of chrysler's action price or financial has frozen many of our accounts i'm sad to say that many dealers are unable to even afford to retain those minority dealers by ethnicity that's a fifteen percent reduction twenty two percent for native american twenty seven percent for african americans and thirty two percent for asian americans the statistical evidence of disparate impact  hard to ignore similar the projected impact on the g m in order to deal with this catastrophic as well the general motors six thousand dealerships only two hundred ninety eight all by minority business people representing less than five percent of the entire g m g m dealer network and the taking of their property without due process and fair compensation this bankruptcy should not isolate chrysler from accountability to the committed dealers or consumers i'm proud to live in a country where i can call these hardworking small or large business people third traveling senior lenders contractual and property rights undermines the rule of law and great damage to our economy contrary to the administration's claims these cases are not real bankruptcy's said the administration is abusing the bankruptcy co grease the wheels of a massive automaker bailout when this sort of sham transactions been attempted by the private sector the results have been close scrutiny by regulators and even prosecutions think enron my first point is that the scheming is counterproductive chapter eleven with its strict focus on maximizing the value of the businesses assets is designed to address the kind of deep seated long term problems that have plagued the automakers replacing chapter eleven with the political process will impede the reforms that these companies need to be competitive there's already evidence of this for example both chrysler and general motors have announced cuts to their dealer networks and essential step for the cuts are nowhere near as deep as industry veteran say are necessary and this is probably due to politics the result is that neither automaker will come close to achieving the efficiencies of toyota's world class distribution network another example is work these byzantine arrangements govern yearly every facet of automobile production at a major cost in terms of flexibility an efficiency and its deal with chrysler u a w did agree to simplify them a bit a step in the right direction but again the gains are nowhere near what might have been had in a regular chapter eleven case this leaves chrysler at a severe competitive disadvantage and general motors will probably suffer the same fate the bottom line is that a regular chapter eleven reorganization would have better results in the administration's bailout scheme my second point is that the precedent set by the scheme puts our bankruptcy system at rest chapter eleven as crafted by congress works well to turn around trouble businesses research by elizabeth warren and others show success rates of up to seventy two percent for companies that were once on the verge of failure the system is threatened when it is abused to steal from one party to give to another that is exactly what happened in the case of chrysler secured creditors holding super safe were told to take a hike so that their assets with some additional money from the government added in could be handed over to union control this precedent will facilitate the looting of companies by insiders and the freezing out of investors it is that dangerous my third point is that trampling senior lenders contractual and property rights undermines the rule of law and threatens grave damage to our economy the rule of law means clear generally up of the laws applied consistently by which individuals can organize their affairs as use madison explained in the federalist the rule of law is a prerequisite to due process and a protection against the arbitrary exercise of power in other words  tossing aside well established rights realty because there inconvenience or expense of the government strikes directly at the rule of law and it will have consequences several are obvious the automakers of course levelly limited access to financial markets for years to come when they are able to borrow it will be expensive and on unfavorable terms this will impede their recovery more generally unionized industries will suffer a major blow as one hedge fund manager explained this week the obvious lesson of this episode is don't lend money to a company with big legacy liabilities that means union the automaker bailout will cost jobs in your industry finally lending across the entire economy could be affected investor warren buffett has expressed this fear tinkering with the rule of law does not come cheap i conclude with a recommendation this episode of lawlessness began in congress with the legislation that established the troubled asset relief program or tarp which has become the administration's slush funds congress also has the power to put an end to these abuses by blocking future bailouts and beginning the slow process of unwinding those already made thank you for the opportunity to appear before you today stand ready to answer your question thank you very much mr grossman and now we recognize mr fine who is well familiar with this committee thank you for coming again and we ask you you might summarize your statement and submit your entire statement into the record you recognize for five minutes thank you chairman and members of the committee i'm here representing the constitution of the united states and it's a document that you of course are all sworn to uphold and defend under article six it's been due to squint in recent years i think much to the disadvantage of the rule of law and otherwise and i'm compelled to make this analogy i think hearing i think the consensus of the enormous impact of the reorganizations of general motors and chrysler will have across the spectrum of the american economy and the complaints about what the bankruptcy judges might be doing what the executive branch is doing and i recall a statement from pogo in the one nine hundred seventy s we have met the enemy and we are because the only reason why we are here complaining and worrying about bankruptcy judges in the executive branch is because this branch is given away all of the power without any guidelines whatsoever and let's review exactly how we got to where we were through  delegation of power it was this branch through the tarp funds enable the executive to utilize virtually on channel discretion to decide which businesses which companies would get money which would not what limitations would be placed on the money there were no guidelines compared to the supreme court invalidation of the national recovery act and schecter poultry that statute was micromanagement compared to the tarp and from there we go to bankruptcy bankruptcy judges serve for fourteen years they're appointed by courts of appeal who also are appointed and serve life tenure where is the accountability to the bankruptcy judge despite the fact that their decisions will have the normal impact that you've described in your opening statement and the witness described the reason why the founding fathers and trust to legislate give power to this branch was because you're politically accountable constituents have the ability to communicate directly and you have to pay a price if you do something that turns out to be an toward the founding fathers did not want the tonic guardian sitting its bankruptcy judges standing at the commanding heights of the economy doing whatever they wanted and if it turned out wrong that's too bad who's going to go pick at a bankruptcy judge you can't have the response that the democratic process anticipated and this is not an impractical suggestion that this branch should be deciding the fate of chrysler and general motors or other big companies when the too lengthy a bill well i remember testifying and you voting on the debt world trade organization over a thousand pages long i think arista was the ones that do that no one had read completely it was so long ago there are clear precedent for this branch and acting very complicated and taking the accountability that the constitution anticipates moreover there are serious other constitutional questions than the unconstitutional delegation at issue  here and they've been raised with regard to the contracts clause the bankruptcy laws basically and tao on elected officials the authority to void executive or a contract involving hundreds of thousands of persons whether retirees employees that ultimately this legislation that you would enact would be subject to review but every branch of government has the obligation to uphold and defend the constitution of the united states not just the bankruptcy court and i am worried seeing a broad spectrum of problems this country confront of the repeated effort by this branch to the executive branch all the important decision making power whether it's war and whether the tarp funds or otherwise you're elected here to make a decision not to duck and that's what your obligation requires you to do and i think this demonstration and hearing today shows what enormous ramifications will flow from the chrysler and general motors reorganization that you should decide and let the politics work as they will that how democracy works it doesn't mean you'll be infallible but at least we will have the dignity of know we are charting our own economic destiny not a bankruptcy judge thank mister let me thank the witness for his testimony and now recognize mr clarence for five minutes and likewise you can summarize your statement and submit your entire statement into the record low you recognize for five minutes thank you  this hearing we understand they are plaintiffs in a personal injury and product liability suit with chrysler your presence here today is recognized and it is acknowledged as very important we thank you for your presence here today witness ma we thank you again for that instructive testimony and we recognize the gentleman that needs no further introduction but we acknowledge his long years of service and commitment to the consumer mr ralph nader's recognized for five  force task force that is made up of cabinet officials and high level political appointees but the dominant ones are from wall street they have a financial approach to th problem they are not reflecting manufacturing knowledge at all and i mention treasury secretary geithner economic director larry summers and  steve rattner in law school we used to study cases involving excessive delegation of congressional authority to agencies and departments in the government those problems are really quite compared to the wholesale delegation these days i think congress has feels is so overwhelmed that it's exhibiting evidence of cognitive dissonance and it's important historically to know that congress has conducted hearings and pronounced policies into law that are very complex tax laws for example the pension laws the trade laws as bruce fein pointed out a very detailed analysis of that led to the conrail legislation amtrak legislation and in one thousand nine hundred eighty nine the house and senate had extensive hearings on the chrysler bailout what is the difference now except that the ramifications are horrifically greater what is the difference now except the damage she checks and balances constitutionally are greater than ever i think it's important to know that m is is going to go into bankruptcy without any shareholder approval notice that the business judgment rule now extends that if you bosses under prodding from washington can throw a company into bankruptcy without a shareholders vote of either approval or denial their shareholders common shareholders preferred shareholders shunted aside today we had it a press conference where small bondholders were making their plea if this goes if g m goes into bankruptcy what will emerge what will be launched would be a conclusive death star tens of thousands of jobs thousands of smaller businesses and adverse affects to hundreds of communities around the country and congress is entitled to ask does this have to happen when a company in two thousand and eight point one million cars three million in this country over one million in china the rest around the world and be considered a basket case unworthy of detailed congressional examination and policy making along with the rest of the industry we're entitled to ask a lot of questions the workers are entitled to ask questions the dealers are entitled to ask questions rural dealers minority dealers are out  to ask questions auto suppliers toyota has been contacting people here saying if g m goes bankrupt its suppliers a lot of suppliers are going to go bankrupt because they sell the g m and toyota there are a lot of issues in your opening statements members of the committee and in the prior statements here that argue overwhelmingly for this task force to be considered in its final report in a few days as an advisory committee to the congress and it comes back here to the congress for thorough policy resolution and legislation this is if anything is a responsibility of the congress when a unelected little task force operating a secret a few days ago can tell chrysler to terminate seven hundred eighty dealers averaging sixty jobs for a dealer that's forty five thousand jobs against chrysler's will because it doesn't cost anything for chrysler to have dealers and they sell more cars and it's more convenient to motorists especially in poor areas in rural areas when that can happen that's just a harbinger of congressional delegation run riot i'd like to know in conclusion that the fly in new york mean here is the china strategy of general motors years ago general motors realized that the u market was a stagnant declining market it couldn't compete with toyota and others and that china was the future and now china is being used as a platform to react to the united states to further hollow out communities and jobs on behalf of general motors i don't think you can ever have free trade with a country that's a dictatorship because a dictatorship dictates cos dictates wage levels it dictates no unions it dictates pollution it will dictate bribery and those are serious unfair a message of competition whatever you can say about china violating repeatedly  of the world trade organization you can also add that if congress does not examine this china policy and examine all these other issues that have been raised here it will go down as one of the greatest abdication of congressional responsibility in economic rule and that will turn into a fireball of political protests that will come back to washington and it will not be directed at the republican party will be directed at the party in power and i'll conclude with a short comment by a worker in the car nowshera chrysler plant in wisconsin a award winning modern engine that's what we want companies use the government support the tax money to shut factories and move the jobs out of the country what are we saving the company name and in short what's at stake here is a huge demand for congressional policy making bringing together all of areas all of that only congress can bring together and the other day i was astonished by a legislative aide to a senator who told me we don't want to come back into a congressional congress cannot make tough decisions well if congress cannot make tough decisions i think you'd better have a major hearing on so thank you thank the gentleman first testimony mr paquet you have a schedule departure what time is that  i think we might be able to get in the last two witnesses and then the question will begin with you again mr claiborne needing no extensive introduction but we thank you for your longstanding service to the consumer for five minutes i thank you madam chairman and i will try to take less than that so that you know the way to be questioned the major point that i want to make is that the united states taxpayers decision that has already been explained are being made by a small group of individuals there is no give back by the company in terms of safety now i would have said that about fuel economy until the president's announcement on monday which were extremely or tuesday which are extremely pleased about and so i won't go into that detail but what the president has pushed for and is going to implement is vastly improve fuel efficiency and an a national standard for emissions and fuel economy but the issue that is on the table as well for this nation is health care and in the president's meeting with industry leaders and others last week he talked about the importance of prevention well there are forty thousand people killed every year and two and a half million people injured on highways and there's a lot that can be done about it and the automotive industry has spent  decades trying to prevent safety standards from being adopted and yet there is a very important unrealized agenda for safety improvements and i'd just like to briefly mention them for the record and that is stronger roofs and side window glazing and important safety belt protection for occupants and rollover crashes that killed ten thousand five hundred people a year so much more than almost any other issue that we are so concerned about obviously in wars and other things stronger seats and seat backs which fail causing terrible injury not only to people in those seats but to children who we now insist be put in the back seat and protection for are far less likely to be seriously injured and also bicycle riders and hondas leading the way on this but the u s government has no standards on pedestrian protection and then compatibility and safety requirements between vehicles of different size which is very important chairman is that if we're going to give all this money to the auto industry we ought to at least get improved safety on the highway and not just give it to them and let them continue to oppose safety improvements for our people and i of course also endorse all the other statements  particularly about the automobile dealers and the closing of plants and i would like to submit for the record an article called the case of commotion in the nation magazine this week that talks about this plant that's being closed arbitrarily thank you and the entire statement into the record thank you madam chairman and members of the committee it's a great honor to appear before you this afternoon i'd like to make two basic points in my opening remarks first our bankruptcy laws are well designed to handle the financial distress of chrysler and general motors and to facilitate their restructuring back in the administration's handling of the chrysler bankruptcy and its apparent plans for g violated the basic rules of bankruptcy in ways that could have may well have dangerous consequences let me briefly expand on each of these points first our bankruptcy laws in particular chapter eleven are well designed to successfully restructure the automakers there is a widespread misconception in this country that bankruptcy means the death of a business in many countries would be accurate but the american bankruptcy laws are uniquely designed as they have been since corporate reorganization was first devised over a century ago to preserve and restructure viable enterprises like the car makers the first major mistake with the carmike makers in my view was waiting so long to consider the bankruptcy option general motors lost twenty billion dollars last year the company surely would have lost less and would be much further along in it efforts to restructure if its former management had not refused to plan for or even consider the possibility of a bankruptcy until late last year the arguments g m management made for avoiding bankruptcy such as the claim that customers would refuse to buy the cars of a company in bankruptcy were never plausible in my view the decision finally to use chapter eleven has been a good and overdue decision but the administration's handling of the bankruptcy process has been deeply problematic this is the second of my two point in a case like chrysler the parties ordinarily would negotiate over the terms of a reorganization plan and then each class of creditors or shareholders would vote whether to approve the plan rather than use the traditional process the administration has structured chrysler's bankruptcy as a sham sale of most of chrysler's assets to a new entity called new chrysler for roughly two billion dollars the goal of this strategy seems to be to circumvent the voting process and to alter the ordinary rules of priority under the usual priority rule known  absolute priority senior lenders are entitled to be paid in full before lower priority creditors including employees receive anything the sale in chrysler undermines the rights of senior lenders by setting an artificially low sales price that will give them less than thirty percent of what they were they are owed while promising a substantial recovery to lower priority i believe that the auto task force and the administration generally believe that their plan is the best strategy for restructuring the auto industry and making it profitable again but they've just distorted the bankruptcy rules to achieve this result the chrysler strategy could have it leads t very dangerous consequences first the subversion of basic priority rules could interfere interfere with lenders willingness to extend credit to troubled corp senior lenders have been burned in chrysler they will take steps not to be burned again lenders will be especially reluctant to make loans to any company that might be the subject of government intervention such as the suppliers to the auto industry more generally  saddling of the priority rules could appreciably increase the cost of borrowing for any company that is in financial distress in the coming year sakin the chrysler sale sets a dangerous precedent in future cases the insiders of a company that files for bankruptcy will be able to propose a similar shallum sale that benefit benefits favored creditors perhaps the matter of the company at the expense of creditors the already are reasons to worry about bankruptcy sales that are proposed by insiders but the chrysler precedents goes well beyond anything that previously would have been thought possible i don't believe that the sham sale and chrysler will be treated as an extraordinary one time event much like the supreme court decision in bush versus gore it will influence future cases on these issues in the years to come in s believe that our bankruptcy laws are well designed for restructuring of the troubled carmaker but it is very dangerous for the administration to distort the bankruptcy laws to achieve its preferred outcome thank you  much i want to begin by thanking our colleague sheila jackson lee for chairing the committee through this very important and serious testimony that's been rendered by two four six nine panelists and we're grateful to them and i'd like to ask any of my colleagues if anyone together as quickly as we were able to thank you mr chairman mr grossman let me direct my first question to you there been serious allegations that chrysler senior secured creditors were strong armed into agreeing to the auto task force is chrysler deal what are the ramifications of that for secured creditors a bankruptcy system in our overall financial institutions thank you thank you mr spencer that question as you noted have been will find it tougher to access capital markets when they are able to arrange loans those loans will be more expensive the result will be that those companies and those industries will suffer a competitive disadvantage and that will cost jobs and economic growth thank you m grossman mr nader individuals in the room who are under forty or fifty may not know that back in the sixty's and seventy's you were a campus hero and i had several classmates in fact who work for you after graduation be less willing to buy cars from companies in bankruptcy he called it implausible i don't think it's implausible do you i mean the whole structure is built on a house of cards if there's another strong dip in sales as chrysler has been down from last year big time but it's down even more for not mistaken since the bankruptcy you know there's and doesn't take into account enough variables around the country it is ideologically empirically and this is what happens when you put wall street people in charge heartland manufacturing like your initial response yes but thank you for elaborating pressure you said that the chrysler bankruptcy deal is a sham what does it mean to the rule of law under our bankruptcy where there were real buyers out there it would be one thing but this is a completely artificial sale that's being devised by by the government to achieve the results it wants to achieve which is turning the ordinary priorities on their head  fear is not only is that going to have significant negative consequences for chrysler itself in the chrysler restructuring itself but in the future it's going to tempt other people to do the same sort of thing once the government does it other companies that are in trouble are going to do this as well they're going to get into bankruptcy instead of going through the ordinary restructuring process with the voting rules what they'll do is they'll propose a sale to a company that they will cr not unique over the last several months as a member of the judiciary committee and the financial services committee we've had a number of very very difficult choices to make and it's always difficult to hear some of the projected consequences been trying to deal with in other committees financial services we obviously have been working very closely with the minority automobile dealers  trying to save them we tried to get them included in the original bailout with the manufacturers that did not succeed we have a very strong interest in trying to to minority automobile dealers who have been under represented in in the bankruptcy i think in many respects the consequences would have been similar i think there would have been a restructuring but i think it would have been more planned out and it would have been developed earlier and perhaps there would have been more discussion is is you know when we have a choice we have to figure out what the choice is between and i understand the potential consequences of gaming the system reserve you know i don't know that i would want these decisions made in a political context by the four hundred thirty five members of this body or the one hundred members of the  thank you mr chairman i want to say that it may seem like a platitude but matters of degree count in terms of how much the responsibility for making these decisions given to those who are not countable and can do whatever they want with  the internal revenue service regulations are gloss on and with regard to accountability and process that democracy is about the federal reserve board is not only relatively secret but these are members who are independent you w the automotive companies actually do spend a fair amount of money to service their various dealers there are certain fixed costs for every single dealer no matter the number of cars the dealer sells in addition franchise there's also the issue of cannibalize sales when you have friends that are located in areas that are too near one another there is the risk that those will compete against themselves in a way that is bad for the automaker and that may be bad for the stability of back of that company in that brand so i think the key answer to your question is it's a question of focus it's a question of resources and it's a question of making sure that customers have been raising those questions and chrysler is giving indications that there have been a combination of factors that have to do with market share location facility and so forth but as we look at the terminations what happens is that it makes it a lack of convenience for customers to be able to have dealers in their locality to be able to service their vehicles and also takes away some level of competition  want to extend that metaphor you can see the testimony here there are safety consequences there are health consequences there are burdens on the taxpayer because more unemployed people will have to go on social welfare so it's it's a very sad situation i've always been excessively sensitive to excessive congressional delegation knowing full well you know if you've got huge burdens on you you can't micromanage but what i think bruce is been saying and others is that you're delegating basic policy decisions basic policy i mean i'm old enough to remember the dealer day in court senator father and others did for the dealers to develop a better balance of power between dealers and auto companies those hearings were thank you very much mr chairman and i want to thank the witnesses again and i thank the chairman for yielding to me and sharing the chairman's chair because the testimony from the position of that chair seems to acknowledge the lessons that i received in meeting with the national association of minority automobile dealers just recently or a couple of months ago in houston and the strong arguments that were made and arguments that we try to take to the table and so here we are and i would just offer words such as brand elimination the only distribution system that is in place to get from the  manufacturer of the owner to the ultimate consumer which is true we need help now and the reduction of dealers certainly is a reduction of well in the minority community and one that i would add is that the dealerships minority and otherwise are anchors in our community they are the grounding of civic miss they are the little league supporters the that you tried to help in this instance chrysler by agreeing to buy vehicles that you may not have needed in your inventory but as good citizens and good laborers if you will on behalf of your brand company you stretched and stuck your neck out on the line and this may have happened across america and this is tragic and disgraceful it is disgraceful that you get this kind of thing not that you extended yourself but to get this kind of thing and certainly as the bird has been put it out feet i don't believe and i know that members of congress did not intend to give unfettered control but we wanted to be partners and we wanted to get this team rolling this if you will to get us back on out the interesting way enough there is a little light at the end of the tunnel and the economy is turning at least as we look at the dow but what we have here i think warrants some kind of legislative fix and so i want to pose my questions along those lines and ask quickly though mr fein has suggested that we have on burden ourselves our responsibility i just want to know can beside the constitution do you think we need to rush in with a legislative fix and i use as an example this issue of individual live below the for the dealerships as they close and left holding the bag on probably purchases they made do we now come in and step alongside of the bankruptcy proceeding and asked to protect certain creditors fin d that this body has authority by statute to override anything that a bankruptcy judge might be considering bankruptcy judges acting under delegation of standards that  quite appropriate decision for this body i think is more than appropriate mr gross and what about a legislative fix particularly in the issues of the unwanted inventory so that the deal may be now a liable for a number of the keeping of the fixed asset so that it that want to come back so we would do a parallel action along side of the bankruptcy proceeding meaning legislatively do we have to put all of our eggs in that franchise laws are not applicable in a bankruptcy proceeding i think the legislative fix you describe would have at least two concerns that it raises one is that it will delay and impede the reforms that are necessary for general motors and chrysler to regain their competitive footing we may wind up in a scenario where these two companies are once again on the verge of insolvency or bankruptcy despite the many taxpayer dollars they've been invested in so if i may quickly thank you you are not looking for a fix nater these are really the consumers of sorts that we're that you're talking about even though an ultimate consumer may be the gentleman who has been injured plaintive that are now in proceedings but  also dealerships is it just say from the moral representation of consumers should we put our heads together on a legislative fix if we're leaving dealerships holding the bag i think that the congress is wrong to faced with the bankruptcy of their parent of their parent company sort of maybe that's what one answer you might be looking for the existing contracts allow for remedy absent any bankruptcy always pleased to recognize the gentleman from texas judge lewis and i am always pleased to be recognized by our honorable chairman thank you  well it was a pleasure dan it's a pleasure now and you're probably the most recognized consumer advocate in the world and i'm sorry i was like we had another hearing that goes on same time but  asserted there are serious questions about people who have product liability suits have been seriously injured two of whom are in this room pursuant to a chrysler bankruptcy there are serious questions about whether the government's investment  is going to lead to elevation of long delayed safety standards that the auto companies have been fighting and there are really serious questions about the intermediate consumer which obviously the dealers i think i think you've got about eight or nine days before you can turn this around and bring it back to congress billions of dollars that you've already loaned out or about to loan out there's a reciprocity involved there well you've been innovative in some of your approaches did try to advocate on babbitt consumers  structured yes it's very cleverly structured to avoid coming under the federal advisory committee act because it's basically run by existing high officials in the administration and they have they have basically  provided assistance in the form of the few people who are actually doing the operating work and it's not called an advisory committee therefore we can't demand representation in want to stereotype wall street because it's stereotyped itself in recent months more than i could ever expect well now they're partners with the government so it's a good thing because the government and wall street partnered and now the government and the auto industry are partnering and now word and course insurance industry we're partnering with them it seems to have a thing that i've heard of before in history that lasted about seventy years before it was brought down but but let me ask mr gross i mean the corporate state right yes yeah that's a that's a very serious issue for congress to have hearings on because you just put pinpointed a very serious we have secretary donovan over in the financial services committee on legislation that's dealing with housing for you know all of these poor people in the country but this is very important and i wanted to be back here i've been working with mr damon lester for months now as he is was called trying to get some attention to what has been happening with the minority auto dealers when we were spending the other three hundred fifty billion dollars of the tarp money and trying to determine how they could be heard and what we could do to be of assistance this is kind of disastrous here i think everything's been said and the fact that we have we've been very proud that african americans have tried to build wealth in this country that the minority auto dealers was at the top of the list of those who worked very hard and who brought jobs and opportunities into our community and helped us to help us to build wealth and to stabilize the community and and then there are those who are ready to get out of the business but they don't want to be left with all of this liability whether it's the inventory that has been forced upon them by the manufacturers or related  f having to do with the management of those those dealerships i suppose questions that i have in mind are the number one as they make decisions about  what dealerships will be cut and those that will say what is the formula what how determinations made does anyone have that information for chrysler as randy anderson already mentioned there was no criteria that has been made publicly we reached out to the head of christ jim press on several occasions already are now being directed to the public relations have made it public that their criteria was based on sales expectancy customer service profitability and capitalization as well as the number of vehicles that were sold  determination that's harder the normal rule would be that that's part of your claim in the bankruptcy case and it would be treated like the rest of your claim in the bankruptcy case so getting the court to actually force chrysler to pay the expense  government considers the assistance that they're going to give to the manufacturer not a case to be made that the liability cost of whatever tarp funding may be forthcoming certainly war where in the eight or nine days we'll have run out by the time rick come out of the week's recess and and they can be in bankruptcy court in forty eight hours so the billion dollar payment is going to be put before you as an obstacle and i think the administration can handle tarp money so that is an insuperable obstacle on june first and you can ask for more time and short of a resolution i mean just political communication to the white house by leaders of the house and senate saying eighteen members in the house or fifty members in the senate you've got a majority that spells problems for the administration if they don't listen to you i think our president is the only one that can really do this thing immediately for us at this point in time as you've already mentioned the time the clock is ticking and these gentlemen behind me we don't have time to wait for any legislative action particularly since you guys are recess at this point the president is the only one  can mandate and get this thing done immediately for holding this hearing i hope that it has been timely given the rush of events that we have here and quite frankly i view this is an oversight hearing of the actions taken by both the bush administration and the obama administration that raised considerable questions regarding what is the appropriate role of bankruptcy in this process and quite frankly i did not support the bailouts last year i felt that there was an appropriate role he played i find professor deals and they are the comments of others including the president that the congress could play a role in guaranteeing the warranties so that companies going into bankruptcy could still sell people and hopefully come out of the bankruptcy on the other side but i am very very concerned about the role that's being played behind closed doors in the dark of night to decide the fate of this bankruptcy before it ever gets to the fair judicial process that it's supposed to undergo and if there are some alterations that need to be made because of the magnitude of these bankruptcies or because of the impact on consumers then that congress should be playing and above board and clear role and it should not be occurring out of the sight of the public and the people who are funding these bailouts that are going to suffer the consequence of this action so that having been said mr gross me ask you are you concerned that the chrysler bankruptcy plan is an illegal sub roast a plan cooked up in the dark of night by the auto task of the administration without any meaningful input from chrysler's senior secured lenders there is a strong organs who made the sale this sham sale that has been put together by the obama administration does indeed violate the bankruptcy code that said the way that the appeals process works more and more of these types of sales to go forward whether aided and abetted by the government or by managers of a corporation that are seeking to freeze out outside investors or indeed to loot the company people playing outside the scope of the law as it's been structured by this congress over over centuries let me ask you professor skeel can you briefly explain what a sub rosa plan is why it's illegal and whether you believe the chrysler plant is a sub rosa pla to answer your last question first i do believe it's a sub rosa plant what a sub rosa plant what it means is a disguised plant where this is and form a sale of assets and we're just selling chryslers assets to this new company but really what we're using this sale to do is to decide who gets what we're not just raising money for the assets we're deciding who gets that get some stock in chrysler the employees get some stock in chrysler that the dealerships are not protected by this sale that other people are not protected by this sale so in effect what we have is a reorganization plan without going through any of the reorganization process the right to negotiate the plan the right to vote on it so yes i do believe it's a sub rosa plan and i do believe it's illegal that we have been sitting here concerned about the speed with which events are on holding with the inability of the congress to act but let me ask you also and others may want to well the sale procedures for chrysler's assets provided for just over one week for potential bidders to put in a final offer for substantially all of chrysler's assets with no due diligence or financial contingency does anyone believe that this is an absurdly short time period for a multi billion dollar transaction that was designed to do anything other than the preordained bankruptcy plan that's being structured out of the si t of the public before we're ever even in the bankruptcy court somewhere in the in the corridors of the administration i'll start by saying yes i do think it's an absurdly short period of time short time periods sales you have a very short period of time it means that the people who are less powerful don't have a voice because they don't have the time to get organized if you have lawyers on your payroll if you are normally involved in litigation then you do have time i mean you cannot and that's what and that's what a chapter eleven reorganization is supposed to do that it freezes the situation as best you can and put it in the court for a deliberative process to evaluate the assets of valuate the rights of all of the parties involved a then come forward with the best plan in the judgment of the court hopefully with the agreement of the of the parties to be able to move forward and move this out of bankruptcy again and have the company survive in the employees survive in the process all of that has to be carefully considered and it ought to be done in a formal process under the rule of law rather than have that all happen ahead of time and then drop down on the court and say this is what we expect to happen the chairman if i might be allowed one more mr grossman did the troubled asset relief program funds essentially to bail out chrysler and general motors violate the terms of the emergency economic economic stimulus act which only gives the secretary of the treasury the power to purchase troubled assets from financial institutions which are defined as quote any bank savings association credit union security broker or dealer or insurance company i think the answer is that it does violate the terms of that act i think it automaker by anyone's estimation is not a financial institution under the administration's logic any corner restaurant that offers a tab to its customers would be a financial institution i think that's ridiculous well mr chairman i have heard from many where i don't have any auto plants in my disarray have a lot of parts manufacturing plants i have many obviously auto dealers who i have heard from about this process they believe that this is something that is not being decided by chrysler to be decided by somebody somewhere in the administration and if there is anything that congress can do to bring this to the light of day and restore an orderly process to it i certainly would be anxious to work with you and i'll bet many on my side will be willing to work with you and others on your side of the aisle who've expressed concerns about where we have been brought to this point thank you mr goodlatte thank you very much chair recognizes buildout massachusetts a member of the foreign affairs committee and himself a former prosecutor from massachusetts  understanding the basics so i just want to have one of you walk me through the process  typical chapter eleven reorganization is a plan and the plan is either approved by the bankruptcy court or amended by the ba after objections are filed and there are hearings am i correct yes that's mostly correct the only distinction i would make is the bankruptcy court doesn't man the plan the bankruptcy court is meant to be a rapper or a so the bankruptcy court can hear objections on a plan agree with the objection that they correct and then the parties you need to go back and do this this is not square with the bankruptcy ok so we're talking we're talking about a referee now we have this situation where one of the  and delegation tell me if i'm wrong is this particular process since the government is let's say the oversight i think that's what we're doing today mr nader i hear you reference eight or nine days  go that doesn't give us very much time on your first point which is the responsibility of the government is essentially the moment a major company comes to washington and asks washington to save it as general motors it's a political process in a congressional responsibility so anybody who says well we don't want to politicize let me guess is that we do that we might have you or others would argue i suggest that the delegation i think this is bruce fein to point to is we have delegated too much i guess what i'm saying is when we but i guess what i'm saying because of the particular do unique nature of the unusual nature of this particular religion is the government has a different role and what we do here for example if general motors says well we don't have money to pay the billion dollars on june first and the task force says yeah we have time it's accept that on trust what is  y mr delahunt i think what could be done instead of having the bankruptcy judge be the referee who was ordering the priorities the equity you could require that the plan standard in terms of our antitrust our our our mockups place and that is if it's too big to fail it never should have got there in the first place  because i think we really do put at risk our economy and who ends up getting the bill is the american taxpayer and diverts us away from a free it may not have been covered here and i think the minority auto dealers may very well find this unexpectedly pleasant from a bankruptcy standpoint the money that if not for those moneys these companies would both g m and chrysler would have already been bankrupt in other words these are like debtor in possession funds even though they weren't put in under those terms don't they have that sort of color to them in anticipation of insolvency absolutely and in fact i would go a step further and say they are debtor in possession the government is a debtor in possession finance or even in a formal sense so i'm going to take the next step for a moment because i think the auto dealers both g m and chrysler are getting a raw deal and as a person who grew up in the industry i've got a concept i want to run by you as a professor knowledgeable we could do in bankruptcy if in fact there but for the dollars all the dealers would have closed then no dealer has any right to its franchise is that correct in abstract terms in a sense and in bankruptcy all the franchises could be voided on day one that's right the way it would work is chrysler would terminate the agreement it's known as rejecting an exact contract so if we do a and would seem to be all the dealers on some proportional bases have an equal right in new contracts new franchises assuming for a moment as they're going to be issued for no dollars now chrysler said we're going to void all these things we're going to look for new dealers and raise money that would be a different story but since they have no nothing in their plan that's going to bring in new dollars wouldn't it be fair for all of the dealers including the many dealers being close some of the minority dealers to say that they have an equal right to the common new dealerships even though some are being given some or not as a matter of  ity you can make that argument as a matter of bankruptcy law that's not going to work the bankruptcy law rule is that chrysler gets to decide which dealerships to keep and which not to keep so you're making an equitable argument it may be a powerful argument it's not a bankruptcy argument but back to the bankruptcy point you said none of the dealers have a claim but they do have a claim well ok but none of the dealers have a right to keep their dealership and they can all be voided and they just be unsecured creditors given that situation i'm going to hypothecate something chrysler and g m should in fact in bankruptcy in their plan void all contracts and require people to bid value to be dealers again in other words there's a pot of money of value that g m and chrysler are not looking to which the corpus has an obligation to see to the extent that they waive that legacy reason fairness whatever or to the extent that the debtor in the dip finance or is waiving his own funds which we're doing we're going to forego our own funds  in a sense by that deal we say you can't go out and charge more if you make those logical arguments that in fact nobody has a right you absolutely could and should try to seek new money for whoever wants those valuable franchises whatever the amount are because there's certainly a lot of people with empty dealerships looking for a business opportunity and willing to pay new money to not have an empty building to the extent that they forego that they have to forego it for a reason and to the extent that we the taxpayers are giving literally giving money into this deal is it not reasonable for those of us here that represent the taxpayers to ask for that equity and is there anything in bankruptcy law that would prevent a sensually and i'll just throw out an abstract for each car you sell you get a share the sustaining dealers the ones that are chosen to continue to have x amount of shares but in order to buy their dealership they essentially have to find the rest of the shares which means they have to make hold these other shareholders who do not get their dealers open from a bankruptcy standpoint there's nothing prohibiting it from a standpoint of the people who are literally giving money into the deal there's no problem and back to my original question which is the only one i'm going to ask here if they do not do something like this if something is not done to equalize this then why in the world shouldn't we the taxpayers expect in order to have the maximum wholeness they void all the contracts and resell their franchises if there's a net value that would go to the creditors again you can make this argument it is chrysler's decision whether to do that or not you can make an argument they are chrysler has a fiduciary obligation to its creditors to maximize that value that's right and is there any way that anyone could say that that if you voided all the contracts you couldn't go out and sell new dealerships for more than one dollar in a traditional bankruptcy where plan is proposed and creditors rights are taken seriously this is the from our standpoint you know the issue still remains with access to capital we can do a fire sale today and the dealers still need to get adequate working capital to survive we can do a dollar buyout we can do a pin you stop by the issue is the credit markets as it relates to dealerships across this country today are not lending to automobile dealers so we're still well no matter what value you want to place on this scenario having access to capital is the problem and then we're going to create a scenario where those that have is going to be versus those that have not they don't have a voice and a deep pockets will always win so that balance is still going to be because of the fact you know that's more than anything else that seems to be one of we have a lot of anomalies that may or may not be fixed in bankruptcy i've taken my time to ask this one because i'm confound it to believe that people are simply told you lose and you get no credit but the people who get to continue being dealers multimillion dollar you pay nothing for the enhanced value the getting of your competitor down the street being closed out i cannot even though i'm as conservative as a day is long i can't understand how that equity of closing your competitor and giving you the business doesn't have a value that needs to be equalized particularly since we the taxpayers are giving billions of dollars in this transaction would you be willing to present this argument on pennsylvania avenue absolutely as long as we've got an american car to ride down the street to go with  start off by mentioning the comments of two people are no longer here first the true good let's mention that there's a real question whether tarp money can be used to bail out auto dealers i'd point out that this house passed a law that was thought to be necessary to give the secretary of the treasury the right to do that with the tarp money i voted for that because when i looked at all the ways they could use the tarp money bailing out the auto dealers seem to be among the better and the law didn't pass the senate and then treasury acted as if the law had passed the senate thus disempowering and making the senate which seemed to be a wonderful idea but at least when we all voted for that law it was with the assumption that it was necessary i should point out that there was discussion of of of evading the law not evading structuring around the law the plucky i believe is the correct pronunciation made the point mr chairman about how forum shopping bankruptcy undermines not only the bankruptcy system but the financial services system because whenever you make a loan you have to ask what happens if the company goes bankrupt or at least as trouble and i think an excellent job of outlining why we should be getting rid of forum shopping  whole community it would be significant to the local economy but why would a judge in new york city whose economy is not supported by the bankruptcy law business do violence to the law just to land some more cases most of the district judges i know don't want more cases why do why does the bankruptcy court in new york want to do everything possible to bring in more cases it's dangerous to have channeling  for us mr henderson i'm trying to figure out why every article i read about g m and chrysler says they'd be much better off if they got rid of half their dealers or a third of their dealers this strikes me as odd i mean sony could have worked things out so that i could only buy a sony t v and five thousand places around the country they're happy to have fifty thousand a television and that creates competition which means there's less markup which means either sony can charge more and i pay less and the middle man being the middle man in the automobile industry gets less so why it i mean i can see why if i was an auto dealer i'd want the three auto dealers close to me all shut down but why would general motors or chrysler feel that they benefit more those dealers will be able to invest in their businesses the more they'll be able to compete against other franchises that is their argument so their theory is that if you could make another hundred bucks a car for every car you sold three miles in each direction you're going to have to cut the price of that car by another hundred bucks that is correct it would present more don't get me to fancy i want a hundred bucks is there a  is there somebody selling cars in the united states that has as their model let's try to have lots of dealers and each one will sell only five hundred cars or a thousand cars or is it generally accepted in the have been ongoing for some time and there are markets that dealers would be the first to agree that could stand to have less dealers well the dealers would because you can jack up the price and you may or may not then invest more money in the dealership you may just invest more money in your vacation home after the question becomes a relay back when this is a profitable business that had vacation homes as it relates to the bankruptcy how that process is accomplished is accomplished through market attrition or dealer buying out and paying back compensation it was accomplished by just the stroke of a pan that allows people's wealth to dissipate  the warranty work or whatever i can't imagine you'd want to get rid of a third of your dealers for that but they may know that many do and bad warranty work as long as they have the discretion they're going to get rid of the ones they don't want and then they're auto do we have a no no no overall overall your neighborhood dealer is almost extinct i mean in terms of traveling three four blocks for a dealer the other thing is you're more or less likely to repair your car if you have to take more time out and go to the dealer that's why there's legislation here in congress to allow equal access by independent repair shops because there aren't that many deal throughput on average of about eleven hundred vehicles per year many general motors and chrysler dealers sell as few as fifty or seventy cars per year there are fixed costs that are associated with addressing every single dealer and advertising there this is not a situation where they're turning to some dealers and saying we're going to reduce your co operative marketing budget we'd have a lot less auto dealers if they said well we got to do advertising on our own then what we hear from the deal is there is absolutely no validity to the strength of a dealer body that will show the viability of a manufacturer as mr native pointed out historically there are lesser dealers than there were maybe fifty years ago and that has been based on natural attrition deal the good this makes its own decision when he or she decides to go out of business that should not be dictated or demanded from our government or via the auto task force the auto task force that opportunity to sit before them on several occasions let's look a clean sheet of paper approach and decided to use a model of toyota that have very few or dealerships across the country but the thought that they are probably their model of a successful dealer should also be within the model of g m and consumers with these terminations with these dealerships closing to now be inconvenienced they have to travel ten fifteen twenty miles to be able to see two hours to get an all change where they are accustomed to getting or change the thirty in thirty minutes would welcome it before we are hearing today thank you thank you mr chairman last fall when we were in in the midst of this bailout fever that got ahold of congress whether you're talking the financial industries or or the auto industry  i remember in the midst of the debate about the cars on everything else the headline the wall street journal do you want to car bill by congress and it's actually worse as mr nader's pointed out the headline should read now do you want to car built by henderson is it your testimony and i've heard conflicting testimony on this from from various sources over the last week is it your belief that it's the task force making the decision about which dealerships stay in business and which don't or is it is it chrysler and g m making the decision and then getting the thumbs up from the task force and frankly it may be the same different in fact of it but i just for the record which which that well we've been told by the task force is that they have no decision making process between general motors and chrysler in the decisions that they've been making it is our assumption that we think that they actually are pulling the of the task force but the task force is not making the decisions on the specific dealers but the process of doing a large dealer reduction is the task force saying we want x number this number now g m and chr dangerous line in this country i think that line was crossed about three to four days after the passage of the tarp legislation that was the point when secretary paulson knowledge that the original plan for the tarp to purchase troubled  assets would not be followed and the government would do something completely different and i think that was an indication and it should have been clear notice to congress that the legislation that had been passed i was something that gave pretty much on precedent discretion to the treasury and to the executive branch thank you mr dealers and how that really helps manufacturers to put people out of business but i've been hearing specifically of one diggler ship where two million dollars was paid to the former dealer to buy the what happened the bankruptcy law what happened to your creditors all these things and if we continue down this course without getting back on track to the rule of law the law of contracts in the bankruptcy law tha chairman the contemplation that most delighted me and i think some people here with your statement that there might be a bipartisan journey to sixteen hundred pennsylvania very quickly before it's too late tomorrow and i think the bipartisan aspect is very important i think some of the things that congress was talking about would be supported by a and to give the dealers an opportunity to survive and a chance to survive because they were surviving already even with the low economy is very well within this marriage and i think you guys are going to the white house and  even before the tarp funds were authorized bailing out bear stearns and he was asked what authority did you have none whatsoever but i learned in this town if you everyone will fall it was mr paulson who got these bankers around a table and said without saying that the individual consumer the individual consumer that's been harmed by a defective product or consumer who is likely to be killed or injured because they're not safety standards in these vehicles they're the ones whose  rarely heard and i hope that when you do go to the white house and i urge you to do that as well that you will be sure to bring those cases to their attention because the liability that  consumers have the potential to secure to protect themselves in the future is all they have and they don't many of them are so badly injured they can't do anything else except to survive