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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

(II)

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

DARRELL E. ISSA, California, Chairman

DAN BURTON, Indiana

JOHN L. MICA, Florida

TODD RUSSELL PLATTS, Pennsylvania

MICHAEL R. TURNER, Ohio

PATRICK T. MCHENRY, North Carolina

JIM JORDAN, Ohio

JASON CHAFFETZ, Utah

CONNIE MACK, Florida

TIM WALBERG, Michigan

JAMES LANKFORD, Oklahoma

JUSTIN AMASH, Michigan

ANN MARIE BUERKLE, New York

PAUL A. GOSAR, Arizona

RAU ́ L R. LABRADOR, Idaho

PATRICK MEEHAN, Pennsylvania

SCOTT DESJARLAIS, Tennessee

JOE WALSH, Illinois

TREY GOWDY, South Carolina

DENNIS A. ROSS, Florida

FRANK C. GUINTA, New Hampshire

BLAKE FARENTHOLD, Texas

MIKE KELLY, Pennsylvania

ELIJAH E. CUMMINGS, Maryland, Ranking

Minority Member

EDOLPHUS TOWNS, New York

CAROLYN B. MALONEY, New York

ELEANOR HOLMES NORTON, District of

Columbia

DENNIS J. KUCINICH, Ohio

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

STEPHEN F. LYNCH, Massachusetts

JIM COOPER, Tennessee

GERALD E. CONNOLLY, Virginia

MIKE QUIGLEY, Illinois

DANNY K. DAVIS, Illinois

BRUCE L. BRALEY, Iowa

PETER WELCH, Vermont

JOHN A. YARMUTH, Kentucky

CHRISTOPHER S. MURPHY, Connecticut

JACKIE SPEIER, California

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

Chairwoman

CONNIE MACK, Florida

RAU ́ L R. LABRADOR, Idaho

SCOTT DESJARLAIS, Tennessee

FRANK C. GUINTA, New Hampshire

MIKE KELLY, Pennsylvania

DENNIS J. KUCINICH, Ohio, Ranking

Minority Member

JIM COOPER, Tennessee

JACKIE SPEIER, California

BRUCE L. BRALEY, Iowa

(III)

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

(1)

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.

2

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.’’

3

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.

4

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

5

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:]

6

7

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:]

8

9

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

10

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.

11

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

12

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.

13

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 estiVerDate 17-JUN-2003 12:29 Dec 23, 2011 Jkt 000000 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\71295.TXT KATIE PsN: KATIE
14

mate 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

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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 com- pany 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

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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.

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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 ex- tended 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

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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 heartrending—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 Gen- eral 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.

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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.

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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.

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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

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liver 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

35

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?

36

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

37

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

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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:]

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40

41

42

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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.

46

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.

47

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.

48

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 dayto-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

49

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.

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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?

51

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.

52

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.

53

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

54

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

55

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.

56

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

57

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

58

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.

59

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?

60

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

61

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.

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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.

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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 polVerDate 17-JUN-2003 12:29 Dec 23, 2011 Jkt 000000 PO 00000 Frm 00067 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\71295.TXT KATIE PsN: KATIE
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icy 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.

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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

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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, multiparty 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.

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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.

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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 lowpriority 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.

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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 moneylosing 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

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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.

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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,

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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.]

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