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S. HRG. 110–878 

EXAMINING THE STATE OF THE DOMESTIC 

AUTOMOBILE INDUSTRY—PART II 

HEARING 

BEFORE THE

COMMITTEE ON 

BANKING, HOUSING, AND URBAN AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED TENTH CONGRESS 

SECOND SESSION 

ON 

FURTHER EXAMINING THE STATE OF THE U.S. DOMESTIC AUTOMOTIVE 

INDUSTRY AND ITS OVERALL IMPACT ON THE NATION’S ECONOMY, 

THE AUTOMOTIVE WORKERS, AND THE COMPANIES INVOLVED IN 

THE SUPPLY CHAIN AND THEIR EMPLOYEES 

DECEMBER 4, 2008 

Printed for the use of the Committee on Banking, Housing, and Urban Affairs 

( 

Available at: http://www.access.gpo.gov/congress/senate/senate05sh.html 

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS 

CHRISTOPHER J. DODD, Connecticut, Chairman 

TIM JOHNSON, South Dakota 

JACK REED, Rhode Island 

CHARLES E. SCHUMER, New York 

EVAN BAYH, Indiana 

THOMAS R. CARPER, Delaware 

ROBERT MENENDEZ, New Jersey 

DANIEL K. AKAKA, Hawaii 

SHERROD BROWN, Ohio 

ROBERT P. CASEY, Pennsylvania 

JON TESTER, Montana 

RICHARD C. SHELBY, Alabama 

ROBERT F. BENNETT, Utah 

WAYNE ALLARD, Colorado 

MICHAEL B. ENZI, Wyoming 

CHUCK HAGEL, Nebraska 

JIM BUNNING, Kentucky 

MIKE CRAPO, Idaho 

ELIZABETH DOLE, North Carolina 

MEL MARTINEZ, Florida 

BOB CORKER, Tennessee 

SHAWN MAHER, Staff Director 

WILLIAM D. DUHNKE, Republican Staff Director and Counsel 

AMY FRIEND, Chief Counsel 

MARK OESTERLE, Republican Chief Counsel 

DAWN RATLIFF, Chief Clerk 

DEVIN HARTLEY, Hearing Clerk 

SHELVIN SIMMONS, IT Director 

JIM CROWELL, Editor 

(II)

C O N T E N T S 

THURSDAY, DECEMBER 4, 2008 

Page 

Opening statement of Chairman Dodd .................................................................. 1 

Opening statements, comments, or prepared statements of: 

Senator Shelby .................................................................................................. 5 

Senator Akaka 

Prepared statement ................................................................................... 107 

WITNESSES 

Gene L. Dodaro, Acting Comptroller General of the United States, Government Accountability Office .................................................................................. 7 

Prepared statement .......................................................................................... 108 

Response to written questions of: 

Senators Brown and Tester ...................................................................... 206 

G. Richard Wagoner, Jr., Chairman and Chief Executive Officer, General 

Motors ................................................................................................................... 37 

Prepared statement .......................................................................................... 121 

Ron Gettelfinger, President, International Union, United Automobile, Aerospace, and Agricultural Implement Workers of America .................................. 39 

Prepared statement .......................................................................................... 162 

Alan R. Mulally, President and Chief Executive Officer, Ford Motor Company 40 

Prepared statement .......................................................................................... 167 

Robert Nardelli, Chairman and Chief Executive Officer, Chrysler LLC ............ 42 

Prepared statement .......................................................................................... 169 

James T. Fleming, President, Connecticut Automotive Retailers Association ... 43 

Prepared statement .......................................................................................... 189 

Keith Wandell, President, Johnson Controls, Inc. ................................................ 45 

Prepared statement .......................................................................................... 191 

Mark Zandi, Chief Economist and Co-Founder, Moody’s Economy.com ............. 47 

Prepared statement .......................................................................................... 194 

Allan I. Mendelowitz, Member of the Board of Directors, Federal Housing 

Finance Board 

Prepared statement .......................................................................................... 203 

(III)

(1) 

EXAMINING THE STATE OF THE DOMESTIC 

AUTOMOBILE INDUSTRY—PART II 

THURSDAY, DECEMBER 4, 2008 

U.S. SENATE, COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS, Washington, DC. 

The Committee met at 10:11 a.m., in room SD–106, Dirksen Senate Office Building, Senator Christopher J. Dodd (Chairman of the 

Committee) presiding. 

OPENING STATEMENT OF CHAIRMAN CHRISTOPHER J. DODD 

Chairman DODD. The Committee will come to order. Good morning. I would ask the Committee to come to order, and our friends 

that cannot find a seat in the hearing room—as you all noticed, we 

moved the hearing this morning. The last hearing obviously drew 

a sizable audience of interested people, and so we moved the hearing to this room this morning. I want to thank my colleagues. I 

know many had planned, obviously, to be probably elsewhere this 

week, but I am very grateful to all of you for being here for this 

second hearing on the subject matter. And I am going to take a 

minute or so this morning and just explain some housekeeping provisions and then some opening comments on the subject matter. 

We are here, obviously, ‘‘Examining the State of the Domestic 

Automobile Industry: Part II,’’ if you will, of these hearings. This 

could quite possibly be, I would point out to my colleagues—and I 

say that with some hesitation—the last hearing of this Committee 

in the 110th Congress. And I want to just take a moment, if we 

could, all of us here, to recognize the service and valuable contributions of some of our colleagues who will be leaving. 

Senator Hagel, Chuck Hagel of Nebraska. He is a dear, dear 

friend and a great—we served on two committees together over the 

years, the Foreign Relations Committee and this Committee, and 

you have been a valued friend and a wonderful member of the U.S. 

Senate. We thank you immensely, Chuck, for your service. 

Elizabeth Dole, our good friend from North Carolina, we thank 

you for your service on this Committee as well and your and Bob’s 

wonderful contribution. You are very much part of the Senate family and have been for a long time. So we thank you immensely. 

And, of course, Wayne Allard, my good friend from Colorado, we 

thank him. Where is he? He is not here yet, but he is coming, and 

we thank him very, very much as well for his service, and their 

staff members on this Committee. Tewana Wilkerson, Joe 

Cwiklinski, and Robbie have done a great job, and I thank them 

for their service. 

2 

Let me make, as I said, a couple of housekeeping points, if I can. 

First, given this is the second hearing on the auto industry and 

given the large number of witnesses we have before us this morning, I would like to propose that Senator Shelby and I make our 

opening statements and then move immediately to our witnesses as 

a way of moving along here rapidly, given the number of people 

who will be testifying before us. 

And, second, the automobile companies represented here this 

morning have provided this Committee and the Senate with extensive information about their status and their plans. In the case of 

one company, in the case of Chrysler, some of that information is 

proprietary in nature. It is a private company, not a public company. We have left it up to that company to provide that information to each interested Senator in a manner that both parties deem 

consistent with protecting the privacy of proprietary data. Should 

any questions be raised today that might trigger a request for proprietary information, I would ask that these questions be answered 

by the auto companies to the member’s satisfaction in a manner 

that preserves the confidentiality of the information sought. 

Today the Committee meets, as I pointed out, for the second time 

in as many weeks to consider the state of the domestic automobile 

industry. As we consider the challenges facing this industry, I want 

to be clear that Congress has already given the Bush administration the authority to stabilize this industry. I would like to take 

note that I invited the Treasury Department and the Federal Reserve Board to testify here this morning, and they have declined 

to do so. Yesterday I sent a letter to Chairman Bernanke requesting his comments on the industry’s plans and whether there is anything that prevents the Federal Reserve from lending any of these 

domestic—providing any lending to any of these domestic auto 

manufacturing companies. 

When we last met, I said that the fate of the industry is an important subject matter, obviously, for our Committee’s consideration. That statement even is truer today than it was a few days 

ago. In fact, the very purpose of this hearing is fundamentally to 

answer three very straightforward questions. 

First, are the automobile companies in dire straits? Are they in 

danger of failure? 

Second, if they were to fail, what would be the consequences for 

our overall economy? 

And, third, if the economic consequences would be severe, does 

the American Government have a responsibility to do anything to 

help? 

In just 2 weeks’ time, the clouds on the economic horizon have 

grown even darker and greater in number. Just this week, we 

learned what many of us have believed for a long time. Our economy is mired in a deep and sustained recession—a recession that 

began some 12 months ago, a recession that has contributed to the 

greatest loss of manufacturing jobs, including in the automobile industry, in over a quarter of a century, and a recession that was in 

many respects precipitated by massively irresponsible actions by 

those in the financial sector, including lenders who are now the recipients of hundreds of billions of dollars in Federal taxpayer bailout assistance. 

3 

Amidst this backdrop of intensified economic turbulence and uncertainty, the leaders of the domestic automobile industry are here 

once again to explain why they are seeking assistance from the 

Committee and from the Congress of the United States. None of us 

relishes this task that we are asked to consider, yet who among us 

believes we should risk the consequences of the collapse of one or 

more domestic automobile manufacturers? 

Make no mistake about it. Those consequences would be severe 

and sweeping. Tens if not hundreds of thousands of jobs would be 

lost in the auto industry itself. More would be lost among suppliers, dealers, and all of the other businesses, from restaurants to 

garages and others across our Nation in ways large and small that 

depend on a domestic auto industry for their livelihoods. 

Moreover, at a time when taxpayers are already bearing an extraordinary burden in funding economic recovery efforts, that burden would only increase in the event of a failure of one or more 

of these companies. Pension obligations alone could run into the 

tens and maybe hundreds of billions of dollars. 

A partial or complete failure of the domestic automobile industry 

would have ramifications far beyond manufacturing and pensions. 

It would affect virtually every sector of our economy. That includes 

the financial sector, which is a particular focus of this Committee. 

A collapse within the auto sector would unquestionably worsen the 

credit crisis. By some estimates, the domestic auto companies already comprise more than 10 percent of the high-yield bond market 

and one of the largest sectors in the leveraged finance for banks. 

The Big Three have hundreds of billions in outstanding debt liabilities, including tens of billions in short- and long-term debt obligations. In addition to their outstanding debt, these companies hold 

billions in credit default swaps. A failure in the auto industry could 

trigger obligations by manufacturers and counterparties that could 

have financial firms reeling. Ultimately, the ability of those firms 

to inject credit and liquidity into the overall economy could be impaired, stifling job creation and further income growth. None of 

us—none of us—wants to see that outcome. 

So let us be clear this morning. In my view, we need to act not 

for the purpose of protecting a handful of companies. If that were 

the extent of the issue, I would let them fail. I acknowledge those 

who advocate such a course on the assumption that pressure from 

the outside will produce the desired results. My concern with such 

an approach is that it plays Russian roulette with the entire economy of the United States. Inaction is no solution. Inaction would 

only add more uncertainty and instability to our economy. These 

are the ingredients that currently we have an overabundance, ingredients that are contributing to the crisis of confidence that has 

gripped the markets and precipitated the worst economic crisis 

since the Great Depression. 

It seems to me that the request being made by the automobile 

industry, while large by any measure, is modest in comparison to 

what this Committee has lately witnessed in the financial sector. 

If the Federal Reserve and the Treasury Department under President Bush can find $30 billion for Bear Stearns, if they can concoct 

a $150 billion rescue for AIG, if they can commit $200 billion to 

Fannie Mae and Freddie Mac, and if they can back Citigroup to the 

4 

tune of more than $300 billion, then there ought to be a way to 

come up with a far smaller dollar figure to protect this economy 

from the unintended consequences that would be unleashed by a 

collapse of the automobile industry. 

With regard to the automobile industry, certainly we should not 

throw good money after bad, nor should we subsidize ineffective 

performance and inefficient production. We must demand that the 

auto companies demonstrate their commitment to reform. We must 

insist that if they are going to be backed by the American taxpayer, 

they owe it to those same taxpayers to make vehicles in a far more 

environmentally and economically sound manner. 

The latest plans submitted by these companies over the last several days, which I have read completely, all three of them, are not 

perfect by any means. But, on average, I think they represent a 

commitment to that kind of necessary reform that Detroit must 

adopt if our economy and our country is to have an automobile industry in the 21st century. 

Some of the companies are to be commended for going back to 

the drawing board, making tough decisions, and stepping forward 

today. You have come a long way in 2 weeks, I would say. Some 

may ask whether these proposed changes go far enough. In addition, I think these plans still leave many questions unanswered. In 

particular, will taxpayer assistance truly ensure long-term viability 

for these companies? Or will they be back here within weeks seeking more taxpayer assistance? 

But let us be clear. There is no doubt that the automobile companies have done far more—far more, I would suggest—than the financial companies to show that they deserve taxpayer support. The 

Treasury Department has given the Nation’s largest lenders hundreds of billions of dollars, as pointed out, as this graph here behind me demonstrates. Even now, weeks after the fact, Americans 

are still waiting for most of them to show that they deserve the dollars they have received, still waiting for them to appropriately increase lending to consumers and businesses, still waiting—still 

waiting—for them to more aggressively act to mitigate foreclosures 

in our country, and still waiting for these lenders to rein in bonuses and other forms of excessive compensation while the American taxpayer is sacrificing on a daily basis. 

The Nation’s largest financial institutions are among the largest 

culprits in causing the credit crisis, and yet Secretary Paulson and 

the Treasury, despite being given complete authority to condition 

aid to financial institutions, have in no meaningful way insisted 

that these banks and insurance companies adopt tough reforms to 

ensure that the kind of shabby lending practices they engaged in 

will not happen again. On the contrary, the Treasury Department’s 

largesse with taxpayer funds has been remarkably free of conditions placed on the recipients of those funds. Indeed, in the spirit 

of the season, Secretary Paulson has given the Nation’s largest financial institutions the biggest holiday present in the history of 

American capitalism. 

In my view, if we are going to insist on reforms by the auto industry as a condition of receiving Federal funding, we ought to do 

the same for the financial companies. For that reason, I will do all 

I can to insist that any auto company bill also place tough condiVerDate Nov 24 2008 08:28 Oct 09, 2009 Jkt 048080 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 L:\HEARINGS 2008\12-04 EXAMINING THE STATE OF THE DOMESTIC AUTOMOBILE IND
5 

tions on any loans to financial firms, including provisions that require tax dollars to be used for responsible practices, like lending 

that requires lenders to get much more aggressive about attacking 

the foreclosure crisis that is still at the root cause of the larger financial crisis and that prohibits executives from paying themselves 

obscene sums while they are essentially receiving a welfare check 

for the American taxpayer. 

At a time when average Americans are sacrificing mightily for 

the sake of our Nation’s economic recovery, we must, I believe, insist that companies benefiting from those sacrifices act as if they 

deserved them. At the same time, I believe we need to take action 

to help our domestic auto industry in order to protect our Nation’s 

economy and America’s workers. 

Finally, I want to respond to recent stories indicating that the 

administration is considering asking for access to the final $350 billion we provided in the Emergency Economic Stabilization Act. We 

passed a bill that gave this administration broad authority to use 

funding to address the economic crisis we find ourselves in. Regrettably, they have misused the authority in two ways, in my view: 

First, they are not doing what we clearly expected them to do. 

Most importantly, they are not using the money to help homeowners in distress. The FDIC has put forth a program that would 

help 2 million homeowners keep their homes, and the Treasury Department is refusing to fund that idea. 

Second, they have spent the money—they have spent the money, 

they have done so in an ad hoc and arbitrary manner, in my view. 

They seem to be careening from pillar to post. Both the Treasury 

and the Federal Reserve have spent trillions of taxpayer dollars 

without adequate controls and without adequate transparency. 

I do not believe this administration should seek the use of this 

additional funding unless they can present to the Congress and the 

American public a comprehensive, coherent plan for addressing 

those concerns. 

Let me thank all of our witnesses again this morning for appearing here. We look forward to hearing from each of you, and with 

that, I want to turn to my colleague from Alabama, the former 

Chairman of the Committee, Senator Shelby. 

STATEMENT OF SENATOR RICHARD C. SHELBY 

Senator SHELBY. Thank you. Thank you, Chairman Dodd. 

Only 2 months ago, Congress passed a bill that gave the Secretary of the Treasury unprecedented authority to spend $700 billion to address the credit crisis. At the time, I expressed grave concerns with this approach and questioned then whether it would be 

an appropriate use of taxpayer dollars. The erratic implementation 

of the TARP, its questionable efficacy, and now the GAO report 

highlighting a number of deficiencies in the program’s administration and oversight have only confirmed my original concerns. 

My primary focus in these deliberations was and continues to be 

the interest of the American taxpayer. We that in mind, I opposed 

the creation of the TARP. Applying the same standard, I intend to 

oppose bailing out the Big Three auto manufacturers. Industry analysts contend that the firms continue to trail their major competiVerDate Nov 24 2008 08:28 Oct 09, 2009 Jkt 048080 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 L:\HEARINGS 2008\12-04 EXAMINING THE STATE OF THE DOMESTIC AUTOMOBILE IND
6 

tors in almost every category necessary to compete and to make a 

profit. 

When we last met, the CEOs of the car companies were unable 

to convince this Committee that they had done enough to reverse 

this trend. They were asked to go back to the drawing board and 

devise a plan to transform their respective business models and return them to profitability. 

Now that they have each submitted a plan that proposes to do 

so, I am once again interested to hear how they plan to deal with 

current management, labor, cost and quality control, and product 

development shortfalls. How do they plan to address changes in the 

marketplace such as long-term reductions in annual sales? On 

what do they base their forecasts, and what happens if they are 

wrong? Why do they believe their proposed actions will reverse the 

continued loss of market share to other car companies? 

How are their plans structured to adapt to an international market that demands greater efficiency and flexibility? Do the additional changes that they propose go far enough to ensure that taxpayers’ dollars are being used to transform an industry and not 

just prop up a failed business model for a few months? 

Finally, how is the money going to be used, and how do we account for it? And I guess, last, how are you going to pay it back 

to the taxpayers? 

At our last hearing, I asked whether this was the end or was it 

just the beginning. We now have an answer, I believe. In just 2 

short weeks, the price tag has jumped from $24 billion to $34 billion—$25 billion to $34 billion in 2 weeks. I am interested to hear 

what changed and why we should believe that things will get better as our economy continues to contract. 

A recent report by Standard & Poor’s states that all the automakers ‘‘face a similar array of threats in the near term,’’ and that 

any government assistance would be viewed ‘‘as buying more time 

for the automakers rather than solving the fundamental business 

risks, especially deteriorating demand globally.’’ 

Each of the automakers have based their plans on what I believe 

are optimistic sales forecasts. Today’s witnesses need to assure this 

Committee, and I believe the American people, that their plans can 

account for the unexpected, which seems to be the norm rather 

than the exception in today’s economy. It has been argued that a 

great deal is at stake in this debate. I could not agree more. The 

strength of the American economic system is that it allows us to 

take risks to create, to innovate, to grow, to succeed, and sometimes to fail. Every time Government endeavors to alter any of 

these dynamics, it undermines and distorts the forces at work in 

all of them. I believe that this can impose a cost that is too high 

to pay as well. 

I also believe that adversity can present opportunities. The question is whether one is prepared to seize them. I look forward to 

hearing if what the automakers are proposing demonstrates that 

they are truly prepared to do so. I have my doubts. 

Thank you, Mr. Chairman. 

Chairman DODD. Thank you very much, Senator Shelby. And as 

I mentioned earlier, we are going to go right to our witness, and 

I want to welcome Mr. Gene Dodaro, the Acting Comptroller of the 

7 

U.S. Government Accountability Office. Mr. Dodaro has worked for 

over 30 years in a number of key positions at the GAO, including 

Chief Operating Officer of that entity, and has certainly strong experience in this area. We welcome you to the Committee, and we 

look forward to your testimony. 

Let me also say to you and for the record that any documentation 

or supporting materials that you wish to have submitted to the 

record, consider them accepted, both from this witness and the 

other witnesses as well, to compile our necessary record. That will 

be also true of my colleagues as well as witnesses. 

Mr. Dodaro, the floor is yours. 

STATEMENT OF GENE L. DODARO, ACTING COMPTROLLER 

GENERAL OF THE UNITED STATES, GOVERNMENT 

ACCOUNTABILITY OFFICE 

Mr. DODARO. Thank you very much, Mr. Chairman. Good morning to you, Ranking Member Shelby, and all the Members of the 

Committee. I am very pleased to be here today to assist your deliberations on the automakers’ request for Federal assistance. GAO 

has been involved in a number of Federal rescue efforts and bailouts dating back to the 1970s during the Chrysler-Lockheed Martin 

assistance, and over the years we have developed three fundamental principles that we think can help guide decisions on the 

Congress in this matter. 

First is clearly identifying what the problem is we’re trying to 

solve. In this case, we have got short-term liquidity problems with 

the confluence of fundamental restructuring of the industry, and it 

is all occurring against a backdrop of an uncertain economic climate. 

The second fundamental principles is making a clear determination that it is in the national interest to provide Federal assistance 

and, if that policy determination is made, that there are clear, concise Federal objectives for the assistance and a clear exit strategy 

to return the companies to their normal status. 

Last, the third fundamental principle is protecting the Government’s interest, and here there are several principles. First is concessions, concessions by all parties—in this case, management, 

labor, suppliers, dealers, and creditors of the affected industry 

seeking assistance; that there also be clear collateral and that the 

Federal Government be put in a first lien holder position and senior creditor status for whatever assistance is provided; that there 

be compensation for risk on the part of the Federal Government 

and, if the entities benefit, that the taxpayers share in that benefit 

through warrants or other means going forward; and that there be 

controls over management, and in this case that there be limits on 

compensation, but there be clear and consistent Federal control 

over the disbursement of the money, the monitoring of what the 

money goes for, and also, you know, the ultimate effect of whether 

or not the money is achieving the objectives of the program. 

Now, there are two points I would really like to highlight this 

morning before I take questions. One is if the Congress determines 

that Federal intervention is needed here and Federal assistance is 

provided, there needs to be a rigorous board put in place to oversee 

this process and to have clear decisionmaking authority about 

8 

when and how the money is to be disbursed to the companies. The 

board has to have access to all the information it needs from the 

entities in order to provide that type of oversight on behalf of the 

Congress. The board needs to monitor the situations, particularly 

important in this case because you have a lot of changes undergoing with the economy and the changing circumstances of the entities. The board has to have the ability to protect the taxpayers’ 

interest, has to have the right leadership, the right expertise, and 

the right resources to succeed. 

My clear message here today is the fact that this board has to 

be established in order to succeed in this particular endeavor if the 

decision is made to move forward. And it is also very important to 

deal with the timing issues here. Many of the needs of the companies put forth in their plans are going to occur while we are having 

a change in and a transition to a new administration. And so whatever administrative apparatus is put in place, there has to be some 

continuity during the period of time when there is a change in 

leadership. And I have some ideas on how that could be addressed. 

I would be happy to talk about it further in the questions. 

Last, I would say the other fundamental point that we would be 

making here is, because of the urgency of some of the requests, 

that if there is a decision to move forward and to provide assistance to the automakers, that Congress may want to consider a 

short-term and a longer-term type of an approach and that the 

money be phased in and doled out in increments over time rather 

than large, up-front commitments. And this is where the board 

would play a particular role in making sure that there is enough 

justification and due diligence done on the part of the Government 

with the companies’ records to make sure that the loans or whatever other assistance is provided is warranted. 

So, with that, Mr. Chairman, that concludes my opening statement. I would be happy to address questions, and I also want to 

underscore GAO’s commitment to the Congress to work with the 

Congress and providing all the help that we can in making this difficult and very important decision. 

Chairman DODD. Thank you very much for your testimony this 

morning. I have a couple of quick questions for you, and then I will 

turn to my colleagues as well. We thank you for your involvement. 

There are a number of ways in which we can address this issue, 

and obviously the one which has received a lot of attention is 

whether or not Congress will act. Obviously, there are various proposals, both in the House and some various ideas that have been 

surfaced here, and, obviously, given the time constraints and others, if Congress is going to act, it is going to require some significant effort over the coming days. The Majority Leader has suggested that we try to do something next week, if we can, to come 

together. 

But there are alternatives to that, and the two other alternatives 

are: one, under the Emergency Economic Stabilization Act, which 

this Congress supported back around October 1st, granted broad 

authority to the Treasury to respond to situations involving the 

economic difficulties in our Nation. And while a lot of focus was 

paid to financial institutions, the underlying point was to get economic recovery. 

9 

Would you please share with us your analysis as to whether or 

not, one, the Treasury has the authority under that legislation to 

respond to this by utilizing the so-called TARP funds in this case 

and has the authority to condition those resources in a manner 

that they might see fit, given the authority under that legislation. 

And, second, under 13(3) of existing law dealing with the Federal 

Reserve, as you saw them respond to the AIG situation, do they not 

have the authority under that provision of law that would allow 

them to respond to this situation? In effect, which I have written 

to the Chairman of the Federal Reserve, Mr. Bernanke, asking that 

question, but I would like to hear it from the GAO this morning. 

Does that authority exist in your mind in both cases? 

Mr. DODARO. First, as it relates to the authorities under the Economic Stabilization Act for the Secretary of Treasury, we believe 

that that legislation is worded broadly enough that it would permit 

the Secretary of Treasury to provide the assistance using TARP 

funds. And the Secretary has broad discretion to set whatever conditions on the assistance that he would determine necessary. 

I would comment, though, that in my opinion, if TARP money is 

used, there needs to be still additional changes in the board oversight structure. Senator Shelby mentioned our recent report on the 

TARP program where we pointed out the fact that there are many 

critical management issues that are not yet addressed as part of 

that oversight over that program. 

Chairman DODD. I want to get to that in a minute here about 

the oversight. 

Mr. DODARO. And I will answer on the Federal Reserve question, 

we also believe that the Federal Reserve has the authority under 

the statutes that you cite to do this, provided that there is a super 

majority vote of the Board of Governors, the fact that there is certification that credit not available through any other means to 

these companies, and that there is a clear ability on the companies 

to repay the assistance. So there are some determinations that 

would need to be made by the Federal Reserve in order to exercise 

that statutory authority. But both of those vehicles are potentially 

available. 

Chairman DODD. Now, just on the second question related—I 

thank you for your answer to that question. That has been the view 

of this Senator for a long time over the last number of weeks that 

this matter has been discussed. There has been a debate, obviously, 

as to whether or not that exists, but I appreciate the clarity from 

the GAO on that question. The authority clearly exists, and the 

right to condition that assistance as well, which gets to the point 

of a trustee or a board, an oversight board. And I agree with you 

totally on that, I think having this disbursal of resources occur not 

on a lump-sum basis but, rather, conditioned on the performance 

of how things are moving forward with the various ideas that we 

are hearing from the industry itself. 

Tell me, though, in terms of the GAO’s assessment in reference 

to the oversight board, how do you—one, did they require greater 

public scrutiny? I believe we did, obviously, there. And what has 

been the GAO’s assessment of that scrutiny? 

Mr. DODARO. In terms of oversight boards generally, Mr. Chairman, you know, we would point to a couple models that have been 

10 

used before. All the Members here will recall the Airline Stabilization Board that was put in place to provide loans to the airline industry follow September 11, 2001. That Board was made up of the 

Chairman of the Federal Reserve, the Secretary of Treasury, and 

the Department of Transportation was an ex officio member; GAO 

was a non-voting member of that Board as well. That Board hired 

expertise. It brought in resources and, in our view, worked fairly 

well. A similar type of oversight board was put in place for the 

Chrysler loan guarantee program during that period of time. 

So our view in this case, you would want to have a board that 

would have not only financial expertise—and our experience has 

shown over time when an oversight board is set up, you want to 

have the Federal Reserve and the Board of Governors and Treasury as members of the board in any case. But you also want to 

have industry expertise. In this case, it could be the Commerce Department. Energy is already developing the loan program under 

separate legislative authority given by the Congress, and they have 

hired some expertise, we understand, and would be available to 

help in this regard as well. 

So our view would be you would have to have a board composition, and I would be happy to give you specifics on that with conditions. But those would be our views on the best way to address this 

particular situation. 

Chairman DODD. Well, we would ask you to do that right away, 

if you would, as well. Just last on that point, is it the GAO’s opinion that there has been adequate oversight of the Treasury’s investments? 

Mr. DODARO. We think there are critical management shortcomings, and we made a series of recommendations that we believe 

Treasury needs to implement quickly in order to address those 

issues to make sure that there is proper transparency and accountability over the use of the money that has been provided already, 

that the conditions that have been put on for executive compensation and payment of dividends, et cetera, are adhered to. We also 

made a series of recommendations about the capacity of the Treasury Department to staff up to adequately monitor and oversee and 

implement the program going forward, and those are listed in our 

report. I would be happy to submit our report for the record to document that, Mr. Chairman. 

The other point I would make, you know, a lot of our recommendations go to ensuring an effective transition given the upcoming change in administration. One of the suggestions that we 

might have in this case is if Congress would create a board, if they 

make the determination that Federal assistance is needed, that the 

one entity that is not going to have a change in leadership is the 

Board of Governors of the Federal Reserve. And it could be set up 

where they are members of the board and serve in an interim status as chair until a new Secretary, if it would be the Secretary of 

Commerce or one other person is the chair of the board, until the 

new leadership team is confirmed during the next session. 

This is really important because, as you point out, you have read 

the plans, as have I, and a lot of the assistance is being requested 

during the next several months when this is going to occur. And 

so you are going to need some continuity during this period of time 

11 

with the proper expertise and resources if the Government’s interests are going to be adequately protected. 

Chairman DODD. You raised a second set of issues, and that is, 

the transparency of the Federal Reserve and the assets they are 

holding. And this Chairman intends to take a good look at how the 

Fed has handled its investments. They have a lot more than Treasury has handled, and, frankly, I have a lot of concerns about the 

opaqueness, to put it mildly, of the Federal Reserve’s handling of 

those assets. That is for another hearing at another time, but let 

me turn to Senator Shelby. 

Senator SHELBY. Thank you. Thank you, Chairman Dodd. 

I appreciate that you were brought into this, the GAO was 

brought into this without much lead time, and it is my understanding that the GAO may not have very deep auto industry expertise. In fact, it is my understanding that the GAO does not presently employ auto industry analysts on its staff. But even if you do 

not have auto-specific expertise, can you extrapolate from your experiences conducting other analytical projects and provide your assessment regarding the effort required to adequately assess the financial condition of the automakers? In other words, is 1 day 

enough time to prepare? 

Mr. DODARO. Well, we have been making the most of that 1 day, 

Senator, but you could use more time, obviously, and you could 

need more detailed information from the companies. First of all—— 

Senator SHELBY. To make a good decision. 

Mr. DODARO. Yes, yes. And that is why we think a board apparatus is a really important issue. I mean, in this case, you know, 

one of the companies is not a public company, and Chrysler, you 

know, is owned by a private equity firm. So you do not have the 

normal disclosures that you do for the other two companies. And 

so, you know, we have tried to get as much information as quickly 

as we could in this case, but this is the type of things that we believe the board could do. The board could assure the Congress that 

credit is not available elsewhere, that the cash-flow needs of the 

particular companies are justified from a timing standpoint, et 

cetera. 

Senator SHELBY. But we are not at that point yet, are we? 

Mr. DODARO. Well, as the Chairman mentioned in his remarks, 

there are questions about the plan. 

Senator SHELBY. Absolutely. 

Mr. DODARO. There is a need for additional information. It provides a high-level view, and as it looks into the future, there are 

some assumptions that are being made both from an industry 

standpoint, an overall economic standpoint, but also in concessions 

that would need to be negotiated with other parties, for example, 

in a couple of cases, you know, swapping equity for some of the 

debt that is held by the companies. And while that is a laudable 

objective, exactly how that is going to work out and play out as 

well as other negotiations in the upcoming period of time, let alone 

changes in general economic conditions, would remain to be seen. 

And that is the type of thing that a board would monitor closely 

to protect the Government’s interest. 

12 

Senator SHELBY. The bottom line is that the more information 

one has, a board has, you have, we have, the better informed decision we can make. Is that correct? 

Mr. DODARO. That is absolutely correct. 

Senator SHELBY. And you are not telling us this morning that 

you have all the information you would like to make a decision 

today, are you? 

Mr. DODARO. Well, we are auditors, Senator. We always like 

more information. 

Senator SHELBY. Absolutely. 

Mr. DODARO. And I believe it is always in the Government’s interest to have everything it needs. 

Senator SHELBY. Yes, sir. You noted that the assistance program—that these assistance programs from the Government pose 

significant financial risk to the taxpayer. The magnitude of that 

risk and the companies’ need for the money can only be assessed 

if we have detailed information about what the financial state of 

each company is and what their plans are for fixing their problems. 

Could you tell the American people today that the auto companies have provided the General Accounting Office in the short time 

with sufficient information to make those assessments of such magnitude today? 

Mr. DODARO. Well, there is definitely information in their plans, 

if you take it as a self-reported basis, that shows that they have 

some financial difficulties. 

Senator SHELBY. Sure. 

Mr. DODARO. That seemed to be clearly pointed out by them in 

that data. We have not had time to do any independent—— 

Senator SHELBY. To assess all that. 

Mr. DODARO. To assess it. But if you take the information on a 

self-reported basis, obviously there are issues that need to be addressed. That is why we were suggesting a short-term approach 

and a longer-term approach to deal with the critical issues. I mean, 

the Congress is in a difficult position right now because of the urgency that is being expressed over the need for this particular assistance, and we think if there is a determination made to provide 

that assistance, there could be some short-term issues. But you 

need to get the board in place as soon as possible. 

Senator SHELBY. What would some of the possible benefits of 

Chapter 11 reorganization be for these companies? 

Mr. DODARO. Senator, that is another area where, you know, we 

do not have a lot of experience at the GAO in that area. But there 

are obviously clearly defined legal procedures there that are in 

place. 

Senator SHELBY. Under Chapter 11. 

Mr. DODARO. Yes, yes. 

Senator SHELBY. Chapter 11 basically is for restructuring companies, is it not? 

Mr. DODARO. That is correct. 

Senator SHELBY. If they are worth of restructuring. 

Mr. DODARO. Right. That is correct. And, you know, there are a 

lot of pros and cons of those issues. There are a lot of risks associated with that as well, given the general economic environment, 

13 

the size of these companies, the interrelationships with the suppliers that they have. 

Senator SHELBY. OK. I want to touch on something and see if I 

understand what Senator Dodd was asking you and your answer 

in dealing with the Fed. Were you saying a few minutes ago that 

you believe that the Federal Reserve Board, led by Chairman 

Bernanke, the Board of Governors, has the power now, if they so 

wanted, thought it was necessary, to put money in these auto companies just like they did with AIG and others? Do you believe they 

have the power, the legal authority to do that if they deemed it 

necessary? 

Mr. DODARO. Yes. Yes, we believe they do, but they would have 

to make the determination that—— 

Senator SHELBY. So they could do that without Congress doing 

anything, could they not? 

Mr. DODARO. Historically, that authority has been used for financial institutions, but, you know, our view is it is pretty broad authority, and it could fit this circumstance. But they would have to 

make the determinations that the credit is available. It requires a 

super majority vote of the Board of Governors to make it have a 

high threshold, and it has to involve a determination by the Federal Reserve that the companies would have the ability to repay. 

But those things are present, and we believe it is broad enough authority that it potentially—— 

Senator SHELBY. They could do it if they wanted to do it. 

Mr. DODARO. Yes. 

Chairman DODD. Let me just say, I do not have the language of 

13(3) right in front of me, but believe me when I tell you that it 

is not specific to financial institutions. It can be any entity. 

Mr. DODARO. Right. I just was pointing out historically—— 

Chairman DODD. But I want to make sure that we are not confusing that question. It can be any entity at all under 13(3). 

Senator SHELBY. Senator Dodd, one last question. You have been 

generous with my time. 

If the Fed were to do something like that, looking at their history, they have historically been a good task master for the money, 

how it was spent, how companies were run—in other words, the 

board you referred to. And that would be positive as opposed to us 

loaning money to auto companies that I personally doubt that will 

ever be paid back. 

Mr. DODARO. The Federal Reserve does have the expertise necessary to be able to do some of the things that were associated with 

the board, or any board or any entity could contract for additional 

expertise that they may not have resident in their entity. 

Senator SHELBY. Thank you. 

Chairman DODD. Senator Johnson. 

Senator JOHNSON. Mr. Dodaro, let us cut to the chase. What 

would be the effect on the Nation’s economy if Congress or the Fed 

did not authorize emergency loans for the Big Three domestic automakers? 

Mr. DODARO. Well, Senator, we have not studied that issue in 

depth, as mentioned, but obviously, there would be repercussions. 

And how significant those repercussions would be would depend 

upon, you know, what next steps would occur if there was no FedVerDate Nov 24 2008 08:28 Oct 09, 2009 Jkt 048080 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 L:\HEARINGS 2008\12-04 EXAMINING THE STATE OF THE DOMESTIC AUTOMOBILE IND
14 

eral assistance put in place. But there is no question that given the 

size of these companies, the number of people that they employ, 

that if there are disruptions in their operations, it is going to have 

an effect. And right now we are in a weakened state from our 

economy’s standpoint, and because of that we are sort of in unprecedented circumstances right now. And I think that is a heightened 

risk if the companies do not provide—or are able to get some type 

of assistance. 

Senator JOHNSON. What do legislators need to consider exactly 

when writing legislation to ensure better integrity, accountability, 

and transparency if funds are extended to the automakers? 

Mr. DODARO. The number one recommendation, again, is a board 

that has strong authority, that has access to all the information 

that it needs, that has the expertise and it is resourced properly 

to be able to review the information from the companies and provide the type of oversight necessary. Other safeguards should be 

the fact that there is collateral established for the loan, that the 

Government is in a first lien holder position, has senior status over 

the loan. If there is collateral, we should get collateral during this 

period of time. And there ought to be concessions made by all parties in order to provide that assistance. 

But the number one safeguard, Senator, in my opinion, is this 

strong, decisionmaking board with the proper authority and resources. 

Senator JOHNSON. I yield back. 

Chairman DODD. Thank you very much, Senator. 

Senator Bennett. 

Senator BENNETT. Thank you, Mr. Chairman. 

Let us go back to the question of Fed authority. The restructuring might very well consist of having current creditors take equity. As I understand it, a very large portion of the current creditors are, in fact, some of the institutions that are on Chairman 

Dodd’s chart, that is, the larger banks, the larger financial institutions. Given their status, I am sure they would not be happy with 

the idea of having their balance sheets significantly changed by 

shifting from credit to equity. 

On the other hand, would it be possible for the Fed or the Secretary of the Treasury, or both, under TARP to say if you take equity in replacement for your debt, we then will give you an infusion 

of cash from TARP? Then the balance sheet of the auto company 

changes quite dramatically. The cash-flow challenge changes because they are no longer paying interest on their credit obligations, 

but they have an equity situation. 

Discuss that. React to that possibility. 

Mr. DODARO. That is a very intriguing set of proposals, Senator, 

and, you know, we have not examined the interrelationships that 

you are talking about in terms of how they exist. But I would say, 

though, that one of the tasks of the board, or whatever entity is 

put in charge of this particular situation, is to bring all parties to 

the table to have a negotiated type of an arrangement. And certainly, you know, at this point we should not rule out any possibilities of how those types of negotiated settlements could take place 

to provide the type of circumstances that you are talking about. 

15 

So, you know, I do not know enough to give you a particular answer, but the concept of bringing people together that are stakeholders in this process and trying to work out an arrangement is 

one duty that the board should have. 

Senator BENNETT. Well, in your view, does the Treasury have the 

authority now to do that kind of thing if, indeed, a restructuring 

of that sort made sense? 

Mr. DODARO. Let me just turn to my General Counsel for a 

minute. 

Mr. KEPPLINGER. Senator, certainly the Secretary of Treasury 

under the TARP program has a fair number of tools to purchase 

assets. The other thing, too, is that they have the authority, I 

would think, with the fact that they have this pot of money available to them to engage the parties in negotiations, and particularly 

to the extent that they are mutually advantageous to work out 

those types of arrangements. 

Is there something specific in TARP that addresses this type of 

situation? Presently, not that I can recall off the top of my head. 

Senator BENNETT. So if there is nothing currently in it, the presumption is that, yes, they do have the authority? 

Mr. KEPPLINGER. Well, they certainly have a wide range of authority in terms of purchasing assets from the financial institutions 

and providing loan insurance and loan guarantees. How they could 

work the deal would depend upon the particulars. 

Senator BENNETT. Well, yes. I will not pursue it. My time is running out. But it occurs to me that it might go down a little better 

if the financial assistance were given to the financial institutions 

rather than to the auto companies, but the auto companies could 

receive significant relief. And by putting the equity on the balance 

sheets of the financial institutions, you create a new set of incentives on the part of those equity holders who now become very significant shareholders to protect their own investment by creating 

a marketplace pressure for changes in the way the auto companies 

operate. Seats on the board would come with that equity. In effect, 

you take a portion of the oversight responsibility away from the 

Government and put it in the hands of financial institutions, at the 

same time easing the cash requirements on the part of the auto 

companies. 

So I throw that out as one thing for us to consider as we go 

along. 

Mr. DODARO. Well, Senator, I would be happy to think about that 

idea and provide, you know, some additional information to the 

Committee on that proposal. 

Senator BENNETT. Thank you very much, Mr. Chairman. 

Chairman DODD. Thank you very much, Senator. 

Senator Reed. 

Senator REED. Thank you, Mr. Chairman, and thank you, Mr. 

Dodaro. 

Are we talking about one board or three boards, giving three separate entities, one of which is privately held? 

Mr. DODARO. I would suggest one board, Senator, to ensure consistency. You know, from reading the plans, you obviously have 

three very different situations that are being presented here, but 

16 

there needs to be consistency and equity in treatment. One board, 

Senator. 

Senator REED. And with respect to the formulation that you are 

talking about and one that seems to have been used both with the 

airlines and with Chrysler back in the 1970s is that the funding, 

the actual funding was contingent upon the board determining that 

these conditions had all been met. Is that correct? 

Mr. DODARO. That is correct. 

Senator REED. So, procedurally, the board, would it be established, the actual disbursement of funds to the companies would be 

made by the board, they would not have an account they could 

draw down at their discretion? 

Mr. DODARO. That is correct. 

Senator REED. One of the points you made—and it is reflective 

in several of the questions about assuring a first priority for taxpayers in terms of their investment, implicit in—at least implicit 

in what I have heard the companies have said—is that this is very 

difficult for them to do because of the ability to coordinate among 

debt holders, suppliers, et cetera. Do you have any comments on 

that? 

Mr. DODARO. I think that, you know, each company is in a different situation as it relates to that particular question, Senator. 

This is an area that would have to be negotiated, but I think the 

clear preference, if you will, is for the Government to be placed in 

that status and that there be a negotiated arrangement with the 

various creditors or other stakeholders in order to make sure that 

that happens, or that there is some other type of collateral or warrants that are given for future purchase of stock. There are a lot 

of different arrangements that could be made and negotiated, but 

that would be another task for this board entity. 

Senator REED. Have you looked at the interlocking relationships 

between the production companies and the finance companies? 

Mr. DODARO. No, we have not. 

Senator REED. But that has to be something, I presume, that 

should be considered. 

Mr. DODARO. Definitely. 

Senator REED. And, in fact, I am under the impression that 

GMAC, at least, is seeking to become a bank holding company or 

a financial holding company? 

Mr. DODARO. Yes, that is our understanding. That was in one of 

the disclosures. 

Senator REED. So the Federal Reserve will be the regulator of 

GMAC, effectively. 

Mr. DODARO. If they would approve—— 

Senator REED. If they would be accepted. 

Mr. DODARO. If they approved that status. 

Senator REED. I guess a final point I want to make or a question 

or clarification with respect to what you said is that the procedure 

you seem to be suggesting, the one that we have followed in every 

other situation, is that the critical act that we do is establish the 

board and the parameters, one of which would be first lien position, 

one of which would be a definite voice in the management of the 

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17 

cessions from everyone, not just the UAW but suppliers, dealers, et 

cetera. 

Mr. DODARO. That is exactly right, Senator. Congress would establish the membership of the board, the authorities of the board, 

and Congress can establish whatever conditions it believes necessary to protect the taxpayers’ interest to guide the board’s decisions from a policy standpoint, including executive compensation, 

payment of dividends, et cetera. 

Senator REED. And the other issue here is one of time because 

what we have heard the companies say is that they are in a very 

precarious cash-flow position, and that this board, one, to be established; two, to make a careful review probably with independent assistance is not something that can be done in a matter of days. 

Mr. DODARO. Well, that is one of the reasons we would suggest, 

if Congress decides assistance is warranted and provided that there 

be a short-term mechanism to get the money, most of the plans— 

or the two plans that require immediate assistance, the General 

Motors plan and the Chrysler plan, call for help during the—immediately, but also the January, February, March timeframe, first 

quarter. You know, we believe that there is sufficient expertise now 

available in the Federal Government to get a board together to at 

least look at, while there may be an initial outlay—and that initial 

outlay ought to be conditioned on certifications by the automakers 

that no other credit is available to them and other conditions, but 

then they could immediately focus on the cash-flow positions of 

those entities and then take a look at the longer-term issues associated with restructuring. That would buy enough time to do that. 

Senator REED. Thank you. Thank you, Mr. Chairman. 

Chairman DODD. Thank you very much, Senator Reed. 

Senator Crapo. 

Senator CRAPO. Thank you very much, Mr. Chairman. 

Mr. Dodaro, at the outset of your testimony, you indicated that 

we had a short-term liquidity problem. Could you define short-term 

for me? I mean, what are you talking about there? 

Mr. DODARO. Yes. Basically, that is reflecting what the automakers put in their plans, Senator, which is the cash-flow problems that they are having, meeting the needs of their companies 

immediately in this particular month, but especially in the first 

quarter for next year. 

Senator CRAPO. And these cash-flow projections are based on various scenarios, correct? 

Mr. DODARO. That is correct. 

Senator CRAPO. And I know one of the big questions that we are 

dealing with here in Congress is whether bankruptcy is not a tenable option, and maybe the word ‘‘bankruptcy’’ shouldn’t be used. 

Maybe we should be talking about a Chapter 11 reorganization 

under the Bankruptcy Code. But aren’t the assumptions that the 

automakers are making dependent on the public returning to full 

confidence in the companies? 

Mr. DODARO. Basically, most of the plans call for resuming more 

of a normal sales status around the 2011–2012 type timeframe, 

which is when they would propose that they would start paying 

back the Federal loans. But there are also a number of assumptions in there associated with negotiations with their creditors and 

18 

other stakeholders in the process. In fact, the General Motors plan 

talks about an oversight board along the lines of which I have 

talked about, and they basically would be the substitute, if you 

will, for the reorganization structure under the Chapter 11. The 

board would take on that task of working with all the stakeholders. 

Senator CRAPO. And that gets to the real question I am asking, 

because as I said, one of the big issues here is whether a Chapter 

11 reorganization is not tenable in the auto industry in terms of 

the confidence that buyers will need to purchase automobiles and 

so forth. And the question I have is, do you believe that the essentially same type of reorganization, if that is what we are talking 

about here, only done through an oversight board rather than 

through a Chapter 11 proceeding, is going to create a difference in 

terms of consumer confidence? 

Mr. DODARO. That is hard to predict, Senator, but my point 

would be here, though, if the government takes on that task, it 

needs to have the appropriate people and the resources and with 

eyes wide open to go into that process to take it to a successful conclusion. But the idea, particularly in the current economic climate, 

trying to deal with predicting consumer confidence or overall standpoint, I am just not comfortable that I am in a position to do that. 

Senator CRAPO. With regard to the oversight board, what authorities do you contemplate that it would have? And what I am 

getting at here is I look back, and I am not an expert on what happened in 1979 in terms of the Chrysler bailout that occurred then, 

but my understanding is that at that time, Congress was very specific and the terms and conditions that Congress laid out were statutory, and I assume that you are contemplating, as you suggest an 

oversight board here, that we have again very specific Congressional standards set—— 

Mr. DODARO. Yes. 

Senator CRAPO. ——and that this oversight board would have 

some authorities to implement those standards, correct? 

Mr. DODARO. That is exactly right, Senator. 

Senator CRAPO. Do you recall what kind of standards Congress 

put in in 1979? 

Mr. DODARO. If you would indulge me, Gary Kepplinger, our current General Counsel, was the legal counsel for the Comptroller 

General and we were on the Chrysler board, and if I could ask him 

to take this—— 

Senator CRAPO. That would be very helpful. And the question I 

am getting at here is what kind of specifics did Congress at that 

time require? 

Mr. KEPPLINGER. As you asked before and as you pointed out, the 

conditions in the Chrysler loan guaranty statute were very specific. 

Congress, I think, developed these conditions through over about a 

three or 4-month period, and I suspect, without really knowing, 

that there was general acceptance by the major players before the 

legislation was passed. 

Now, there was a series of findings that the Chrysler loan guaranty board had to make as a condition for issuing a commitment— 

viability, ability to repay, assurances that the concessions were in 

place, a financing and operating plan that was satisfactory to the 

board, because actually, as Gene has pointed out before, it is one 

19 

of the best protections for the government is to assure that the government has confidence in the financing and operating plans going 

forward. 

Then in addition to that, at the time of the loan guaranty, there 

were other assurances and requirements that had to be in place— 

guaranty fees, warrants, other protections, financial upside advantage for the government should it happen, positions in the event of 

bankruptcy, a senior position, et cetera, et cetera, et cetera. I can 

supply, if you would like, a fairly detailed and perhaps more orderly recitation of what they were. 

Senator CRAPO. That would be very helpful. I note I am way over 

my time. I apologize to the Chairman for that. I would just like to 

ask one quick follow-up. In terms of these kinds of conditions that 

Congress imposed, and I would like those specifics, would the oversight board that we are contemplating that you are talking about 

today, would it have authorities to engage in management decisions on behalf of the companies? 

Mr. DODARO. In Chrysler, the government was not involved directly in managing the entities. The government’s involvement was 

more indirect through the control over a billion-and-a-half in loan 

guarantees. And if you will also recall, there were contributions, I 

think in the range of another billion-and-a-half in terms of concessions from the stakeholders and additional funding. So—— 

Chairman DODD. In fact, that was a condition. Wasn’t that a condition? 

Mr. DODARO. The billion-and-a-half from all were conditions. But 

my point is is that the board wasn’t engaged in the managing of 

the companies. The board was engaged in financing, and to a, you 

could say to a good extent, restructuring the companies. 

Senator CRAPO. And we wouldn’t be suggesting anything any different than that sort of arrangement now. 

Thank you very much. 

Chairman DODD. That is a great question, and it again goes back 

to the point that, well, 535 Members of the Congress in the next 

matter of days trying to craft something here is difficult and other 

options exist for managing this situation where getting these kinds 

of decisions could be made almost by fiat as opposed to trying to 

convince two bodies of Congress along with others to draft something here that could work. So I appreciate the observation. 

Senator Schumer. 

Senator SCHUMER. Well, thank you, Mr. Chairman. I want to 

thank you. This is excellent testimony and I think it is along the 

right lines we should pursue. 

I have a couple of points I want to make and then I am going 

to ask you to comment on them. First and obviously, at least to me, 

we can’t let the industry fail. Millions of workers lose their job. We 

have to have a domestic manufacturing base. And to let the auto 

industry fail during a recession would make a sick economy sicker, 

so we have got to do something. 

Second, bankruptcy is not a viable option because it will seal the 

death of the auto companies. No one is going to buy a car from a 

bankrupt company. No one is going to make a loan to someone buying a car from a bankrupt company. And everyone talks about this 

prepack. A prepack brings the big players together, but it doesn’t 

20 

bring all the players together and so once you go to bankruptcy, 

they can delay it for months, even years, and the company fails. 

So we have to do something, not bankruptcy. 

And I think I speak for many of us here. We care less where the 

money comes from—that has been the big debate, should it come 

from the TARP, should it come from the 136—but much more how 

it is spent. And speaking for myself and I think a good number of 

people, I don’t trust the car companies’ leadership. I worry that if 

they are left on their own, they will be back a short time later asking for more and we won’t be better off. To hand money over with 

vague, unenforceable promises without an enforcement plan for viability isn’t good enough. 

So that leads us to where you are sort of, which is Chrysler. That 

is the one model. It is interesting to note, Mr. Chairman, that 

Chrysler wanted direct money or a tax refund and the Congress 

said, no, we are setting up a board. But it wasn’t just an oversight 

board. And I think when you call it an oversight board, you run 

into trouble, because this is a board, I think, that has to do a lot 

more. 

If you have a board, and I wouldn’t even have a board right now, 

given the time problem. I would have an individual. I would let the 

President designate the Treasury Secretary, who I believe was 

chairing the other board, or someone else, to bring all the big parties together and work out concessions quickly so that then the 

money can flow. If you give the money and then say, let the auto 

companies negotiate, you know who is going to lose? It will be the 

workers. UAW made concessions yesterday, significant ones, but 

where are the bond holders? Where are the dealers? Where are the 

other lenders? 

The only way you can do that is the government has the carrot, 

in my view, in the view not of a board. It will be too cumbersome, 

and as Senator Reed alluded to, we don’t have the time. You let 

this President or the next one—it may have to be this one—pick 

somebody. He calls all the major players into the room, probably 

the Treasury Secretary, and says, you all have to make concessions. And then the carrots, which are not just some lending but 

warranties so that people will buy the cars and some back-up for 

lending, because no one is buying the cars without lending, that is 

the kind of plan. 

I think that can be done within the next three to 4 weeks. Look 

what they did on these financial things. That is not a great example in many instances, but I think they can. 

So the worry I have with yours is not the basic concept but the 

timing, the strength of the board to impose conditions, but also to 

do the negotiating, and perhaps it shouldn’t be a board but one individual or maybe the Treasury Secretary and two others, and do 

it quickly. Now, why isn’t that a better plan? It is along the models 

you say, but that takes the Chrysler model and adapts it to the 

problems we have now. 

Mr. DODARO. First of all, Senator, I want to clarify. I have been 

trying to make sure I exorcise the word ‘‘oversight’’ out of this 

board proposal—— 

Senator SCHUMER. Good. 

21 

Mr. DODARO. ——because I don’t want it to be viewed as an 

after-the-fact oversight board proposal. That is not what we intend. 

It should be a decisionmaking apparatus and monitoring, as well. 

Senator SCHUMER. But monitoring is not—when you say decisionmaking, do you mean it would help negotiate? It would call the 

bond holders in? 

Mr. DODARO. Yes. 

Senator SCHUMER. It would call the dealers in and say, you have 

to make concessions—— 

Mr. DODARO. Yes. 

Senator SCHUMER. ——before we are going to give some money. 

Mr. DODARO. Yes. Yes. Yes. 

Senator SCHUMER. Good. 

Mr. DODARO. And also, we have two concepts. One is the board 

concept. The other is short-term/long-term. Now, short-term can be 

done in a wide variety of ways for the immediate next few months, 

but the restructuring plans that have been put forth by the automakers take you out two, 3 years—— 

Senator SCHUMER. Right. 

Mr. DODARO. and there, you need a stronger structure, and 

there, I would highly recommend the board approach as a means 

of continuity over time. But short-term, there are—— 

Senator SCHUMER. What about having one person designated by 

the President, or if it need be the next President—by the President 

to put together this package rather quickly? 

Mr. DODARO. There are various approaches that could be used in 

the short-term. 

Chairman DODD. Does the word ‘‘trust,’’ a trustee, maybe that is 

the concept. That word ‘‘trustee’’ has exactly the kind of things, 

Chuck, I think you are talking about. 

Senator SCHUMER. Yes. 

Mr. DODARO. I mean, in the current climate in which we are 

dealing with a lot of these issues that are fast-moving issues, all 

options ought to be on the table, including that one. 

Senator SCHUMER. Thank you. 

Chairman DODD. Do you have another question? I am sorry. I 

didn’t mean to interrupt you. 

Senator SCHUMER. No, my time has expired. 

Chairman DODD. OK. I am sorry. 

Senator Dole. 

Senator DOLE. Thank you very much for your testimony this 

morning, which I appreciate very much. Could you talk more about 

the ramifications if the Big Three auto companies, if they go 

through a prepackaged bankruptcy? Just more details on that, 

please. 

Mr. DODARO. Senator, I wish I could. I mean, we were sort of 

called into this at the last minute to look at the plans that they 

have, so we really haven’t studied or are in a position to really answer that question with any degree of certainty. I think the other 

difficult issue there will be trying to determine exactly what the 

scope of the so-called prepackaged bankruptcy would be. So I really 

can’t offer much more insight there. I am sorry. 

Senator DOLE. The report that was released 2 days ago by GAO, 

I would like to talk about that for just a few more moments beVerDate Nov 24 2008 08:28 Oct 09, 2009 Jkt 048080 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 L:\HEARINGS 2008\12-04 EXAMINING THE STATE OF THE DOMESTIC AUTOMOBILE IND
22 

cause this report acknowledged that the Treasury Department has 

provided more than $150 billion to 52 institutions at this point and 

that Treasury has yet to impose the necessary safeguards, like a 

system fully developed and implemented. It is a heightened risk 

that the interests of the government and taxpayers may not be adequately protected. 

Wouldn’t the board, whatever we call it, which is supposed to be 

a part of the legislation that we are talking about now or the plan 

that we are talking about, run the same risk? What is the guarantee that this would occur any more readily than what has happened under the TARP legislation? 

Mr. DODARO. That is a good question, Senator, and what I would 

say the difference would be is a clear delineation in statute from 

the Congress as to what its expectations are of whatever executive 

branch or administrative entity is put in place. 

In this particular case, the oversight board that is mentioned 

under TARP is really an after-the-fact body for reporting and monitoring. It is not along the lines of what you were talking about. So 

the difference would be Congress specifying what needs to be done 

by this entity to safeguard the government’s interest, and along the 

lines of the Chrysler loan guaranty program or the airline stabilization board. We have models that have worked and we are 

suggesting a replication of that approach, and that level of specificity would make all the world of difference, in my opinion, for this 

particular set of circumstances compared to the TARP program. 

Senator DOLE. Thank you. Thank you, Mr. Chairman. 

Chairman DODD. Thank you very much, Senator. 

Senator Menendez. 

Senator MENENDEZ. Thank you, Mr. Chairman. Mr. Dodaro, 

thank you for your testimony. 

Some of my questions have been pursued by some of my colleagues, but there is one specifically. You know, I look at the 

TARP, your report on the TARP program, and I wonder, the two 

things that we were looking for in addition to obviously rescuing 

the financial institutions and trying to help Main Street was transparency and accountability, and they seemed to have been victims 

in this process of not being fulfilled in the TARP program. So I 

wonder, isn’t that a lesson for those of us who are arguing for some 

greater conditionalities in that process? As we look at the automakers and the possibilities of helping them out, isn’t conditionality a very key element of what we should be looking for moving 

forward? 

Mr. DODARO. Absolutely. Absolutely, Senator. I think that makes 

all the difference. If you look at the title of our report, our title says 

‘‘Additional Actions Needed to Better Ensure Integrity, Accountability, and Transparency,’’ and the conditionality is the 

underpinnings of that. 

Senator MENENDEZ. Now, I have heard, of course, in your original testimony and some of your answers that, of course, being first 

in line. I think I have read some accounts, and we will hear their 

testimony when they come forward, but that the Federal Government needs to be paid back first and all other outstanding debt 

would be paid after the taxpayers get their money back. Some of 

23 

the Big Three have expressed skepticism at achieving this. That 

was accomplished in the 1979 rescue, was it not? 

Mr. DODARO. Yes, it was, Senator. 

Senator MENENDEZ. If it was done then, have circumstances 

changed in such a way that it cannot be done now? 

Mr. DODARO. Not to my knowledge. 

Senator MENENDEZ. Let me ask you, among the conditions that 

we should be looking at, first in line and the oversight board at the 

appropriate time, should the Congress not be considering what, in 

fact, that oversight board should be demanding of the Big Three? 

For example, all of these companies have presented some restructuring plans, but ensuring that that restructuring takes place, ensuring that there are benchmarks and that there are timeframes 

for those benchmarks, should that not be a critical part of what we 

are seeking? 

Mr. DODARO. Yes, definitely. 

Senator MENENDEZ. Would we be looking at, for example, of 

course, having a review? You mentioned having the board be part 

of the actual final restructuring plan of these companies, that that 

is something that Chrysler’s rescue plan did, is that correct? 

Mr. DODARO. Let me ask Gary to respond. 

Senator MENENDEZ. Sure. 

Mr. KEPPLINGER. Largely through the conditions, Senator, that 

were imposed upon the commitment and the extension of the loan 

guarantees, you were accomplishing that restructuring and those 

concessions had to be reflected in the financing plan. There was a 

dollar-for-dollar draw down in terms of the amount of loan guarantees that the board could provide to Chrysler had to be matched 

dollar for dollar with concessions from the stakeholder community. 

So you certainly can build that in. 

Mr. DODARO. And the conditions that were set during the Chrysler period in 1979, that was for a $1.5 billion loan guaranty program at that point in time, and so my advice would be those would 

be the starting point for the conditions. Here, we are talking about 

multiple entities with a lot more money at stake, so Congress 

would be, at its discretion, add additional conditions if it so deemed 

appropriate. 

Senator MENENDEZ. Now, at least maybe one, I don’t know, 

maybe more, but one of these companies has suggested the possibility of having a merger with a foreign manufacturer. In that case, 

would it not be of interest to the United States to ensure that there 

are some conditions precedent at least on its financial interests in 

that respect to make sure that, in fact, what we are doing—that 

may create greater viability for the company at the end of the day, 

but what we want to ensure is that we are helping a domestic auto 

industry, not a foreign auto industry. 

Mr. DODARO. Well, I think that, Senator, that goes back to my 

other suggestion about the Congress establishing clear goals and 

objectives to protect the national interest. So whatever the Congress would want to make sure that it provides clarity in the legislation. That issue certainly could be one of the ones that is considered for that purpose. 

Gary? 

24 

Mr. KEPPLINGER. That was a specific condition that was included 

in the extension of the loan guarantees. To read from the statute, 

the board had to determine that there was no substantial likelihood that Chrysler Corporation will be absorbed by or merged with 

any foreign entity, and that is, of course, a judgment that you all 

will have to make. 

Senator MENENDEZ. And one final question. Have you looked at 

this point in your—I know you got brought in rather late, but have 

you looked at the presumptions of the Big Three in terms of what 

their projections are as it relates to viability? Have you had that 

opportunity? 

Mr. DODARO. No, we have not. 

Senator MENENDEZ. OK. We will look forward to the next panel 

in that respect. 

Thank you, Mr. Chairman. 

Chairman DODD. Senator Corker. 

Senator CORKER. Mr. Chairman, if I could, I could burn up 5 to 

7 minutes now with this witness and I have some questions that 

would be pertinent. What I would like to ask your indulgence to 

do is to let me lop that over into this next session for our main 

course. I know three of those witnesses have driven a long ways 

to be here and I would rather use my time, if you will, with them. 

But if that is not acceptable, I will go ahead and use the time. 

Chairman DODD. No, no, fine. We will do that. I know already 

I have talked with Senator Corker and he has asked for a little extended time to pursue a line of questioning and I certainly want 

to accommodate my colleague with that request. I will just underscore the point that at least three of our witnesses, maybe more, 

have driven a long way to be here and we thank you for that. 

Senator SHELBY. Mr. Chairman, I wonder if they are going to 

drive back. 

[Laughter.] 

Chairman DODD. I think that will depend on what we do here 

in the next few days. 

[Laughter.] 

Chairman DODD. Let me see who is next here. I apologize. Senator Casey? 

Senator CASEY. Mr. Chairman, thank you very much, and Mr. 

Dodaro, we appreciate your testimony today. 

I have to put something on the record because I have a bias here. 

You have got roots in Pennsylvania and I know you attended 

Lycoming, is that correct? 

Mr. DODARO. That is correct. 

Senator CASEY. One of our great colleges. So now that that is on 

the table, that will obviously be the predicate for my questions. 

[Laughter.] 

Senator CASEY. No, I am grateful for the work. I wanted to ask 

you about basically two—probe two areas. One is I was happy in 

the report that you provided, the testimony today, that you highlighted goals for us on a number of fronts, not just how to analyze 

the problem and the legislation and the solution, in particular on 

the board, the aspects of putting together a strong oversight board. 

But especially I appreciated the taxpayer provisions, where you 

25 

outline on pages four and five about concessions that everybody has 

got to help here. 

And I won’t go through the detail of what you set forth: The controls over management; where you talk about approving aid recipients’ financial and operating plans and any new major contracts; 

Number three, that the government should require adequate collateral; and four, the government should receive compensation 

through fees and equity participation from these entities. I think 

it is important that we have principles that guide all aspects of 

this, but especially those that pertain to taxpayer protections. 

I guess the main area I wanted to question you about, though, 

is your process. I was the Auditor General in Pennsylvania. We 

issued audits and investigations, and I know they take some time 

to do it the right way, but I know that you are able to move, I 

think, a lot faster than some auditing entities even of comparable 

size. I guess I was going to ask you if it is possible to do a review 

that would help us even in the near term when you have begun to 

take a look carefully at each of the proposals that the automakers 

are presenting to us today and have presented the last couple of 

days. 

I was thinking about a report that could outline the adequacy of 

the plans, maybe a review of how realistic assumptions are that 

are built into the underpinning of these reports, what additional information is needed for this government, this Congress, to make 

determinations about legislation even for next week, and how to 

modify the plans to meet the criteria that you have established in 

this report. 

I guess the question is, A, could such a report be done, and B, 

is it possible even to construct something that would be substantial 

and thorough enough literally in the next 6 days or so, or 5 days, 

before we vote? 

Mr. DODARO. Senator, I first of all appreciate your recognition 

that we are nimble and a fast-moving agency. In this case, I don’t 

know what we could do within that period of time that would add 

a great deal of credibility. First of all, we don’t have the authority 

here in any of these companies to go in and dig through their 

records that would be needed during that period of time. We are 

also under our mandate to provide reports on the TARP program 

every 60 days, so we have every able-bodied person following that 

money, as well. I would like to say that we could, but I just don’t 

see how it would be credible and meet all of our standards. 

Senator CASEY. Is there a way that you could peel off or we could 

peel off an aspect of this for you to study in that time period? In 

other words, if you couldn’t provide an assessment, an overall assessment of all three plans, are there specific areas that we could 

ask you to probe? 

Mr. DODARO. I certainly would be willing to entertain that to provide whatever help we could to the Congress. The other thing we 

could do is to quickly provide a set of questions that you could ask 

the automakers based on our reading of the plans to provide some 

additional information for—that they could then provide that information. We certainly could provide that insight, which I think 

would be helpful and largely go toward accomplishing the purpose 

of what you are talking about. 

26 

Senator CASEY. And I think especially with regard to the oversight board, because one of the things that I have called for, and 

others have, as well, is that one of the ways that we achieve some 

measure of accountability, because the atmosphere in America 

today is, frankly, pretty negative about any kind of assistance for 

a variety of reasons which we don’t need to go into. But maybe 

what we can do is peel off, and I know my time is up, but we will 

peel off some possible areas of inquiry and get those to you and see 

if it is possible to provide some feedback even within this limited 

window. 

Mr. DODARO. Yes. And it would require, whatever aspect that we 

focus in on would require the voluntary cooperation of the entities 

to quickly provide us the information because we don’t have statutory right of access to that information. We would want to make 

sure that we have all the facts for whatever we would look at. 

Senator CASEY. Well, they seem to be in a cooperative mood. 

Thank you. 

Chairman DODD. That is a very good suggestion, Senator Casey, 

and I appreciate the response from the GAO. I might ask in the 

very next panel that our witnesses from the industry might respond to Senator Casey’s suggestion and the GAO’s concern as to 

whether or not that might work. I think that could be a valuable 

contribution as we are trying in a very brief amount of time to do 

something here that could be helpful, so I thank you very much. 

Senator Tester. 

Senator TESTER. Yes, thank you, Chairman Dodd, Ranking Member Shelby. 

Just a quick point. I know you had mentioned in your opening 

remarks, Chairman Dodd, that you had invited Chairman 

Bernanke and Secretary Paulson here. It is unfortunate they did 

not show up. I can tell you that the frustration with the $700 billion bailout, because of lack of transparency and lack of accountability, actually is part of the bleed-over here that we are dealing 

with with the auto industry, and then the fact that the special Inspector General at the Treasury that we had a hearing here 2 

weeks ago was being held by a member of this body is somewhat 

disturbing. In fact, it is more than just somewhat. 

Mr. Dodaro, I want to thank you for being here today. I have got 

a few quick questions. We can run through them very quickly. 

In your testimony, you stated that potential borrowers have a 

reasonable assurance of repayment of the loan. They need to have 

that. What should that repayment schedule be? 

Mr. DODARO. That is a very good question, Senator, and I think 

that would be one area we would look to the board to establish 

based on looking at the financial condition and operating plan of 

the boards. I don’t think that the schedule should be set by the borrower, which in this case you have your opening bid here as to 

when they would repay it. I think the schedule ought to be set by 

the lender, and that is one of the things the board should do. 

Senator TESTER. That being said, you saw the repayment schedule that the auto manufacturers have put forth. At first blush, do 

you consider those repayment schedules realistic considering the 

economy we are in? 

27 

Mr. DODARO. A lot depends on the assumptions that they have 

in the plans, and—— 

Senator TESTER. How about from your perspective? 

Mr. DODARO. Well, from my perspective, I would insist on collateral associated with the loans and make sure that the interest rate 

is set commensurate with the risk. And in this case, a lot of that 

depends on the performance of the economy and the companies 

over a period of time. So I would set it at a pretty high level. 

Senator TESTER. OK. Could you give me an indication of what 

the impact to the PBGC, that is the pension program, would be if 

the Big Three went into bankruptcy? 

Mr. DODARO. Right now, it looks like the pension issue is in 

hand—— 

Senator TESTER. OK. 

Mr. DODARO. ——and that there are not any immediate issues. 

However, depending upon the concessions and the changes and 

other things that could happen, as well as the return on the investments that they have made in the pension plans, this could be an 

issue down the road. So it is something we will keep an eye on, but 

right now, it seems not to be an issue. 

Senator TESTER. So a bankruptcy would not impact those pension 

programs? 

Mr. DODARO. I can get you a detailed answer for the record 

there. 

Senator TESTER. I would love that. 

Mr. DODARO. We will do that. 

Senator TESTER. Unfortunately, I mean, we could potentially be 

voting on this next week. 

Mr. DODARO. We will have an answer tomorrow. 

Senator TESTER. Oh, super. That would be great. 

On the next panel, a gentleman from Moody’s will be here. I look 

forward to his testimony and asking him a few questions. But one 

of the points that he makes is that $34 billion in loans is not sufficient. Ultimately, it would be around $75 to $125 billion—those are 

his words, and he will reiterate them, I am sure, later—to keep 

these companies out of bankruptcy. You have reviewed the plans. 

Could you comment on that and tell me what GAO’s perspective 

would be as far as the total dollar amount? Is the $34 billion adequate or would you be more inclined to go with Mr. Zandi’s perspective? 

Mr. DODARO. Senator, we have not looked enough in depth at 

that issue to really offer an informed opinion on that right now. 

Senator TESTER. OK. You also mentioned in your testimony that 

creditors should not be asked to make concessions that will cost 

more than what they would expect to lose in a bankruptcy. Could 

you give me an example of what you are talking about? 

Mr. DODARO. Well, this would be taking an equity share for credit or paying a portion back of the company, you know, taking so 

many cents on the dollar that are owed. What we are saying there 

is that the government shouldn’t expect that the creditors are going 

to quickly agree to something that they think would be a worse 

deal than what they would get through bankruptcy. That is all we 

are saying. It is just the basic principle and expectation that the 

28 

government should have when it would carry out its oversight activities. 

Senator TESTER. I don’t mean to put you on the spot again, but 

I have got 35 seconds so I am going to do it. One of my big concerns is that if we do this bailout today, even after the plans, there 

is a potential we could be back here in a year, maybe less. Could 

you give me any assurances that if we allocate $34 billion today 

that it will take care of the problem, assuming that the economic 

situation that we are in right now is where it is going to be for the 

next year or maybe even a little longer, and let us hope it doesn’t 

go a year, but I think we need to take the worst-case scenario as 

we approach this kind of money. 

Mr. DODARO. We have not done the in-depth work that would put 

me in a position to provide you that assurance, so I can’t provide 

it. 

Senator TESTER. OK. Well, I appreciate your honesty and I appreciate your being with the Committee today. Thank you. 

Mr. DODARO. Thank you very much, Senator. 

Chairman DODD. Thank you very much, Senator. 

Just to inform my colleagues, Senator Carper, Senator Bayh, and 

Senator Brown are the remaining colleagues with questions, and so 

I would ask my colleagues to go in that order. 

Senator CARPER. Thank you, Mr. Chairman. 

Mr. Dodaro, we have heard any number of times in the past from 

your predecessor, David Walker, our Comptroller General, who has 

testified and is quite a good witness, as you know. This is the first 

time I have heard you testify. You are ably helped here by your 

counsel, but I think you have done just a superb job with relatively 

short notice and I want to thank you really from all of us. 

Mr. DODARO. Thank you, Senator. 

Senator CARPER. I am going to go back to a point raised earlier 

by Senator Bennett. I think he raised a good idea. In fact, a number of my colleagues have. But I am just going to run through our 

options of what we could do here, and one is to do nothing—not a 

good option, one that I don’t endorse. Option two, go to Chapter 11, 

in my view, not a good option. Some kind of Chapter 11 that is prepackaged, maybe. 

The idea of using the TARP and calling on the Secretary of the 

Treasury and others to make those funds available, not a bad idea, 

but we are not getting a lot of movement in that direction from the 

administration. Asking the Federal Reserve to use their vast resources, their printing machine, even, to come here and provide the 

liquidity, the working capital that is needed, I am uneasy about 

that option, but that is certainly an option. 

The other option was one that I think that Senator Bennett was 

talking to and I just want to explore it again and ask you to react 

to it again. We have provided, as you know—when we initially did 

the TARP, passed the TARP legislation, my expectation was that 

Treasury would use the money and go out and buy mortgagebacked securities from financial institutions. They have, for the 

most part, not done that. They did use their authority to go in and 

inject capital into financial institutions and some of those financial 

institutions have used that money to pay dividends. Some of them 

29 

used that money to acquire other financial institutions. Some of 

them used it to pay compensation, I presume. 

What about the idea of saying to those banks that have actually 

received the capital injection through the TARP, large banks, and 

nine of them that got $125 billion or so, and then the other thousands who received some similar kinds of payments, but in the aggregate up to $125 billion, and simply say to them, you received 

this capital injection. You have received this money. Rather than 

using it for some of the other purposes for which you are using it, 

we would like for you to use it to lend money to the Detroit 

Three—Ford, Chrysler, GM—and the Federal Government would 

guarantee the loan, would guarantee the loans that are made. 

To the extent that the loans were made and the banks—their 

cost of capital investment, I think is about 5 percent. Preferred 

stock, they have to pay 5 percent of the shares of preferred stock, 

and after 5 years it goes up to 9 percent, but their cost of capital 

right now is about 5 percent. If they were even to charge like an 

extra 100 basis points beyond that, with what is pretty much a 

low-risk/no-risk situation, they could actually make some money on 

the deal. Let me just ask you, in sort of thinking outside the box, 

does that work? 

Mr. DODARO. Well, right now, there have been agreements signed 

between the banks and the Secretary of Treasury, particularly the 

large banks where the money has already been dispersed as well 

as some of the other banks, that it would have to go back and renegotiate those agreements and terms. There also is money that 

has not yet been allocated out of the portion that has been set 

aside for the capital purchase program where agreements have not 

been reached yet. There is certainly more flexibility there up front. 

Unfortunately, those will be some of the smaller institutions that 

may not collectively have the type of resources that the automakers 

are seeking at this particular point in time. But I think it is an 

idea that should be explored. There would just have to be these renegotiations for the larger banks if that would be the case. 

Part of our recommendation in our report was to have Treasury 

find out what they have used the money for so far, and right now, 

there is not any reporting mechanism back there. So from a practical standpoint, and I don’t know to what extent that even exists 

at this particular point in time, whether the money is still available for that purpose. But there is more money in the future. 

Senator CARPER. All right. Thank you. In the briefing materials 

that were provided to us by the Committee, one of the items that 

was noted is when they were going through the different options 

that were available to us, one of the things that they talked about 

was a government-sponsored reorganization, which I think may be 

another way of saying a strong oversight board involved at the 

front end, almost doing a prepack Chapter 11. Is there some other 

entity than a government-sponsored reorganization that is different 

from what we have been talking about here? I would yield to your 

counsel, as well, if you want to jump in. 

Mr. DODARO. Yes. 

Senator CARPER. Is there any difference between a governmentsponsored reorganization and what we have been talking about 

with an activist oversight board? 

30 

Mr. DODARO. Not that I see, and looking at the GM plan in particular, to me, that just suggested that we are heading essentially 

in the way of Chrysler. And remember that had the Chrysler loan 

guaranty board not been successful in working with Chrysler to 

bring it out of its financial difficulties at the time, bankruptcy was 

still an option. 

Senator CARPER. All right. Thank you very much. 

Chairman DODD. Thank you, Senator, very much. 

Senator Bayh. 

Senator BAYH. Thank you, gentlemen. One of the things that has 

become apparent to me and probably all of my colleagues this 

morning—and by the way, thank you for the substantial amount of 

work you have done in a very short period of time in a very intricate area—is how complex this all is. Is it fair to say, Mr. Dodaro, 

that even doing the best we can, and you have answered a lot of 

questions about what are the alternatives, how would this work, 

what would the results be, isn’t it true that there is just an irreducible amount of uncertainty at the end of the day that we are 

going to have to come to grips with? You mentioned in the context 

of bankruptcy. I think the phrase you used, that there are significant uncertainties in all of this. There is no dead certain guarantee 

about how it is going to function at the end of the day. That is not 

possible, isn’t that correct? 

Mr. DODARO. Given the uncertain economic situations that we 

are in as a backdrop to all this, I think you are exactly right. The 

real question for the Congress is how you best manage the uncertainty—— 

Senator BAYH. Well, therein lies my—— 

Mr. DODARO. ——to minimize the risk. 

Senator BAYH. Forgive my treading on your remarks, but I have 

only got 5 minutes here. I think you mentioned a key thing, and 

I will give you where I am coming from on this. You mentioned the 

economic backdrop, and I think in your testimony you used the 

phrase ‘‘significant ripple effect’’ if the companies are allowed to go 

down, and you mentioned it would be a drag on an already weakened economy. So a lot of this for me comes back to what is our 

appetite for risk taking at this moment in time? Is this a time for 

adding additional risk to the economy, or is this a time for a more 

cautious approach? And given the great deal of uncertainty already 

present in the economy, it suggests to me that this is a time for 

a more cautious approach, trying to minimize the amount of fragileness, uncertainty, instability in an economy that already has 

plenty of all of those things. 

So my question to you is, and you alluded to this in both your 

oral remarks and in your written testimony, isn’t it true that if we 

were to allow these companies to go under, to go into bankruptcy, 

that there would be a lot of unanticipated consequences, some of 

them perhaps profound, and almost all of them certainly negative? 

Isn’t that true? 

Mr. DODARO. It is hard to determine what the outcome would be 

at this point. I think it could be potentially significant. I agree with 

that. And I think the real policy question, I also point out in my 

written statement, for the Congress to make in this case is what 

31 

are the circumstances that it is willing to enter into from a Federal 

standpoint. And so that is really part of the policy. 

Senator BAYH. Well, you used the phrase, ‘‘significant ripple effect,’’ and I assume by that you meant not only the direct job loss 

to the manufacturers, but the losses among their suppliers, among 

their dealers, and, in fact, the multiplier effect in the broader community. And one of the points that I would like to make, and there 

are a lot of people even in a State like my own where we have a 

lot of automotive industry, why should we do this? And I think the 

point is that it goes way beyond just the automotive manufacturers 

themselves. It is the broader community that is going to suffer and 

the broader economy that might suffer because of this, and I assume that that is what you meant by the phrase ‘‘significant ripple 

effect.’’ 

Mr. DODARO. Yes. 

Senator BAYH. Possibly thousands, tens of thousands, I mean, 

who knows, but a significant economic impact on a whole lot of 

middle-class folks who aren’t seated anywhere at this table here 

today. 

Mr. DODARO. There would definitely be repercussions. 

Senator BAYH. And according to you, significant. You used the 

phrase ‘‘significant ripple effect.’’ In an effort to try and address the 

residual uncertainties, you used the phrase, one of the potential 

downsides to all this is the precedent that could be set. Well, there 

are some other precedents on the other side and there has been a 

lot of discussion of the Chrysler situation, which I think most people would conclude had a happy outcome. The taxpayers were repaid ahead of schedule, actually made money. The jobs were saved. 

The economy was saved the adverse consequences. So isn’t that a, 

if done correctly, isn’t that a positive precedent that exists? 

Mr. DODARO. That is exactly right, and that is why we are suggesting that the board model that was used under the Chrysler approach is the right model because we believe that was instrumental 

in the success that you mentioned. 

Senator BAYH. And we have some more recent perhaps not so 

positive precedents. The example of Lehman Brothers springs to 

mind, where some folks decided that there was not enough systemic risk involved to save Lehman Brothers. They decided to save 

Bear Stearns, but they said, well, Lehman, we can let go. It is not 

going to be so bad. And I think most people looking back on that 

would say, well, wait a minute. It turned out to be a lot worse than 

had been anticipated, and looking back, the cost of saving Lehman 

was probably a lot less than the consequences that we have paid 

to date. Isn’t that another precedent that is out there in recent 

memory that might argue for action? Again, erring on the side of 

caution and stability as opposed to greater risk taking and instability. 

Mr. DODARO. Well, it is certainly an example others have pointed 

to, as you suggest. We have not looked at it carefully, but it is an 

example people point to. 

Senator BAYH. And I see the example here on the board of AIG, 

and my colleague, John Tester, asked—and he raised this issue and 

I am sorry he left, but he said, can you guarantee me that people 

aren’t going to be back? Well, AIG was back within a matter of 

32 

weeks and I don’t think we would have extended capital to any of 

these entities if the prerequisite had been, look, a lock-certain 

guarantee we will never hear from you again, because there is no 

such thing, isn’t that also correct? 

Mr. DODARO. There is always a possibility that circumstances are 

going to change. 

Senator BAYH. My last point, and again, I admire your work and 

a lot of this comes back to, again, there is just an irreducible level 

of the unknown. And so the question is, where does the balance lie, 

in the area of greater risk taking or greater stability? But Senator 

Schumer asked, and I have extended my time, so my last question 

will be, in this Chrysler precedent, which we all have agreed was 

a positive precedent that if we could replicate would be the way to 

go, and we have got to bring all the different stakeholders to the 

table and they have got to all participate, and I think labor very 

courageously said that they were willing to go back to the table to 

talk about this. 

It seems to me that the toughest player out there are going to 

be the creditors. How do you get them to come to the table? How 

do you get them to take the steps that are going to be necessary? 

So my question to you, both of you, is in the Chrysler precedent, 

if some of them are just balking, is there any—outside of bankruptcy—any ability to have what is termed a cram-down, basically 

to say if some of the creditors are balking, holding up the whole 

thing, what do you do about that? Is there any mechanism for dealing with that outside of bankruptcy, to basically require them to 

participate so that you don’t have everybody getting flushed down 

the tubes because there are just a few intransigent folks? 

Mr. KEPPLINGER. Fortunately, I can recall only one episode 

where that happened, and it was a relatively small bank in Rockford, Illinois, that was part of a credit facility. And the cram-down, 

as you say, Senator Bayh, was simply the money was found to buy 

them out. Now, that is not a particularly useful incentive—— 

Senator BAYH. At 100 percent? At a dollar-for-dollar basis? 

Mr. KEPPLINGER. They were relatively small, and the problem 

was taken care of with what often speaks very effectively, was 

money. And that was agreeable to the other participants in this facility because they had made the business judgment that it was 

better for them to make concessions and retain their debt than it 

was to go into a bankruptcy. 

So I can’t remember who on the panel referred to carrot, but 

there needs to be that carrot. There need to be those business judgments. And as Gene suggested before, the board has to have 

enough specific requirements and conditions that they have leverage to negotiate with, but that they also have enough flexibility to 

deal with the vagaries, and as Gene also pointed out, the differences between the current financial situations of the players. 

Senator BAYH. My time has expired, but I think the carrot, absolutely. I was also interested, is there a stick here possibly that 

could be balanced against the carrot to lead to a decent outcome? 

I mean, it is sort of—— 

Mr. KEPPLINGER. It is bankruptcy. 

Senator BAYH. ——the financial equivalent of eminent domain. 

Mr. KEPPLINGER. In one sense, it is bankruptcy. 

33 

Senator BAYH. Mm-hmm. 

Mr. DODARO. One of the other points I would like to elaborate 

on your question about the uncertainty, one of the features that the 

board would have is the fact that if there are changing circumstances, they will know about it early enough to consider other 

options. So the idea that there would be more of an early warning 

system built in so that Congress wouldn’t be put in a position of 

having to make quick decisions without all the information. 

Chairman DODD. Senator Bayh, thank you. Very good. Very good 

exchange, too. Very helpful. 

Senator Brown. 

Senator BROWN. Thank you, Mr. Chairman. Thank you, Mr. 

Dodaro. Thank you, Mr. Chairman, for calling this hearing. I apologize for my late arrival. I was on the early morning flight and the 

flight was canceled for mechanical reasons. I guess if I had thought 

ahead, I would have hitched a ride with one of the witnesses driving from Cleveland, so I appreciate that. 

[Laughter.] 

Senator BROWN. As the Chairman said in his opening statement, 

we are asking extraordinary things of our witnesses today, something that we didn’t ask of bankers when they came in front of this 

Committee, or more precisely did not come in front of this Committee. We didn’t ask that the CEOs of the banks drive to town in 

a Wells Fargo armored truck. We didn’t ask the CEOs of the banks, 

each of which was asking for, or each of which was given $25 billion, we didn’t ask for them to appear before us. We didn’t ask 

them to come up with a plan on how they were going to spend the 

money. Neither Congress nor the Bush administration did that. We 

are asking lots of these witnesses, as we should, to protect taxpayers’ investment. I think it is important to keep that in mind 

and I appreciate the Chairman in his statement pointing out that 

we are asking extraordinary help with asking extraordinarily little 

accountability from the banks. 

All of us know the damage of these companies’ failures, these 

companies going into bankruptcy, the damage it would be to all 

parts of the country, especially my part of the country, but everywhere. I think if we look at this as we have in some sense with 

talking about Chrysler and what happened 30 years ago, if we fail 

to act, some future Professor Bernanke is going to—people are 

going to marvel at the opportunity we missed. We are adding another three million people to the unemployment lines on top of the 

1.5 million people who have lost their jobs just in this calendar 

year alone. And I think our responsibility is great and I am confident that this Committee and the Senate and the House and the 

White House will step up and do the right thing and take the responsibility that we should as we move forward in the next few 

days. 

I want to go back to a couple of points. Most of the questions 

have certainly been asked by now that I think are relevant. A couple of points that were brought up by Senator Tester, when he 

asked you about the effects of if the government doesn’t provide 

this assistance, if we fail to move forward on these proposals, you 

mentioned that PBGC would be able to withstand it, that there 

wouldn’t be great change. I want to explore that. 

34 

I talked yesterday with the Governor of Ohio, who is facing huge 

budget problems as the Governors of almost all States, especially 

States like mine. He talked about the borrowing from the unemployment fund. And this is a recession that we have been in now 

a year, I guess, officially, but because the recovery was so mild and 

weak almost a decade ago, the State unemployment funds and the 

other safety nets, if you will, that States provide never were built 

up because of the mild growth or the relatively weak growth we 

had coming out of the last recession. So we are in a position today 

in all kinds of States in this country, from everywhere in the country, we are in a position where we simply do not have much ability 

to withstand these more difficult times. 

So talk through, if you would, what this means? With PBGC, 

there is not just—maybe Ford, Chrysler, and GM are fully funded 

with their pension plans. A whole lot of the suppliers aren’t, I have 

got to be sure. What is this going to mean to PBGC? What is this 

going to mean if we do nothing or go Chapter 11? What is it going 

to mean for food stamps and unemployment funds and Medicaid to 

the Federal and State governments? What is this more precisely 

going to mean then? 

Mr. DODARO. Well, there is no question, to the extent to which 

unemployment rises, it puts additional strain on all the social safety net programs that you mentioned, Senator, not the least of 

which is the health care costs and the Medicaid programs that the 

States are running, which is already growing at a rapid figure 

aside from these other figures. 

Now, the specifics on the PBGC is that, you know, basically, the 

PBGC Corporation has basically said that things are OK right now 

for the Big Three. But, you know, if there are some issues that 

emerge down the road, this could become much more problematic. 

And as I mentioned to Senator Tester, I would like to go back. This 

is a highly technical area, and I want to make sure I give this 

Committee the right answer, and by tomorrow I will provide a 

more detailed answer on the pension area in terms of what the current status is. But I would note that these companies are so large 

that, if something would happen down the road, they would almost 

double the number of people who would be receiving guarantees 

under PBGC, if that would ever get to that point down the road. 

So there is a significant issue potentially in the future, but I will 

get you a definitive answer tomorrow. 

Senator BROWN. A steel maker not far from where I live in 

norther Ohio just announced the layoff of several hundred. It is 

very directly related to the auto industry. I spoke this week earlier 

with an auto dealer in southwest Ohio who has 800 employees. He 

is not about to go out of business, but he going to get squeezed. I 

do not know anything about his pension plan, but I do know that 

PBGC has been just buffeted time after time after time after time 

with job loss in the last 5 years, and it is only going to get worse. 

Let me just in my last—I know I am about out of time. I want 

to make a comment about the Chrysler situation just for a moment. 

I know there are many similarities to 30 years ago with Chrysler. 

There is the oil spike. There is the difficult credit market. There 

is a recession. Your suggestion that the differences are—of the simVerDate Nov 24 2008 08:28 Oct 09, 2009 Jkt 048080 PO 00000 Frm 00038 Fmt 6633 Sfmt 6633 L:\HEARINGS 2008\12-04 EXAMINING THE STATE OF THE DOMESTIC AUTOMOBILE IND
35 

ilarities and differences I want to just expand on and respond just 

for a second. 

For example, some of the differences from 1979, the UAW had 

not made the concessions anywhere near in 1979 what they have 

made today. So even though it is only a billion and a half then 

compared to now, the UAW concessions have been much greater. 

The 2007 contract, there was nothing comparable to that in 1979. 

There was not the job loss leading up to 1979 for Chrysler that 

there has been, the cutting of costs, the downsizing, whatever, that 

there has been for all of the Big Three leading up to this situation. 

So we just need to be cautious about making that comparison. 

There are good reasons to make it, and there are some not so good 

reasons, and we need to be cautious because of the different situation that way. 

I think the good reasons are that the Government figured out 

how to do it, the taxpayers got their money back, and as several 

people up here have said, it did work, and we need to remember 

that. 

Mr. DODARO. I agree with you, Senator, and I think the circumstances, certainly economically, with the status of the auto industry at that time were very different. And we do not want to 

imply or infer that we are comparing those situations. 

But the one thing that is the same is there is the same need to 

protect the taxpayers’ interest, and that is what we are saying can 

be replicated. 

Senator BROWN. Of course. Thank you. 

Thank you, Mr. Chairman. 

Chairman DODD. Senator Brown, thank you very much. 

You have been a tremendous witness this morning. Frankly, we 

could have probably used less of your time, but, obviously, you have 

offered some very valuable testimony and historical perspective 

about the 1979 decision and some good ideas on how to move forward. So we are very grateful to the GAO. All of us up here who 

over the years have dealt with the GAO have a high regard for the 

work being done. 

As you point out, and I should have made reference to it in introducing you, as part of the emergency economic stabilization bill, of 

course, we insisted legislatively that the GAO be deeply involved, 

not after the fact but during the development of this program. And 

so your observations about the lack of the kind of oversight that 

should have been conducted is obviously important to all of us 

here. So we thank you immensely. 

Let me just say I appreciate Senator Carper’s point talking about 

Senator Bennett’s point. I thought there was some viability with 

that option as well, but you point out it may be impossible or very 

difficult to go back and rewrite some of these agreements that have 

been struck. But it is certainly worth exploring in my view as an 

alternative idea of what we need to do. We may have some additional questions for you, and particularly Senator Casey raised, I 

thought, some very good questions, and your agreement to get back 

to us. And, obviously, the industry itself will have to be helpful in 

that regard. As you point out, you do not have the authority to get 

some information, but it certainly would be helpful to this Committee to respond to Senator Casey, and I am asking in advance 

36 

in their testimony that the members of the automobile industry 

comply where they can for that kind of information. 

So we will leave the record open for some additional questions 

we may have, but we thank you immensely for your testimony. And 

we thank your staff. The GAO staff is very helpful. 

Mr. DODARO. Yes, they have been terrific. Thank you, Mr. Chairman. 

Chairman DODD. Thank you very much. 

Let me invite now our second—and I am going to combine the 

panels. I know there was some hesitancy, but just given the pressures of my colleagues as well as other obligations they have and 

the witnesses themselves, the testimony tomorrow before the 

House, I am combining the second and third panels into one panel. 

We have already exhausted a couple of hours with the first panel, 

and I want to move along. So let me introduce our second panel, 

and I appreciate in several instances their being back here. 

Our first witness on this panel is Mr. G. Richard Wagoner, Jr., 

President and CEO of General Motors Corporation, also serves on 

GM’s Board of Directors, previously served as President and Chief 

Operations Officer and Chief Financial Officer at GM. And, Mr. 

Wagoner, we welcome you back to the Committee. 

We will then hear from Ron Gettelfinger, United Auto Workers 

President. Prior to becoming the President of the UAW, Mr. 

Gettelfinger served as the UAW Vice President, and, again, we are 

pleased, Ron, that you are here this afternoon. We thank you for 

coming. 

The next witness is Alan Mulally, President and CEO of the Ford 

Motor Company and a member of the company’s Board of Directors. Prior to joining Ford in 2006, Mr. Mulally worked for the Boeing Company with whom he became Executive Vice President of 

the Boeing Company and President and Chief Executive Officer of 

Boeing Commercial Airlines. 

We are then going to hear from Mr. Robert Nardelli, Chairman 

and CEO of Chrysler LLC and a member of the Board of Managers. 

Prior to working for Chrysler, Mr. Nardelli served as Chairman, 

President, and CEO of the Home Depot. 

I understand that our CEOs all drove down here and had comfortable rides, and I gather your automobiles are parked outside, 

even some of the models yet to be introduced. The Volt I think is 

here. Is that true, Mr. Wagoner? 

Mr. WAGONER. Yes, sir, that is true. 

Chairman DODD. Well, for those who want to see what some of 

these newer models may look like—and I hesitate to say this because I do not want to show any bias or preference, but I drive an 

Escape. I would tell you Mr. Mulally is giving me a ‘‘thumbs up’’ 

to me here along the way—although I am looking at the Tahoe 

with two children, so I want you to know I need a little more room 

here, the hybrid. 

Anyway, I also want to welcome Mr. James Fleming here. Jim 

is a good friend of mine, let me say up front. We are from Connecticut together, and Jim is the President of the Connecticut 

Automotive Retailers Association. He served in the State of Connecticut for many years as a member of the Connecticut House and 

Senate, including Senate Republican Majority Leader of our State 

37 

Legislature. Mr. Fleming has also served in the executive branch 

of the Connecticut State Government as the commissioner of several departments and has long experience in our State, and I thank 

you very much, Jim, for coming down and representing the dealer 

issues before this Committee. 

Next we will hear from Keith Wandell, who is President and 

Chief Operating Officer of Johnson Controls, Inc., where he held 

various positions ranging from plant manager to Vice President of 

the Power Solutions Division. 

And our final witness is Dr. Mark Zandi, Chief Economist and 

Co-Founder of Moody’s Economy.com, where he directs the company’s research consulting services. Dr. Zandi’s research focuses on 

macroeconomic, financial, and regional economics, and he has recently been studying the determinants of mortgage foreclosure and 

personal bankruptcy, and we see you quoted quite frequently, Dr. 

Zandi, so we thank you again. In fact, you have been before the 

Committee so we welcome you back to it. 

I will begin, I guess, in the order we have introduced you, and 

I apologize for the number of you at one table here, but I thought 

just for the sake of efficiencies, we would move forward, and there 

are a lot of similarities, obviously. When we start talking about 

these issues, obviously everyone represented at this table is directly affected by it, so there is no outlier here that has no relevancy to the testimony that we are going to hear from you. 

So, with that, Mr. Wagoner, we thank you. 

STATEMENT OF G. RICHARD WAGONER, JR., CHAIRMAN AND 

CHIEF EXECUTIVE OFFICER, GENERAL MOTORS 

Mr. WAGONER. Thank you very much, Mr. Chairman and to 

Members of the Committee. I wanted to start by extending my sincere appreciation for the opportunity for us to come back. It is obviously a very important matter for all of our constituents. I know 

it is a time when you are frequently working with your own constituents, and for you to give up the time to come back I think is 

something that we want to extend our thanks. 

I also wanted to thank the Speaker and the Senate Majority 

Leader for their very specific direction on what was being requested in the plan. It helped us to think more broadly, and we appreciate that direction. 

As we put our plan together—it happens to be, somewhat ironically, GM’s centennial year this year—we thought about our past 

and what that should mean for our future, and we obviously have 

a lot of things that we are proud of. There have been a lot of great 

accomplishments on the company’s behalf. And there are also mistakes during our history. 

What we were trying to do as we put this plan together, which 

we submitted earlier this week, was to learn from both of those— 

learn from our contributions, our successes, and learn from our 

mistakes—to make sure we did not repeat the mistakes and that 

we built on the contributions. And so as we thought about things 

like developing a comprehensive plan, we said we have done best 

in our history when we focused on technology leadership and technological excellence, when we have kept our focus on being cost 

competitive every day, when we have kept close alignment between 

38 

the goals of the company and the goals of the country. And so the 

plan that we are submitting to you is one that I think does those 

and many other things, and it is a plan that I and my General Motors team believe very strongly in. 

The plan shows why GM needs temporary Government funding, 

how that funding will be used, how we intend to repay taxpayers, 

and why funding is beneficial to the U.S. Government. 

In some ways, the plan accelerates the restructuring that has 

been underway for the past several years, but in many ways, it 

radically expands it, and I think it is fair to say it creates a blueprint for a new General Motors. 

The key elements: First of all, it is based on what we think is 

a realistic although quite a bit more conservative view of the market than we have traditionally used. And it is also comprehensive. 

It considers the need to address operating issues as well as to address our financial structure. 

Key highlights include a renewed and expanded commitment to 

new technologies, especially advanced propulsion, and green jobs; 

increased production of fuel-efficient vehicles; a reduction in the 

number of brands, models, and retail outlets so we can focus our 

resources; further manufacturing and structural cost reductions; 

working with our UAW counterparts to ensure full labor competitiveness with foreign manufacturers here in the U.S.; significant 

restructuring of our balance sheet; and sacrifices by all parties involved, including continued suspension of our common stock dividend and changes in executive and board compensation, including 

reducing our board’s compensation and mine to $1 a year; and cessation of our corporate aircraft operations. 

These and other tough but necessary actions will position our 

company for long-term success, and this success is achievable if we 

can weather the global financial crisis and the lowest level of U.S. 

auto sales on a per capita basis in over 50 years. 

Toward that end, our plan respectfully requests $12 billion in 

short-term loans and a $6 billion line of credit. We are seeking an 

immediate loan of $4 billion and potentially a second draw of up 

to $4 billion in January, reflecting the current very weak state of 

automotive production and demand. 

The intent is to begin repayment as soon as 2011 and fully repay 

by 2012 under our baseline insurance forecast scenario. Warrants 

would allow taxpayers to benefit if GM’s share price increases. 

We also proposes of a Federal Oversight Board that would facilitate the restructuring negotiations and protect taxpayers. 

GM has been an important part of American culture for a hundred years, and most of that time as the world’s leading automaker. We are here today because we made mistakes, which we 

are learning from, because some forces beyond our control have 

pushed us to the brink, and, most importantly, because saving 

General Motors—and all this company represents—is a job worth 

doing. 

Thank you very much, and I look forward to your questions. 

Chairman DODD. Thank you very much, Mr. Wagoner. 

Mr. Gettelfinger, welcome. 

39 

STATEMENT OF RON GETTELFINGER, PRESIDENT, INTERNATIONAL UNION, UNITED AUTOMOBILE, AEROSPACE AND 

AGRICULTURAL IMPLEMENT WORKERS OF AMERICA 

Mr. GETTELFINGER. Mr. Chairman, Members of the Committee, 

on behalf of the men and women of the UAW, I appreciate this opportunity to present our views on the state of the domestic auto industry. 

The UAW believes that it is imperative that the Federal Government act this month to provide an emergency bridge loan to General Motors, Ford, and Chrysler. Without such assistance, General 

Motors and Chrysler could run out of funds in the very near future 

and be forced to liquidate. The collapse of these companies would 

inevitably drag down numerous auto parts suppliers, which in turn 

could lead to the collapse of Ford. 

The UAW supports conditioning any emergency bridge loan both 

on strict accountability measures and on the companies’ pursuing 

restructuring plans that will ensure the viability of their operations 

in the coming years. For such restructuring plans to succeed, we 

recognize that all stakeholders—equity and bondholders, suppliers, 

dealers, workers, and management—must come to the table and 

share in the sacrifices that will be needed. 

The UAW and the workers we represent are prepared to do our 

part. We are continuing to negotiate over ways to make the operations of General Motors, Ford, and Chrysler more efficient and 

competitive. 

Workers and retirees have already stepped forward and made 

enormous sacrifices. Thanks to the changes in the 2005 and the 

2007 contracts, the labor cost gap with the foreign transplant operations will be largely or completely eliminated. 

The UAW recognizes that the current crisis may require workers 

to make further sacrifices. For example, we recognize that the contributions owed by the companies to the retiree health care VEBA 

fund may need to be spread out and that there may need to be adjustments in other areas. But the UAW vigorously opposes any attempt to make workers and retirees the scapegoats and to make 

them shoulder the entire burden of any restructuring. Wages and 

benefits only make up 10 percent of the cost of the domestic auto 

companies. 

The UAW also submits that it is not feasible for Congress to 

hammer out the details of a complete restructuring plan during the 

coming week. There is simply not enough time to work through the 

many difficult and complex issues associated with all of the key 

stakeholders, as well as changes in the business operations of the 

companies. 

What Congress can and should do is to put in place a process 

that will require all of the stakeholders to participate in a restructuring of the companies outside of bankruptcy. This process should 

ensure that there is fairness in the sacrifices, and that the companies will be able to continue as viable business operations. This 

process can begin immediately under the supervision of the next 

administration. By doing so, Congress can make sure that the 

emergency assistance is indeed a bridge to a brighter future. 

Contrary to the assertions by some commentators, in the present 

environment a so-called pre-packaged Chapter 11 bankruptcy is 

40 

simply not a viable option for restructuring the Detroit-based auto 

companies. Research has indicated that the public will not buy vehicles from a company in bankruptcy. In addition, attached to our 

testimony is a detailed analysis prepared with the assistance of experienced bankruptcy practitioners explaining that a pre-packaged 

bankruptcy is not a feasible option for the domestic auto companies 

because of the size and complexity of the issues that would be involved in any restructuring, including relationships with thousands 

of dealers and suppliers and major changes in business operations. 

The UAW believes that the recent actions by the Federal Government to provide an enormous bailout to Citigroup reinforces the 

case for providing an emergency bridge loan to the Detroit-based 

auto companies. 

If the Federal Government can provide this type of blank check 

to Wall Street, it should also be able to provide an emergency 

bridge loan to General Motors, Ford, and Chrysler, especially since 

these companies would be subject to strict accountability and viability requirements. 

In conclusion, the UAW strongly urges Congress to act this 

month to approve an emergency bridge loan to General Motors, 

Ford, and Chrysler to enable them to continue operations and to 

avoid the disastrous consequences that their liquidation would involve for millions of workers and retirees and for our entire Nation. 

Thank you very much. 

Chairman DODD. Thank you very much, President Gettelfinger. 

Mr. Mulally, welcome back to the Committee. 

STATEMENT OF ALAN R. MULALLY, PRESIDENT AND CHIEF 

EXECUTIVE OFFICER, FORD MOTOR COMPANY 

Mr. MULALLY. Thank you. Mr. Chairman, Senator Shelby, and 

Members of the Committee, since the last hearing I have thought 

a great deal about the concerns that you expressed. I want you to 

know I heard your message loud and clear. 

On Tuesday, you received Ford’s detailed and comprehensive 

business plan, and I appreciate the opportunity to return here 

today to share Ford’s vision and progress on becoming a profitable, 

growing company. 

You were clear that the business model needs to change. I could 

not agree more, and that is exactly why I came to Ford 2 years ago 

to join Bill Ford in implementing his vision to transform our company and build a greener future using advanced technology. 

Let me share with you what we have done to change from how 

it used to be doing business to how we do business now. 

It used to be that we had too many brands. Now we have a laser 

focus on our most important brand—the Ford ‘‘Blue Oval.’’ In the 

last 2 years, we have sold Aston Martin, Jaguar, and Land Rover, 

and we reduced our investment in Mazda. And this week we announced we are considering a sale of Volvo. 

It used to be that our approach to our customers was, ‘‘If you 

build it, they will come.’’ We produced more vehicles than our customers wanted and then slashed prices, hurting the residual values 

of those vehicles and hurting our customers. Now we are aggressively matching production to meet the true customer demand. 

41 

It used to be that we focused heavily on trucks and SUVs. Now 

we are shifting to a balanced product portfolio with even more 

focus on small cars and the advanced technologies that will drive 

higher fuel economy in all of our vehicles. 

It used to be that our labor costs made us uncompetitive. Now 

we have a ground-breaking agreement with the UAW to reduce our 

labor costs, and we appreciate the UAW’s continuing willingness to 

help close the competitive gap. 

It used to be that we had too many suppliers and dealers. Now 

we are putting in place the right structure to maximize the efficiency and the profitability of all of our partners. 

It used to be that we operated regionally—European cars for Europe, Asian cars for Asia, American cars for the U.S. market. Now 

we are leveraging our global assets, innovation, technology, and 

scale to deliver world-class products for every market. 

It used to be that our goal was simply to compete. Now we are 

absolutely committed to exceeding our customers’ expectations for 

quality, fuel efficiency, safety, and affordability. 

This is the Ford story. We are more balanced. We are more efficient. We are more global. And we are really focused. In short, we 

are on the right plan to becoming a profitable, growing company. 

We have moved our business model in a completely new direction 

in line with the most successful companies and competitors around 

the world. And as a result of our progress, we made a profit in the 

first quarter of this year, 2008. Unfortunately, we all are facing a 

severe economic downturn that has slowed our momentum. Despite 

this downturn, Ford does not anticipate a near-term liquidity crisis. 

In fact, we expect our automobile business to be profitable in 2011. 

But we do support a Government bridge loan because it is critically 

important to the United States automobile industry. 

Specifically, Ford requests access to $9 billion in bridge financing, something we hope we will not need to use. Instead, we continue to drive change in our company. This line of credit will serve 

as a critical safeguard if events require it. And if we did need to 

access this loan, we would use the money to continue our aggressive transformation and restructuring. Ford is an American company and an American icon. We are woven into the fabric of every 

community that relies on our cars and trucks and the jobs our company supports. The entire Ford team, from our employees to shareholders, suppliers to dealers, is absolutely committed to implementing our new business model and becoming a lean, profitable 

company that builds the best cars and trucks on the road for our 

customers. 

There is a lot more work to do, but we are passionate about the 

future of Ford. In fact, we invite you to visit us in Dearborn to kick 

the tires, look under the hood, and talk to our employees. We hope 

you will join us and see for yourself the progress we are making 

to develop the vehicles of the future. 

Thank you very much. 

Chairman DODD. Thank you very much, Mr. Mulally. 

Mr. Nardelli. 

42 

STATEMENT OF ROBERT NARDELLI, CHAIRMAN AND CHIEF 

EXECUTIVE OFFICER, CHRYSLER LLC 

Mr. NARDELLI. Mr. Chairman, members of the panel, I appreciate 

the opportunity to present to you again today, and I am here representing the 1 million people who depend upon Chrysler for their 

livelihoods. 

Before I answer your questions regarding our loan request, let 

me be very clear and state why we are here: Chrysler is requesting 

a $7 billion loan to bridge the current financial crisis. And in exchange, Chrysler is committed to: continue our restructuring, including negotiating cost-saving concessions from all constituents; 

invest in fuel-efficient cars and trucks that people want to buy and 

begin repayment of the Government loan in 2012. I also want to 

reinforce the need for Chrysler Financial to receive immediate assistance from TARP, as their continued vitality is a critical assumption in our plan. 

Chrysler requires this loan to get back to the transformation that 

began 1 year ago, gaining our independence. As a newly independent company in 2007, Chrysler was on track for financial profitability. We eliminated more than 1.2 million units, or 30 percent 

of our capacity. We reduced our fixed costs by $2.4 billion. We separated more than 32,000 employees, including, unfortunately, just 

5,000 last Wednesday before Thanksgiving. And at the same time, 

we have invested more than half a billion dollars in product improvements in our first 60 days. We improved our J.D. Power quality scores, and we reduced our warranty claims by 29 percent. As 

a result, through the first half of 2008, Chrysler met or exceeded 

its operating plan and ended the first half of the year with $9.4 billion in unrestricted cash. 

We are here because of the financial crisis that started in 2007 

and accelerated at the end of the second quarter of 2008. As consumer confidence fell and credit markets remained frozen, the lowest U.S. auto sales in more than 20 years has put tremendous pressure on our cash position. The U.S. industry sales fell from 17 million a year in 2007, to a monthly annualized rate of 10.5 million 

last month. That is 6.5 million units of decline. 

So what is the impact on Chrysler from that result. With a 10- 

percent market share, it would translate to Chrysler to a loss of 

650,000 vehicles, or roughly $16 billion in lost revenue opportunity 

this year alone. With such a huge hit to our sales and revenue 

base, Chrysler requires the loan to continue the restructuring and 

fund our product renaissance. 

Chrysler has a sound plan for financial viability that includes the 

seeking of shared sacrifice from all constituents. We have identified 

approximately $4 billion of potential cost savings and improvements that have been included in our plan, and we are committed 

to negotiate with all constituents to achieve those savings. Our 

plan also includes producing high-quality, fuel-efficient cars and 

trucks that people want to buy, while supporting our country’s energy security and environmental sustainability goals. 

For the 2009 model year, 73 percent of our products will offer improved fuel efficiency compared with our 2008 models. We plan on 

launching additional small, fuel-efficient vehicles. ENVI is our 

43 

breakthrough family of all-electric vehicles and range-extended 

electric vehicles, similar to the one I drove here today. 

Chrysler’s long-range product plan is robust, it is realistic, and 

it is green. The plan features 24 major launches from 2009 through 

2012. It includes a hybrid Ram truck, our first electric-drive vehicle 

in 2010, with three additional models by 2013. 

A key feature of Chrysler’s future is our capability as an electric 

vehicle company. Through our GEM, which is our neighborhood 

electric vehicle division, Chrysler is the largest producer of electricdrive vehicles in the U.S. today. Combined with the new products 

from our ENVI group, we expect to have 500,000 Chrysler electricdrive vehicles on the road by 2013. 

Chrysler will continue to aggressively pursue new business models that include alliances, partnerships, and consolidations. This 

model is currently successful in helping Chrysler increase the effective utilization of our manufacturing capacity. For example, in 

North America today, Chrysler manufactures all of Volkswagen’s 

minivans, and beginning in 2012, we will produce all of Nissan’s 

full-size trucks. 

With Government collaboration, our industry can accelerate how 

America drives cutting-edge technology. An Automotive Energy Security Alliance would: coordinate public and private spending 

which is already devoted to advanced technologies; produce basic 

technology available to all manufacturing; drive private investments to meet our national energy and environmental goals. Such 

an alliance would help ensure that as a country, we do not trade 

our current dependence on foreign oil for dependence on foreign 

technology. 

In closing, I recognize that this is a significant amount of public 

money. However, we believe this is the least costly alternative considering the depth of the economic crisis and the options that we 

face. 

Thank you very much. 

Chairman DODD. Thank you very much, Mr. Nardelli. 

James, welcome. Welcome to the Committee. Is that microphone 

on? 

STATEMENT OF JAMES T. FLEMING, PRESIDENT, 

CONNECTICUT AUTOMOTIVE RETAILERS ASSOCIATION 

Mr. FLEMING. Thank you, Mr. Chairman, Senator Shelby, Members of the Committee. As President of the Connecticut Automotive 

Retailers Association, I represent 300 dealers in Connecticut and 

their 14,000 employees, all of whom have good jobs with great 

wages and benefits. Our dealers are small businesspeople and entrepreneurs, and some of them are sitting behind me here today to 

let you know how important this legislation is to them and to our 

dealers. 

We appreciate the fact that the dealers’ perspective is being 

asked for because we have something to say, and I want to talk a 

little bit about the ripple effect that we have heard a little bit 

about this morning here. To our people to these small 

businesspeople, it is a tsunami. It is not a ripple. And I want to 

just relate what a dealer told me before I came down here to Washington to testify. 

44 

He indicated to me that last month he had 30 people that came 

into his dealership. Those 30 people would normally have qualified 

to get financing to purchase a car, but because of how squeamish 

the banks are just with talk of bankruptcy, he could not get these 

people financed. That is how serious it is. 

Now, what does that mean to the State of Connecticut? I got an 

e-mail just before I came up here to talk about the impact that is 

having on the State’s budget. Every one of the Senators here, if you 

go back and talk to your State budget officers that are trying to 

deal with deficit situations, will find out what a big part automobile sales represent in that budget. In Connecticut, it represents 

a loss of $65 million in our budget just in new-car sales tax. That 

is what has been going on in our State budget. 

Members, this is not a bailout bill for Detroit or for Wall Street. 

This is about investing in the future of our small towns and businesses. The economies and the budgets of State governments, as I 

said, ultimately are going to be affected by what you do here. If you 

go back to your constituents, as I have done as a State Senator in 

my past life, and they ask you what did you vote for, what you are 

voting for here, what you are supporting here is keeping people employed in those small businesses in your district. That is what this 

is about. 

If you say no, or if you do nothing, which is essentially no, and 

allow bankruptcy to occur, the impact on the dealers and the people that they employ in your home States will be dramatic. People 

will not buy cars from a bankrupt entity. They are afraid to buy 

cars as it is right now. This is the second largest purchase that 

they will ever make in their life. This is not the same as a structured bankruptcy for an airline. This is a big expenditure on the 

part of people back in your districts. 

If you say yes to this financing package, it gives us some time 

to try to adjust to what is going on in the economy. 

We have lost 25 dealerships in Connecticut in the last year. We 

have lost 700 jobs in Connecticut in the last year. Those people are 

not going to be able to contribute to the economy. 

Another issue I would like to raise, and I hope, gentlemen and 

Senator Dole, that you will ask me in detail about this. When a 

dealer goes out of business, there is no golden parachute for that 

dealer. I know a dealer who last month lost his Chevy dealership. 

He had mortgaged his home. He had lost all of his personal wealth 

that he put into that business to try to keep it alive. He does not 

want a piece of this money. He wants the manufacturers to survive 

so he can continue to compete at that local level, and to compete 

with these gentlemen that are here, because dealers are different 

than the manufacturers in Detroit. If you want to hold them accountable, do it. Hold them accountable. It is the public’s money. 

But if you do not pass this bill, the effect on your constituents and 

on people that I represent will be dramatic. So I urge you to take 

that action and do it fast, because just as we have been sitting here 

today, I know dealers who have had to lay people off. 

So with that said, Mr. Chairman, I know I have a few seconds 

left here. I would just ask you to consider the human side of what 

is going on, and when you have an opportunity, go back to your district. Go into those dealerships and see what these guys are doing. 

45 

It is tough work. They are writing the paychecks out. They do not 

have massive staffs. They have about maybe 30 people in a dealership. In Connecticut, somebody is making about $55,000 a year on 

average in a dealership. That is good pay. That will go away if we 

wait too long and you act negatively on what is before you. 

Thank you, Mr. Chairman. 

Chairman DODD. Well, thank you, Mr. Fleming. And I would 

point out, and my colleagues have done this as well, but about a 

week or so ago, I had a long meeting and a good meeting with the 

dealers in my own State, and good conversations with them about 

the implications of this as well. So it is a worthwhile visit to make 

to hear their perspective on this, and I know my colleagues probably have done the same. But I want to thank Mr. Fleming for organizing that in my State and giving me a chance to hear from my 

dealers as well. 

Mr. Wandell. 

STATEMENT OF KEITH WANDELL, PRESIDENT, JOHNSON 

CONTROLS, INC. 

Mr. WANDELL. Chairman Dodd, Senator Shelby, and Members of 

the Committee, thank you for the opportunity to provide testimony 

on the state of the domestic automotive industry. My name is Keith 

Wandell, and I am President and Chief Operating Officer of Johnson Controls, Incorporated. We are a global multi-industry company with sales of $38 billion in 2008, and approximately 37 percent of our sales involve the supply of systems and services to improve the energy efficiency of nonresidential and residential buildings worldwide. We are also the largest supplier of automotive batteries to the automotive aftermarket, as well as the original equipment manufacturers in the world. 

In addition, our company is the seventh largest automotive supplier in the world. We are the third largest supplier in North 

America behind Magna International, which is a Canadian company, and Delphi, a U.S. company which we all know has been in 

bankruptcy since 2005. Our global sales of seats and other interior 

products to the automotive industry totaled—and I apologize, there 

was a typo in our document. It is $18 billion; $6.7 billion of that 

were to the North American market specifically. We supply every 

automaker with a presence in the U.S., with just under half of our 

sales to the Detroit Three and the balance to the transplants. Johnson Controls has 43,000 employees in the U.S.; 22,000 of those are 

in the States represented by the Members of this Committee. 

While Johnson Controls is a key supplier to the global automotive industry, we are somewhat atypical of most automotive suppliers because we are much larger than most, we are more diversified by our products, our geography, and our markets. Being a supplier of interior systems, we are probably less capital intensive 

than many other automotive suppliers. We are profitable, and we 

have a strong balance sheet. We do, however, share the same 

issues and concerns about the domestic automotive industry as 

those suppliers which are solely dedicated to the automotive industry. 

A Detroit Three failure would have dire economic ramifications 

for the vast interconnected supply chain of companies that provide 

46 

parts and components which enable the U.S. automakers to assemble vehicles. Our main concern is that once cascading supply chain 

interruptions begin, many suppliers will fail due to the interdependence of that supply chain. And many of the companies which 

would be impacted are small, women- and minority-owned businesses. 

During 2008, Johnson Controls purchased $1.7 billion of goods 

and services from minority- and female-owned businesses. The Detroit Three had a combined purchase of approximately $12 billion 

from these same businesses. Should any one of the U.S. automakers suddenly fail, the vast majority of these women- and minority-owned businesses will fail and will fail quickly. 

Let me share an example with you. Recently, earlier this year, 

a minority supplier to Johnson Controls, the supplier that really 

supplied a vast part of the auto industry, Plastech Engineered 

Products, failed and went into bankruptcy. Plastech had $800 million of revenue. They shipped 6,200 different part numbers to 52 

vehicle assembly plants in North America, supplying 121 vehicle 

lines and 12 customers: General Motors, Ford, Chrysler, Volkswagen, Mercedes, Honda, Toyota, Nissan, Hyundai-Kia, AM General, Mazda, and Mitsubishi. Had Johnson Controls and the firsttier lending group not acquired Plastech’s assets out of bankruptcy, 

had we not assembled an operating team to manage the process, 

and had we not provided the bridge financing necessary to avoid 

liquidation, all 52 of those assembly plants would have been affected to one degree or another for varying durations. That is one 

small microcosm of how interconnected the supply chain is. 

A year ago approximately 20 percent of our—Johnson Controls— 

automotive suppliers, part suppliers that provide parts to us that 

allow us to provide complete seat assemblies and cockpits, et cetera, 

to the Detroit Three—were financially distressed according to 

third-party independent third sources. Since the rapid deterioration 

of industry volumes, that number has grown to beyond 35 percent, 

so over 35 percent of our suppliers are financially distressed and 

on the verge of bankruptcy. And this number continues to grow. 

This supply base has over 100,000 employees. 

Should one of the Detroit Three fail, a significant number of supplier failures would occur and would become unmanageable. And I 

know that Mr. Nardelli and Mr. Wagoner and Mr. Mulally in their 

organizations today, there is an inordinate amount of time being 

spent by their supply chain people in trying to manage the number 

of bankruptcies and financially distressed suppliers that there are 

in this industry, just like we are. 

And I can assure you that even though Toyota, Nissan, Honda, 

Mercedes, and every other foreign car maker who assembles plants 

in America are not here today, they too are deeply concerned about 

the viability of the U.S. supply base. 

I think that all of us here agree that major changes are needed 

in the North American automotive industry. There are major 

changes that are needed in the supply chain as well. But we hope 

everyone here understands how important it is that these changes 

occur in an orderly fashion, which is unlikely if we allow even one 

of these companies to fail. There will be an implosion of the supply 

base that will affect all the car companies. 

47 

It is extremely important that we have a sound, healthy, and 

sustainable U.S.-owned automotive industry that is competitive 

globally. And I do not believe that Americans—in spite of the CNN 

poll that came out this morning that said 60 percent of the Americans are not in favor of some sort of financial aid, I do not believe 

that Americans want to yield an industry that impacts millions of 

jobs and invests billions of dollars in technology and will help secure our energy independence through new, innovative, and environmentally friendly transportation. The supply base provides 70 

percent of the value-added components that go into a vehicle and 

spend over 40 percent of the total R&D dollars in the automotive 

industry. 

The plans that have been submitted address many of the issues 

that have been burdensome to the health of the industry, and I 

think given the opportunity, the Detroit Three in their own way 

and each one are on their own way to resolving a lot of these 

issues. And I think given, you know, an opportunity to address 

these challenges, I think we will be on our way to bringing to the 

market consumer-desired, fuel-efficient, environmentally friendly 

vehicles that the consumers are desiring. 

I was also asked to comment on the potential impact of a Detroit 

Three failure on our company. Earlier I said that we are diversified, profitable, and we have a strong balance sheet. Unlike many 

suppliers, we would weather the storm largely due to our strong 

non-automotive businesses. A Detroit Three failure would have a 

short- to mid-term impact probably on our cash-flow or access to 

capital maybe and possibly our cost of borrowing. One of the bigger 

impacts would be the curtailment of our investments in new technologies in all of our businesses, including the hybrid vehicle technology that we are working with all the Big Three on. 

So, in conclusion, we believe that the industry has a long and 

proud heritage; it has played a significant role in the development 

of this country’s strong economic position in the world. And speaking for our company, and I am sure all of the auto suppliers, we 

would respectfully urge the Members of this Committee, and the 

Congress as a whole, to provide the financial support that the automakers need at this critical time. 

Thank you very much for your attention. 

Chairman DODD. Thank you very much. 

Dr. Zandi, thank you. 

STATEMENT OF MARK ZANDI, CHIEF ECONOMIST AND 

CO-FOUNDER, MOODY’S ECONOMY.COM 

Mr. ZANDI. Thank you, Mr. Chairman, Senator Shelby, and the 

rest of the Committee, for the opportunity to speak here today. My 

remarks represent my personal views, not those of the Moody’s 

Corporation, which is my employer. I will make four points in my 

remarks. 

Point one, the Federal Government should provide financial help 

to the domestic automakers. Without help, the automakers will 

quickly be in bankruptcy, resulting in liquidations and hundreds of 

thousands of layoffs at a time when the broader economy is suffering its worst recession since the Great Depression. If the automakers file for background anytime in the next few weeks, or even 

48 

months, then this would be very damaging to the sliding economy. 

The Big Three employ fewer than 250,000 people in the United 

States, but given their broad links into the rest of the economy, as 

we have seen, closer to 2.5 million jobs would be immediately at 

risk. Hundreds of thousands would lose their jobs when the economy is already set to lose several million. The hit to already recordlow consumer, business, and investor confidence would be devastating. 

Point two, under the most likely outlook for the economy and auto industry, the $34 billion in loans requested by the Big Three 

will not be sufficient for them to avoid bankruptcy at some point 

in the next 2 years. They would ultimately need, in my view, somewhere between $75 billion to $125 billion to avoid this fate. This 

cost estimate is based in part on the expectation that light vehicle 

sales will average close to 11 million units in 2009 and 13.5 million 

units in 2010. For context, vehicle sales averaged almost 17 million 

units annually between 1999 and 2006. This extraordinarily weak 

vehicle sales outlook is due to three factors: first, the current sharp 

decline in employment—we will lose 2 million jobs this year, at 

least that many in 2009—the severe credit crunch that is undermining the availability of vehicle loans and leases, and the significant amount of what I call pent-up vehicle demand created earlier 

in the decade as the automakers used increasingly aggressive financial incentives to artificially support demand. Seventeen million 

units is not supportable by underlying demand. The cost of keeping 

the Big Three out of bankruptcy also significantly depends on their 

ability to arrest the decline in their market share. Their share has 

been steadily falling, reflecting many factors, but most critically, 

higher gasoline prices. The very recent decline in gas prices notwithstanding, vehicle buyers will not quickly return to buying the 

Big Three’s less fuel-efficient vehicles. Whether their market share 

remains close to its current 50 percent or declines nearer to 40 percent in the next 2 years will determine whether the cost of avoiding 

bankruptcy will be $75 billion or $125 billion. 

Point three, the Big Three’s restructuring plans, if fully executed, 

could result in a viable long-term domestic auto industry. However, 

given the very difficult changes this will require of the Big Three 

and their stakeholders, there is a considerable risk the plans will 

not be executed effectively. Each automaker has outlined laudable 

steps to return to long-term viability. They envisage deep cost-cutting producing more fuel-efficient cars, rationalizing their brands 

and retail outlets, and refocusing their marketing efforts. And they 

have already made significant strides in restructuring their operations and reducing costs. The industry’s labor costs have actually 

declined during this decade. Moreover, given the considerable UAW 

wage and benefit concessions in 2007, further substantial cost savings would soon occur. But despite this clear progress, it would be 

extraordinarily challenging for the Big Three to convince all of 

their stakeholders, including management and the UAW, their 

creditors, suppliers, and dealers, to quickly make the very substantial concessions necessary to make their plans work. 

Point four, I recommend that Congress provide the $34 billion in 

aid that the Big Three requested in exchange for warrants and restrictions on executive comp and dividend payments. This is necVerDate Nov 24 2008 08:28 Oct 09, 2009 Jkt 048080 PO 00000 Frm 00052 Fmt 6633 Sfmt 6633 L:\HEARINGS 2008\12-04 EXAMINING THE STATE OF THE DOMESTIC AUTOMOBILE IND
49 

essary given the potential for the automakers’ imminent disorderly 

bankruptcy at an extraordinary fragile time for the economy. The 

aid should be disbursed in two tranches. The first payout should 

be sufficient to allow the automakers to comfortably avoid bankruptcy when the economy is most vulnerable over the next 3 to 6 

months. The second payout should only occur if the automakers are 

hitting benchmarks in the restructuring plans, which could be determined by the oversight board. Policymakers should be convinced 

that they are not throwing good money after bad. 

Congress should at the same time make it clear that if the restructuring plans are unsuccessful, no more Government loans will 

be forthcoming. Instead, Congress will ensure there is an orderly 

bankruptcy process by providing financing in bankruptcy and guaranteeing warranties on new vehicles sold. 

There is a reasonable concern that if the Big Three file for a prearranged bankruptcy—even a Government-supported bankruptcy— 

people would stop buying their cars. But getting a loan from the 

Government, even one as large as $34 billion, will not convince 

anyone that they will be around for very long either. There is also 

a worry that bankruptcy would further damage the fragile financial 

system, but debt holders have had a long time to adjust to this possibility. 

A concerted, comprehensive, and consistent Government response 

to the economic crises is vitally needed. The economy needs a sizable economic recovery package and a substantive foreclosure mitigation plan, but the Government’s resources are not unlimited and 

must be used wisely. The Federal budget deficit will easily top $1 

trillion this fiscal year and again in fiscal year 2010. 

The automakers have come forth with a reasonable plan to re- structure their businesses, but $34 billion in a plan may very well 

not be enough for them to become viable companies again. Policymakers must prepare for this eventuality. 

Thank you. 

Chairman DODD. Well, thank you very much, Dr. Zandi. Let me 

thank all of you for your testimony, and we have got a large participation of members here, and I am going to try and move right 

along with my questions and get as quick answers as we can from 

you on these matters, and I will ask my colleagues to do as well. 

There is an awful lot to talk about here. 

Let me begin. You all were sitting, I noticed all of you sitting 

here when the General Accounting Office was testifying and describing, in effect, the 1979 Chrysler situation, which I am sure Mr. 

Nardelli and the other CEOs and Ron Gettelfinger are very familiar with. The others may be as well. Just quickly, if you would— 

and I will the CEOs, if you would—were we to craft something like 

that, whether it is a trustee or an oversight board that was described by the General Accounting Office, would you be willing to 

accept such a structure? We will begin with Mr. Wagoner. 

Mr. WAGONER. Yes, sir. 

Mr. MULALLY. Yes. 

Chairman DODD. Mr. Nardelli. 

Mr. NARDELLI. Yes, sir, and we included that in our statement. 

Chairman DODD. Anything you would add to what has been said 

by him that you would suggest in terms of the time constraints we 

50 

are dealing with? If we were to take virtually the same model in 

1979 on an oversight board—which I think worked fairly well. I 

think it sort of covered what our colleagues raised earlier. It was 

decisionmaking rather than just oversight. Would you add anything to that at all? 

Mr. WAGONER. I would just reinforce the point about moving fast 

on this would enable all of us to understand the direction. There 

are nuances in this area, so for us, faster would be better. 

Chairman DODD. Now, I read all of the reports you submitted on 

Tuesday. Did all of you read each other’s reports? 

Mr. NARDELLI. Yes, sir. 

Chairman DODD. You are familiar with each other’s? Ford is familiar with Chrysler and GM and so forth? You have had a chance 

to look those over as well? 

Mr. WAGONER. Yes, sir. 

Chairman DODD. Well, let me ask you again, Mr. Zandi. I appreciate your points for all of the reasons you have laid out, but you 

also have, of course, a pretty—a concern, I am sure, of all of my 

colleagues. They also read about your prediction that this number 

was going to increase, that we are talking $75 billion to $125 billion. What else could be done in your view to mitigate that problem? 

One of my concerns—and someone raised this, and it may have 

been Mr. Fleming at our meeting in Connecticut with the dealers 

where we spent 3 hours last week—is that ultimate none of this 

works until consumers buy cars. We do a lot of these actions at the 

top and so forth, but the final test will be whether or not people 

show up in showrooms and buy cars. 

Is there anything we could be doing from the bottom-up approach 

on this thing? We are doing a lot of top-down. We have certainly 

seen it with the financial institutions, the injection of capital and 

the like. But many of us up here are concerned that we have done 

very little bottom-up to shore up consumer confidence; mitigation 

of foreclosure, you mentioned that as well. But, obviously, support 

for consumers out there who would, frankly, like, as Mr. Fleming 

pointed out, the 30 people who showed up who, under normal circumstances, would have qualified with FICO scores to purchase a 

car but were turned away because of the 780 or whatever the number is now that you must reach in order to qualify for a loan. 

Are there things that we could be doing up here, aside from what 

we are talking about, to mitigate that number? 

Mr. ZANDI. Well, one obvious thing is I do think the captive finance companies are a problem. They are a drain on the finances, 

particularly of GM. And, moreover, because of their financial problems, it is making it difficult for borrowers to get loans and leases. 

Leasing has completely dried up. 

So I think one clear thing that could be done is to facilitate their 

move to bank holding companies so that they could become eligible 

for the TARP money and hopefully re-establish some viability in 

the credit markets. 

Chairman DODD. And that would help, in your view? 

Mr. ZANDI. I think that would be very significant help. I think 

one of the reasons why people cannot buy cars at this moment in 

51 

time is because they cannot get financing, particularly leasing. I 

mean, there is no leasing. 

Chairman DODD. I heard that over and over again from my dealers back in—and the CEOs agree with this as well? 

Mr. NARDELLI. Yes, sir. I mean, one of the major points I made 

in my opening comments was the fact that Chrysler Financial really does need access to liquidity and capacity. 

Chairman DODD. You asked for the TARP money, and I was 

going to raise this in a question with you. That sentence jumped 

out at me in your testimony. 

Mr. NARDELLI. Sir, we have had a request in—— 

Chairman DODD. But you know they have said no. 

Mr. NARDELLI. Yes, sir. 

Chairman DODD. So what happens? Even if we do what we are 

doing up here, are you telling me Chrysler fails anyway? 

Mr. NARDELLI. Sir, if we do not—to your question exactly -that 

is why I made the point in this oral testimony in the last time we 

were here, that it is a tandem request, that our captive financials— 

and if I read correctly, both in General Motors and Ford—it is an 

integral part of the overall auto industry success. We literally lost 

20 percent of our volume overnight due to capacity constraints in 

the lease business. You know, our private equity group worked 

very hard to get a new conduit, but there were many new constraints put on that $24 billion of conduit. 

For example, if we did go into bankruptcy, they would be restricted from providing any wholesale support to our dealers, which 

immediately, as was said, would put unbelievable hardship—in 

other words, the dealers would have to go out and try to get wholesale financing. 

Chairman DODD. I know. But I was making the point to you earlier. Obviously, there are a lot of things we may try and do up here. 

So this is in addition to the $34 billion. 

Mr. NARDELLI. Those requests are being handled outside this request. 

Chairman DODD. But it is in addition to the $34 billion. 

Mr. NARDELLI. Yes, and those requests have been made to TARP. 

They have been made to—our ILC request 

Chairman DODD. You have gotten the same answer we have gotten? 

Mr. NARDELLI. Well, sir, the request for the ILC has been in for 

3 years. 

Chairman DODD. Well, to the TARP. 

Mr. NARDELLI. And to the TARP, we have gotten no response. 

Chairman DODD. They have not said yes or no to you? 

Mr. NARDELLI. Yes, sir. No, sir, they have not confirmed either 

way. 

Chairman DODD. Let me just jump to a couple of quick questions, 

if I can, and then there is so much to raise with you. Let me say 

this, Mr. Nardelli, because, you know, as I understand it, Cerberus 

paid $7 billion to buy Chrysler. You will excuse me if the numbers 

do not sort of jump out at me that it is exactly the number you are 

looking for. And the question I raised to myself, are we merely just 

providing money because of a ‘‘business decision’’ that was made, 

where today that $7 billion, I presume the value was a lot less 

52 

than that. I mean, I am more intrigued in a sense if there is a For 

Sale sign out here with Chrysler, looking for a merger or an acquisition, that that occur, and then talking about restructuring, then 

pumping $7 billion in to pick up the cost of the acquisition, if you 

understand my question. 

Mr. NARDELLI. I understand exactly, and let me just say for the 

record that Cerberus—I could not ask for a better partner/owner. 

They are absolutely committed and have been committed to returning Chrysler to viability and profitability. 

Chairman DODD. But you did not ask them anything beyond that. You said a one-time infusion, $7 billion, nothing more. Now, 

GM and Ford, Ford talks about a line of credit for 10 years, I 

think. GM talks about tranches of 4 or 6 and 6 down the road, depending upon the economy. Chrysler said, ‘‘Just give me the 7, that 

is all.’’ 

Mr. NARDELLI. That is it. If I can go back to your first question, 

in addition to the original capitalization, we also drew down about 

$2 billion middle of this year, so there was another cash infusion 

from our privately held owners. But because they are a private equity does not mean that there are not the same investors that 

many of these banks have. We have some of the largest pension 

funds are contributors to this, and they are going to through the 

same economic evaluation that the banks are going through, the 

other lenders, in making these decisions. So that is point number 

one. 

Point number two, if you look at my submission that we made, 

we are, in fact, taking a much more conservative approach in our 

plan than was—so our exit rate for this year will be about 13.5 million units. In 2009, we assume the industry to be at about 11.1 million. So we have intentionally taken a very conservative approach, 

and that volume does not grow over the period to about 13.5 until 

2012. 

So we have tried to take a conservative approach, Mr. Chairman, 

to avoid having to come back and ask you again for support. 

Chairman DODD. All right. Let me jump quickly to Ford. GM and 

Chrysler both place the taxpayers in a primary position. You are 

asking for a line of credit of around—what is it, $10 to $13 billion 

over 10 years? 

Mr. MULALLY. Nine. 

Chairman DODD. And yet there is no indication in your plan here 

that the taxpayer would come in first as a result of extending that 

line of credit. Why? 

Mr. MULALLY. No, I understand, and also to understand the importance of protecting the taxpayer. And what we put in our submission to you was that in our current covenants with the banks 

today, we would be in violation of those covenants, which they 

could put us in default. So what we said in our transmission is that 

we would like to work with you on that because there has just to 

be a way to work with the banks and you to address that issue. 

We understand the importance. 

Chairman DODD. Let me jump quickly to one other point I want 

to make, if I can, and that is the issue of the closing of some of 

the SUV plants that we were talking about. The Big Three obviously acknowledged some strategic errors in their business models, 

53 

failing to realize the demand for smaller fuel-efficient cars and the 

like. I appreciate your acknowledgment of that. 

This Committee will have this coming year in the 111th Congress the responsibility of a Highway Trust Fund issue, the highway bill, and this Committee’s jurisdiction is over mass transit 

issues. Many of us here, including those who come from rural 

States, are deeply interested in what can happen in terms of mass 

transit. 

It just struck me when I looked—and, again, I do not claim deep, 

deep knowledge about this, but looking at the wheel base and so 

forth of an SUV, what could also be constructed in minibuses and 

the like, we have got tremendous demands from some of our local 

communities, and we have American-made requirements here. It 

seems to me we might be thinking about accessing a market that 

is emerging for minibuses, mass transit systems, railway cars and 

the like. I know in my own State we have had to go out of country 

to buy some of these things. We no longer produce them. Many 

have talked about what your industries did in the early 1940s in 

transitioning to the production of tanks and airplanes to meet the 

national security needs of our country. 

Are any of you giving any thought at all to this emerging demand of mass transit vehicles, minibuses, commuters? Today we 

have got a 30-percent increase in demand for minibuses to deal 

with this car-sharing approach to get people into urban areas outside. What is being done at all about thinking about that aspect of 

your industry? 

Mr. NARDELLI. Sir, if you look at, again, my oral testimony and 

one of the charts we presented, if you look at the bottom half of 

the page, we do have a light-duty commercial van that is being investigated and contemplated as part of our aggressive product renaissance in 2009–10 and beyond. It is on the lower half of the page. 

So we are looking at that, and we are trying to be responsive. 

I am proud to say that I drove a hybrid here from Detroit, and the 

technology performed extremely well. 

Chairman DODD. I presume it was a Chrysler. 

Mr. NARDELLI. Yes, sir. 

[Laughter.] 

Chairman DODD. Just wanted to check for the record. 

Mr. NARDELLI. Yes, sir. 

Chairman DODD. Well, you all made buses. You used to make 

your supply chain. You used to also do the rail cars. Right? You 

all made buses at one point, didn’t you? 

Mr. WAGONER. Yes, we made buses. We were in the rail business 

as well. 

Chairman DODD. Any thoughts about getting back into that kind 

of work? 

Mr. WAGONER. We continue to build a fairly large van, of which 

the applications are largely commercial. I am making note of your 

comment about increasing demand likely out of the trust fund, because we have plenty of capacity and that van is a very competitive 

one and can be adapted to those kinds of uses. And we also have 

some ventures that we work in Europe where the product there is 

a similar kind of van that gets better fuel economy. We have looked 

from time to time at whether there will be a market for that in the 

54 

U.S. for tooling up to build it in the U.S. So as that develops, we 

would be very interested. 

Chairman DODD. Mr. Wagoner, let me, by the way, in reading 

the plans—and I am not giving an editorial comment here, but I 

was impressed with the detail of the GM plan and how you laid 

things out. But let me read something that was reported today and 

ask you to respond to it. 

It said, ‘‘If GM does reduce its dealerships to 4,700 by 2012, as 

promised yesterday, it will still have almost 4 times as many as 

Toyota. It suggested going from eight brands to five by unloading 

Hummer, Saab, and Saturn, but it still plans to accept 40 of today’s 

48 models. Disappointingly, but not surprisingly, the GM plan contains no hint at a change in management. In contrast to Ford and 

Chrysler, which are headed by newcomers, GM’s top cadre has presided over hears of decline. GM’s board might find that acceptable, 

but if taxpayers are going to invest in GM, they are entitled to ask 

whether this is the right team to revitalize the company.’’ 

I would like to give you a chance to respond to that. 

Mr. WAGONER. On the last point, I am doing this job because I 

am committed to the future of General Motors, to the people of 

General Motors. I do not have a golden parachute. I do not have 

any protections. I serve at the pleasure of the board. And I think 

the most important thing for us to do is to put forth a plan that 

we think puts us on the right footing for the future, and I think 

the leadership team we have today is the right one. But as I said, 

I serve at the pleasure of the board and will always—— 

Chairman DODD. How about these other points here, what did I 

say, 40 or 48 models, dealerships—I mean, Mr. Fleming told me 

that in Connecticut we have lost—I forget how many you told me 

last week. We are losing dealerships anyway, and I wonder if these 

numbers reflect just the attrition that is occurring as a result of 

the economic crisis. 

Mr. WAGONER. Well, this year we have lost about 300 dealers. It 

was an extraordinarily difficult year due to the radical reduction 

within the year of the production. So, obviously, the plan we have 

now basically would do about 1,800—1,750, 1,800 over the next 4 

years. So that is a significantly faster pace. 

I would point out one difference. Because of our history, we have 

a huge number of dealers in rural communities, in small towns. 

Those dealers do a great job. We have much higher market share 

in those communities. They do not, frankly, require a lot of support 

from the company, and so we let those dealers decide individually 

do they want to stay in business or not. Some are over time, due 

to the economics of the business, ramping down, but many choose 

to stay in. So we actually think that part is a competitive advantage. And a lot of the consolidation that we talk about in our plan 

is in the metro areas where the over-dealering is an economic disadvantage for the dealers that remain. So we will move more aggressive in those parts of the country. 

Chairman DODD. I appreciate that. I have a lot more questions, 

but let me turn to Senator Shelby. 

Senator SHELBY. Thank you, Chairman Dodd. 

A lot of people believe sincerely that the restructuring plans that 

each of your companies has provided are not a serious set of plans, 

55 

that they contain few concrete details on how your companies will 

return to profitability, that they contain surely a lot of scattered 

facts, but lack a systematic presentation on how your companies 

would use the money to return to profitability and pay back the 

taxpayers. 

If you made this presentation to get a bank loan, I suspect that 

any sensible banker would summarily dismiss your request. And 

for the Committee here with our responsibility, and to improve our 

understanding of how each of your companies plan to return to 

profitability—in other words, how are you going to compete and return to profitability—would each of you agree to provide this Committee with full pro forma financial statements prepared in a manner that shows how your restructuring plans will impact your businesses over the next—not 3 months—3 years? Would you all be 

willing to do that, Mr. Nardelli? 

Mr. NARDELLI. Yes, sir. In the 100-page document, as Chairman 

Dodd suggested that we submit it, there is a complete tab that 

gives a complete pro forma P&L, income in cash, by quarter for 

2009 and by year for 2010, 2011, and 2012. 

So in response to your question, the answer is yes. In response 

to the question that we got from the General Accounting Office as 

far as whether we would be willing to make data available, the answer is yes. And we have embedded in that pro forma—in those financials, the targeted $4 billion, when that would have to take effect. We are looking at, for example, in—— 

Senator SHELBY. What you would do with it. 

Mr. NARDELLI. Yes, sir. We have spelled out exactly what our obligations are relative to supplier payments, payroll, et cetera. And 

we have also put in 2012 in the cash pro forma the first $1 billion 

repayment back to the taxpayers. 

Senator SHELBY. Ford, will they do the same thing. 

Mr. MULALLY. Of course. 

Senator SHELBY. GM? 

Mr. WAGONER. Senator Shelby, we have that data. We would be 

glad to share it. Some of it is confidential, so we would share it directly with your staffs or yourself. Be glad to do it. 

Senator SHELBY. We have been talking from time to time about 

the 1979 Chrysler bailout. You were not there then. 

Mr. NARDELLI. No, sir. 

Senator SHELBY. But the last time Congress bailed out an automaker—as I said, it was in 1979—that legislation conditioned Government assistance to Chrysler providing a restructuring plan that 

met very specific requirements, including minimum concessions 

from its creditors, suppliers, workers, and dealers. A lot of us do 

not believe your plan comes up close to providing the same level 

of detail. 

How does your restructuring plan that you provided to the Committee compare with the financial reports you provide to prospective investors? Is it the same or is it different? And if it is different, 

why is it different? 

Mr. NARDELLI. No, sir, it is not different in our case. When—— 

Senator SHELBY. OK. You are speaking about Chrysler. 

Mr. NARDELLI. Yes, sir. It is not different in Chrysler’s case. We 

had to present, again, exactly the same pro formas when we beVerDate Nov 24 2008 08:28 Oct 09, 2009 Jkt 048080 PO 00000 Frm 00059 Fmt 6633 Sfmt 6633 L:\HEARINGS 2008\12-04 EXAMINING THE STATE OF THE DOMESTIC AUTOMOBILE IND
56 

came organized back in August of 2007 to all of our institutional 

lenders, certainly the largest ones. And, in fact, every month our 

CFO has a full disclosure, a full report to all our investors. Even 

though we are private, they are just as demanding as shareholders 

and have the same expectations. 

Senator SHELBY. Do you basically -and I will address this to all 

three. Do you usually provide prospective investors with detailed 

pro forma financial reports showing how any financing would be 

used in the business and how the money would be paid back? Mr. 

Wagoner. 

Mr. WAGONER. Yes, we would, if we were doing, for example, a 

public financing and equity raise, we would lay out that sort of 

thing. We would be glad to do it here as well. 

Senator SHELBY. Wouldn’t this be as public as you could get, the 

taxpayers? 

Mr. WAGONER. We would be glad to provide anything you would 

like, sir. 

Senator SHELBY. What about Ford? 

Mr. MULALLY. The way you have described it is exactly the way 

we have approached our business plan in the past, and everything 

that we have presented to you is what we have also presented to 

the banks when we went for additional credit to finance the transformation of Ford. 

Senator SHELBY. Dr. Zandi, you stated in your testimony, your 

written testimony, that the Big Three automakers would need between $75 and $150 billion to avoid bankruptcy. At $150 billion, 

the bailout would be more than 1 percent of the GDP of this country. Would you discuss why your estimate is so much higher than 

the $34 billion estimated by the Big Three? I think you are on the 

right track, though. 

Mr. ZANDI. The estimate is $75 billion to $125 billion, but $25 

billion among friends—— 

Senator SHELBY. OK. 

Mr. ZANDI. It is a function of many variables. There are three 

key variables. The first is expectations for total vehicle sales. I expect in 2009 11 million vehicle sales. I think Chrysler is very close 

to that. The other two are higher than that in their baseline expectations. 

The second variable is market share, what share of the total 

market they should expect to capture, and that is—— 

Chairman DODD. Doctor, before you continue along on that, the 

numbers we are looking at, Ford’s and Chrysler’s actually are the 

same as GM’s in those predictions, about 11, right? 

Mr. NARDELLI. For 2009 we have 11.1 as our projected—— 

Chairman DODD. Right. And the other one is 11—is that the 

same, or is it 12? 

Mr. ZANDI. I thought it was higher. 

Mr. MULALLY. GM is at 12, I think. 

Mr. WAGONER. Our base case is 12. Our downside case is at 10.5. 

Chairman DODD. GM is at 12, Chrysler is at 11.1, and Ford is 

at 11. 

Mr. ZANDI. OK. Fair enough. And then the third variable is price, 

you know, how much can you get for a car. And that will affect 

your market share. So just three of the variables, and by my calVerDate Nov 24 2008 08:28 Oct 09, 2009 Jkt 048080 PO 00000 Frm 00060 Fmt 6633 Sfmt 6633 L:\HEARINGS 2008\12-04 EXAMINING THE STATE OF THE DOMESTIC AUTOMOBILE IND
57 

culation, using my expectations for the economy and what it means 

for sales, market share, for pricing, I am skeptical, doubtful that 

it is going to end at $34 billion. 

Mr. NARDELLI. Mr. Chairman, if I might. 

Senator SHELBY. Yes, go ahead. 

Mr. NARDELLI. Our share projection in our recovery plan to you 

is that our share is flat through the planning period. And quite 

honestly, while not as robust as my colleagues, our share has been 

about 10 percent of the industry for the last decade. We have had 

pretty much relatively flat share, again, for the past decade, and 

we are not assuming any share of growth in our plan or any positive pricing. 

Senator SHELBY. Mr. Fleming, you testified—and one of your 

phrases was kind of troubling to me, and I believe I have got it 

right. You said, ‘‘A bailout here would give us’’—the automobile industry here—‘‘some time to try to adjust.’’ That would probably be 

true, some time to try to adjust. In other words, give you breathing 

room. But I think we have to have more than that here to try to 

balance the taxpayers’ interest here with everything. 

Mr. Gettelfinger also said—and I thought you were tentative in 

this: ‘‘Of course, if any plan works, there have got to be management concessions’’—I am not a management expert, but I can tell 

you, if you are not making money, there is a problem. Is it in management? Is it in labor? You know, is it a combination of both? Is 

it lack of innovation in your products? I do not know this, but I 

know there is a deep structural problem here. But you said we may 

need—may need—to do so-and-so. I think that is ambiguous and 

kind of tentative. And I believe any plan to work, any plan, you are 

going to have to have restructuring of management, and you are 

going to have to get rid of a lot of people to save a lot of jobs. You 

are going to have to do the same thing at the UAW, and the question is—I hope that, you know, you realize you are in this together, 

and if you are not, if you are not going to give the concessions and 

the management is not going to give the concessions and suppliers 

are not going to give concessions, we are wasting our time and taxpayers’ money big time. That is my thought of it. 

I want to ask you—this is just an aside, because there has been 

a lot of big talk about it. You flew up here before. I understand 

that. And you drove up here. Did you drive or did you have a driver? Did you drive a little and ride a little? And, second, I guess, 

are you going to drive back? And if so, if some of us wanted to ride 

to Detroit, could we ride with you? 

Chairman DODD. Where did you stay? Where did you eat? 

[Laughter.] 

Senator SHELBY. The Chairman wants to make light of this, but 

I can tell you this: Are you planning to drive back? According to 

press releases, you drove up here. 

Mr. NARDELLI. Yes, sir, and I did have a colleague, and we rotated. We left Tuesday night and drove until midnight and then got 

up at 5:30 the next morning, and then drove the rest of the way 

in. And we did rotate, and I do plan to drive back. 

Senator SHELBY. What about you? 

Mr. MULALLY. We carpooled. I drove and I am driving back. 

Senator SHELBY. You did not carpool with him, did you? 

58 

Mr. MULALLY. No. Carpooled with our Ford people. 

Senator SHELBY. OK. What about you? 

Mr. WAGONER. I drove with a colleague. We split it up about 50/ 

50. We drove down yesterday, and I am going to drive back myself 

Friday or Saturday. 

Senator SHELBY. Mr. Zandi, one last question. In part of your 

testimony, you said that ‘‘there is no better way to ensure that the 

Big Three are around than if they are significantly restructured in 

Chapter 11 bankruptcy.’’ Would you please explain here—we know 

it would be painful; we understand all this—why restructuring 

under Chapter 11 in your view is preferable to restructuring outside of bankruptcy, if it is? 

Mr. ZANDI. Let me clarify. I think that the best option—— 

Senator SHELBY. I was just quoting your testimony. 

Mr. ZANDI. I will clarify my testimony. 

Senator SHELBY. Yes, sir. Go ahead. 

Mr. ZANDI. I think the best option is to have a restructuring outside of bankruptcy. I think if you can get all those stakeholders together and they can all agree, that is preferable to bankruptcy, everyone’s coming together—— 

Senator SHELBY. Do you believe that is going to happen? 

Mr. ZANDI. I am very doubtful that it will happen. So what I am 

suggesting is that you give them the opportunity, because if you do 

not, I think failure at this point, bankruptcy at this point in time 

would be cataclysmic for the economy. I really believe that. So I 

think you need to help them now. Give them an opportunity—and, 

also, they have done some good things. They have restructured. 

Their labor costs have fallen. They have made concessions. I think 

they deserve the opportunity to execute. 

But I would make it very clear that if they do not, the next step 

is indeed a bankruptcy, so that you can prepare, as Congress you 

can be ready, because you will have to do something in bankruptcy, 

too. You will have to do two key things. First, you are going to have 

to provide financing in bankruptcy because if they go into bankruptcy without your help—— 

Senator SHELBY. There are provisions for financing—— 

Mr. ZANDI. They won’t get it. They won’t get it in this environment. They will go into liquidation. And, second, you will probably 

have to guarantee any warranties on the cars that they sell. Otherwise, they are right, no one will buy their cars. 

Senator SHELBY. So you are putting the taxpayers on the hook 

a long time, aren’t you, basically? 

Mr. ZANDI. No matter what? 

Senator SHELBY. No matter what. 

Mr. ZANDI. No matter what. 

Senator SHELBY. And how long do you believe it would be before—if they got the $34 billion, how long would it be before they 

are back here, in your judgment? 

Mr. ZANDI. I think it will be—— 

Senator SHELBY. Six months? 

Mr. ZANDI. No. It will be fall, late—— 

Senator SHELBY. But they will certainly be back, won’t they? 

Mr. ZANDI. I think that is a high probability, yes. 

59 

Senator SHELBY. And $34 billion is probably just the beginning. 

Is that correct? 

Mr. ZANDI. I think that is a high probability. 

Senator SHELBY. Thank you, Senator Dodd. 

Chairman DODD. All right. Senator Menendez, you are actually 

next. 

Senator MENENDEZ. Thank you, Mr. Chairman. 

You know, Dr. Zandi, when our witnesses from the Big Three 

were here last time, I went through with them a series of questions 

about the $25 billion and was not satisfied with how we came to 

the $25 billion, and I appreciated putting the pencil to the paper 

and now seeing that it is somewhere around $34 billion. 

Then I listened to your testimony, and, you know, you have a series of statements in your written testimony that says, among 

other things, that this is anywhere between $75 and $125 billion 

in actuality. And you say that based upon views that vehicles sales 

will eventually return to their underlying annual pace of 16 million 

units, but only when the job market stabilizes, credit flows more 

freely, the pent-up demand is worked off, and it could well be two 

decades or more before sales return to the 17-million-unit sales 

pace that prevailed during the first half of the decade. 

Then you went on to say that the cost of keeping the Big Three 

out of bankruptcy also significantly depends on the ability to slow 

the decline in their share of total vehicle sales, a share that has 

been steadily falling since the mid-1990s, from nearly three-quarters of the market to less than half. And then, finally, you talked 

about even more intense pressure from foreign car makers in the 

context of this marketplace and the stepped-up effort. 

That is the essence of your testimony as it relates to coming to 

that $75 to $125 billion. Is that fair? 

Mr. ZANDI. Yes, that is fair. 

Senator MENENDEZ. Well, let me turn then to the CEOs of the 

three companies. Do you dispute Dr. Zandi’s figures? Because we 

have got to get a sense, put our arms around the magnitude of this, 

in order to try to be helpful. I understand the present magnitude 

in terms of the immediacy. But the question is: Are his figures off? 

And if his figures are off, why are they off? 

Mr. WAGONER. I can tell you what we did, Senator. We developed—as was requested in the letter we received—different scenarios of volumes, and our 18 billion need was based on a scenario 

which has industry levels of 10.5 million units next year, then it 

goes 11.5, 12, and 12.8 million units. We consider that to be a pretty conservative scenario. So that raises the question what could— 

and we also have market share going down gradually as recognition of reducing some of our brands, but not a lot. 

So where could our needs be higher? I think there are probably 

three areas that I would focus on. If the industry was significantly 

smaller, that would affect us, but it does not sound like that is a 

difference. 

We talked about the finance company, the importance of those 

being—in our case, GMAC being granted bank holding company 

status. If that does not happen and we do not get any finance flow, 

then that could negatively impact us. We have assumed as part of 

60 

this plan—and that filing, by the way, is in the Federal Reserve 

now—that that will eventually be granted, hopefully in due course. 

The third thing is something that concerns me that we have seen 

in the last 45 days, which is we have made the assumption that 

people are willing to look at our cars, as they have, as a fair opportunity versus competitors. It is clear that the overhang of discussion around bankruptcy is affecting certain fires, and if that persists and persists a longer time, it could negatively affect our volume. 

Senator MENENDEZ. So you do not dismiss the fact that the fig- ure can be significantly higher than $34 billion. 

Mr. WAGONER. I have not done any calculations, but I would be 

glad to do it with alternative scenarios. 

Senator MENENDEZ. Mr. Mulally. 

Mr. MULALLY. Yes, I am happy to comment on it. We started by 

looking at history through all the economic cycles, especially 

around 1980, and looking at the peak to trough on the contraction 

of the economy and then the recovery coming out. And the scenarios that you asked us for really we believe bracketed what we 

think that economic scenario would look like. And it is pretty much 

in agreement with what the Federal Reserve just announced a few 

days ago about the contraction next year being in the 1 to 1.5 percent. 

So we have the economy contracting all the way through 2009 

and not starting to recover until 2010. And I really, our economists, 

everybody we are talking to really believes that with the actions 

that we are taking today on the fiscal and the monetary policy and 

the stimulus that you are thinking about, that that is a very, very 

conservative recovery. 

The other scenario you asked for, which was a kind of worst case, 

would be an economy contraction that we have never seen before 

since the Depression. 

So I think that middle scenario that you asked for is a very conservative, realistic scenario, and that is what we based on request 

for a potential need of the $9 billion. So we think that is a good 

number. 

Senator MENENDEZ. Well, let me just say there is—I understand that answer. There is a gulf between $34 billion, which grew from 

$25 billion, which is what we were told was necessary for viability, 

to $75 to $125 billion. And my concern is getting our arms around 

this in a way that we know the totality of the situation and can 

meet with—I mean, none of you could operate—well, if you operate 

a company like this, you are not going to succeed. If we operated 

as fiduciaries to the taxpayers like, we cannot succeed. It is what 

has happened at the TARP program where we are throwing money 

out there without having a sense of the strategy of understanding 

what is necessary in this case to assure viability. 

Let me ask two final questions. Are you all committed truly—and 

you will have to be committed because, as far as I am concerned, 

there are going to have to be conditions placed—to the type of fundamental transformational change that is necessary for you to survive? Are you truly committed—you know, Mr. Wagoner, Saturn 

was your previous commitment to that, and then you largely 

walked away. You know, so that is a past example. You know, are 

61 

you truly committed to that? And, last, can you tell us, of those 

groups that are out there that already see taxpayer bailout funds, 

how many of them are holding a good part of your commercial 

debt? 

The final comment I will make, I just want to say, President 

Gettelfinger, you know, leadership is really tested in difficult times, 

and I appreciate what you have been willing to do to come forward. 

And it is never easy for a union leader to come forth and make 

very serious concessions and even talk about getting to the table 

more. But it cannot be done simply by the union. There have to be 

all the elements here to achieve the goal—the suppliers, the creditors, and others. Otherwise, the union cannot solve this problem on 

their own, and I know some would like to break the back of the 

union here as part of their goal. But this is not going to be 

achieved just simply through that. 

Could you just answer those questions? 

Mr. NARDELLI. Senator, if I could start, please. Again, in our 

base plan that we submitted, where we are asking for $7 billion, 

which is the same amount we asked for last time, we are opening 

2009 at 11.1 million SAAR, and that grows to 13.7 in 2012. Our 

downside scenario—and we end that period at $12.5 billion in cash, 

which includes $1 billion starting the repayment to the taxpayers 

for this bridge loan. 

In our most conservative approach, we start at 10.1 next year, 

and it grows to 12.7. And we do have a deterioration in cash of 

about $2 billion given the volume reduction. 

As I indicated, our assumptions on share is flat. We have had a 

relatively flat share over the last decade. We have built negative 

price into our plan. 

The one thing that has not been mentioned here that I would 

like to make sure we are clear on and transparent is we have 

baked in here some of the 136 funds that we have requested, assuming that they will be approved concurrent with our expenditure, submission of the invoices, and then to repay. But we have 

not started to show that infusion of funds for advanced technology 

until 2010. 

So, again, while it has been submitted, 12/31 this year is my understanding is the first toll gate for submissions that could be approved for redistribution. We have elected to take a very conservative approach in that plan. 

And, Senator Shelby, I would say in your comments to Ron 

Gettelfinger, there is certainly nothing, I think the term ‘‘wishywashy’’ about 32,000 people have already lost their jobs, and 5,000 

walked out Wednesday before Thanksgiving, which represented a 

25-percent reduction in our salary workforce. So we take this very 

seriously. We understand our fiduciary responsibility. I can tell you 

I understand the weight of this meeting and tomorrow. 

Mr. WAGONER. Senator, I can assure you that our plan is farreaching, extensive. It is a different way of thinking, and the GM 

team is behind and committed to achieving it. 

You asked about do those institutions, would they be affected by 

a bankruptcy, and the answer is, yes, some are creditors to us. But 

it is my understanding that there are a significant amount of credit 

62 

default swaps written against our securities, which would also be 

triggered in the event of a bankruptcy. 

Mr. MULALLY. Yes, I would just like to add that we know it can 

be done because we have been doing it, and clearly, focusing on a 

brand and a brand promise for the customers, having small, medium, and larger vehicles, being best in class and quality and fuel 

efficiency and safety, and consolidating the production to really 

meet the true demand and getting those costs out. As a result of 

all those actions, we got back to profitability in the first quarter of 

this year before this tremendous downturn. 

So we know it can be done, and what we are talking about now 

is getting through this terrible recession. But I absolutely believe 

that we are going to continue to take these actions and create a 

viable, growing Ford for us all. 

Chairman DODD. Thank you very much, Senator. 

Senator Crapo. 

Senator CRAPO. Thank you very much, Mr. Chairman. 

I want to focus my questions on primarily the CEOs of our Big 

Three, and I want to return to the question of a Chapter 11 reorganization. One of the reasons that this issue just keeps coming back 

up is there are many experts, as I am sure you are aware, who are 

saying that we need to have the authorities and the ability to basically require the kinds of changes in relationships and the kinds 

of restructuring changes that are necessary that a Chapter 11 proceeding would—a reorganization proceeding would provide. 

I have read all your testimony and your materials, and I understand the arguments that have been made there and here today 

about the fact that a bankruptcy proceeding would have very serious negative problems with it. 

The question I have is: Do we have the ability to achieve those 

needed, forced if necessary, changes in relationships with people as 

broad-reaching as employees, suppliers, dealers, retirees, creditors, 

the various legacy cost issues, do we have the ability in what you 

have presented to us today, if Congress were to agree with it, to 

be sure that we could achieve those types of major restructurings? 

Mr. NARDELLI. Senator, let me just offer a thought. Again, bankruptcy was something I was hoping never to become an expert in, 

in my 38 years, and certainly not today. But your point is correct, 

that as I try to understand it, we cannot just make unilateral rejections, for example, with the union, certainly with the banks that 

have secured lending. I think certainly this Committee would understand that more than anybody. If that was breached, who would 

go out and lend money unsecured and not have recovery? 

I would say that one of the things that was discussed with the 

Government Accounting Office, I would suggest that we put a 

date—March 31st as a benchmark data that says give us the funding, allow us to survive, and then by March 31st, have the toll gate 

to see where we are against those negotiations. At least I am 

speaking for Chrysler. 

Senator CRAPO. Mr. Wagoner. 

Mr. WAGONER. Our proposal comprehends the idea of this Federal oversight board. I realized there was some concern with the 

naming of that, but obviously highly empowered board. We would 

submit the plan with a timeframe. The board would play an active 

63 

role as the funding would be doled out only gradually, and then if 

by a date certain—and March 31st I think would be a good one to 

work with—we cannot get the parties together, then additional 

funding would not be advanced, and we could provide collateral 

against the loans—— 

Senator CRAPO. Would your idea with regard to this board include the board having the authority to impose restructuring conditions on various parties? 

Mr. WAGONER. I am not sure that is legally possible, but that 

would obviously facilitate it. 

Senator CRAPO. Well, we could make it legally possible with—— 

Mr. WAGONER. I think that would help a lot. That would really 

help. 

Senator CRAPO. All right. Mr. Mulally. 

Mr. MULALLY. Yes, we believe we have sufficient liquidity at the 

current time, but we absolutely support the oversight board concept. 

Senator CRAPO. And when you talk about the oversight board, 

are you also talking about a board with the authority to literally 

impose restructuring conditions as a Chapter 11 court could? 

Mr. MULALLY. I do not know all of—I would probably need to 

think about that a little bit. It sounds right, but I just do not know 

all of the implications of that. 

Senator CRAPO. Mr. Nardelli, could you respond to that question 

about the oversight board? 

Mr. NARDELLI. Sir, as you said, Congress has the authority to do 

a lot of things, so if that is what Congress determines, then obviously all of the constituents would be held under that. I am not 

burdened of being a lawyer, and so I do not know the technical answer to it. But certainly if that is a prerequisite and if that is the 

understanding, Chrysler would certainly obviously try to comply. 

Senator CRAPO. In that context, an argument that each of you 

have made—and many others—is that people will not buy cars if 

any one or all of the Big Three are in a bankruptcy proceeding. 

They will not buy a car from a company in bankruptcy. But if we 

were, in essence, to create an oversight board that was basically a 

Federal restructuring trustee, would that impact the confidence 

level in your ability to meet your assumptions about people being 

willing to come back and purchase cars? 

Mr. WAGONER. I think it is a fair question. My sense, Senator, 

is that right now the concern is very high, and so I think in the 

case that we put forth, we will be in need of funding soon. And so 

I think if people saw that funding coming, even with these conditions in front of it, and we would have to present a plan that we 

could convince people that we could execute it. But I think it would 

help vis-a-vis where we are today. Obviously, it would be best once 

it is all cleared. 

Senator CRAPO. My time is running out. Let me ask just one 

more question. Frankly, I am just seeking a restatement, but my 

understanding is that I did not hear any objection from any of the 

three of you to the establishment of an oversight board, or whatever we call it, a Federal oversight entity that has the literal authority to impose restructuring conditions and to enforce those as 

a matter of law as these dollars are utilized. Am I correct? 

64 

Mr. MULALLY. Correct. 

Senator CRAPO. Thank you. 

Chairman DODD. Thank you very much, Senator Crapo. 

Senator Reed. 

Senator REED. I just want to follow up quickly Senator Crapo’s 

question. Everyone seems conceptually to accept an oversight 

board. The question in my mind would be: Is there a possibility of 

emergency funding getting you to, whatever it takes, 30 days, the 

point at which you can go before the board with the concessions in 

hand so that the funding of the majority of these funds you are requesting would be made not on your assertions, which I think are 

very sincere, but on actual concessions, actual restructurings in 

place? Is that feasible, Mr. Wagoner? Then your colleagues. 

Mr. WAGONER. I think we would do our best. Thirty days for 

these kinds of things might be a little tight. That is why we had 

said—we initially talked February 28 or March 31st, depending on 

the complexity of them. But I can assure you we would move as 

fast as we can. And, you know, I think it is to the advantage of 

the industry to have a short timeframe because it will force everyone, let’s sit down, let’s see where we can go, and get a yes or no 

on it. 

Senator REED. But in that context, the initial draw of funds 

would be much less than you are requesting. Is that correct? 

Mr. WAGONER. Well, our initial draw of funds is based on what 

we estimate we would need up to. That is $4 billion. So under that 

case, we believe we need that amount to meet our obligations 

through the end of January. 

Senator REED. So that gets you through to what date? 

Mr. WAGONER. That gets us through the end of January. 

Senator REED. End of January. 

Mr. WAGONER. Yes, sir. 

Senator REED. Mr. Mulally. 

Mr. MULALLY. Yes, sir, we believe we have a viable plan today, 

and our intention is to not draw on the loan. 

Senator REED. So you could go with all the restructuring at some 

point in the future to this board and then be qualified at any time 

to draw the money. Is that—— 

Mr. MULALLY. Our basic position is that we want to support the 

industry for the reasons we have talked about, and with the actions 

we have taken, we are hoping not to access this money. But, clearly, we are part of the bigger plan. 

Senator REED. Mr. Nardelli, your response. 

Mr. NARDELLI. Yes, sir. Senator, what we would need is $4 billion in our plan, of the $7 billion we have requested, to get us 

through March 31st to allow time to go through these mutually 

agreed upon concessionary discussions with all the constituents, 

certainly myself, employees, dealers, suppliers. I think Ron, as was 

stated, has already come forward, and certainly the institutional 

lenders. 

Senator REED. Thank you, and thank you to the UAW that has 

already made significant concessions. I think that shows more than 

just—a profound commitment to make this deal work, so thank 

you. 

65 

Mr. Zandi, you have set a price on the overall efforts to assist the companies of about $75 to $125 billion. You have also suggested that if they are forced into bankruptcy, it would be—whatever word you described. 

Mr. ZANDI. I used ‘‘cataclysmic.’’ 

Senator REED. Catastrophic. Have you put a price tag on that in 

terms of unemployment compensation, pension benefits. 

Mr. ZANDI. Measurably more than that. 

Senator REED. Measurably more than that. 

Mr. ZANDI. Yes. 

Senator REED. So we are not talking it is a close call. 

Mr. ZANDI. Not a close call. 

Senator REED. Not a close call. Several hundreds of billions of 

dollars. 

Mr. ZANDI. Yes. It is not even in the same universe. 

Senator REED. Thank you very much. There is another aspect 

that I think that is important which has been alluded to: the interconnection between the financing companies and the manufacturing companies. There is a possibility that we could create a 

board that governs the manufacturers, but then the Federal Reserve would govern the finance companies or the new financial 

holding companies, which would introduce an additional level of 

complexity. 

There is also the possibility that requirements that would be imposed on the financing companies by Federal regulators could be 

directly in opposition to the best interests of the manufacturers. 

Is there an argument that whatever we do should be done on a 

unified basis rather than having the Federal Reserve operate on 

one end and an oversight board or oversight management person 

on the other? 

Mr. ZANDI. That is a reasonable concern. I hadn’t thought of 

that, but that might be something to worry about, that the Federal 

Reserve could be, as a regulator of the bank holding company, 

working at cross purposes with the board that you have established 

to resolve the issues with respect to the auto companies. 

Senator REED. And I think there is another issue which goes 

right to your arrangement, which your private equity holds 100 

percent of Chrysler Financial, 51 percent of GMAC, and 51 percent 

or your company. And just the ability to move money around might 

be very frustrating to an oversight board that is trying to return, 

because of investment in the manufacturer, the best possible return for taxpayers. Do you foresee that as a problem? And, in fact, 

how would you sort of preemptively avoid that problem? 

Mr. NARDELLI. Well, first of all, sir, let me just reconfirm, they 

are inextricably linked, the finance company, our success is embedded in theirs and vice versa. If I ship product and I do not get paid 

from the finance company as a result of shipping to a dealer, I have 

a tremendous cash strain, maybe $300 to $400 million a day. Point 

one. 

Point two, the way it is structured today, these are both wholly 

owned, so there are independent boards, and there is governance. 

So there is not an arbitrary manner by which funds are transferred 

back and forth. Each have their own separate boards. Each have 

a set of governance. Certainly if it becomes approved by an ILC acVerDate Nov 24 2008 08:28 Oct 09, 2009 Jkt 048080 PO 00000 Frm 00069 Fmt 6633 Sfmt 6633 L:\HEARINGS 2008\12-04 EXAMINING THE STATE OF THE DOMESTIC AUTOMOBILE IND
66 

cess to 13(3), get TARP funding, you just will not be able to move 

money back and forth. 

Senator REED. Just a final point. You price the cars. 

Mr. NARDELLI. Yes sir. 

Senator REED. They price the credit. 

Mr. NARDELLI. Yes, sir. 

Senator REED. And I think there is the opportunity, at least in 

those two different pricing modes, for one company to make a significant profit and the other company to break even. That is at 

least possible. 

Mr. NARDELLI. I think the pricing of the credit is really driven 

by the markets today, just like our pricing is driven—we can set 

a price. The consumer dictates the price. And the same is true in 

the credit market, sir. When you go back to the industry, when it 

was 17-plus million, you quickly see where the credit was and the 

ability to make credit accessible to a much lower FICO score that 

allow consumers to really step into these vehicles along with the 

lease program. Twenty percent of our volume I think across the 

board was lease programs. 

Senator REED. Thank you. 

Chairman DODD. Great questions. Thank you, Senator Reed. 

Senator Dole. 

Senator DOLE. Mr. Chairman, recently our colleague George 

Voinovich sent a letter to Democratic leadership, and I want to 

quote from that letter. He said, ‘‘While I applaud your insistence 

that the potential borrowers prove their case, however, I am concerned about the method that you have constructed in doing so. 

Specifically, I question your decision that congressional leadership 

and committees of jurisdiction are best positioned to make determinations about a multinational corporation’s future financial prospects. Who exactly will be making these decisions? Do you intend 

to rely on the expertise of executive branch officials or outside experts? Or do you feel that Congress is qualified to draw such conclusions?’’ 

That being said, I would like to ask each of the chief executive 

officers, have any outside non-political business groups, groups 

with business acumen, been able to render an opinion as to the viability and quality of your respective restructuring plans? I would 

also be interested in how you view—if you have any specific comments on the Levin-Stabenow-Bond-Voinovich proposal. 

Mr. WAGONER. Before we submitted our plan, we asked one financial analyst to sign a confidentiality agreement and review it. 

But I am sure now that it is out, we will be getting more comments 

from analysts. So we will be getting input on the plan from those 

sorts of people. In fact, we are probably getting it even as we 

speak. 

As far as your second question about the source of the funding 

in the prior bill that was under contemplation, our view and comment all along has been we really do leave it to the Congress to 

decide what is the best way to provide the funding. And in that 

sense, you know, we are really open to whatever ideas the Congress and the administration determine are best. 

Mr. MULALLY. Senator, absolutely. When we went to the banks 

about a year and a half ago to put together our transformation 

67 

plan that we have been talking about, they absolutely thought that 

plan was going to create a viable, profitably growing Ford for us. 

And then as we made that progress this last year, we got back to 

profitability in the first quarter, they were very pleased with the 

progress and very supportive of our plan going forward. 

So I think that is really the final test right there, and they 

loaned us the money. 

Mr. NARDELLI. Senator, I would just add, exactly, we did get outside independent verification primarily on the cash-flow analysis 

and the cash-flow charts. We also presented it to our board and 

asked for review and approval before we submitted it on Tuesday. 

Senator DOLE. Thank you. 

Thank you, Mr. Chairman. 

Chairman DODD. Thank you very much. Senator Schumer. 

Senator SCHUMER. Thank you, Mr. Chairman, and thank you to 

the witnesses. 

Just to sort of sum up, I think, where we are at, we realize just 

letting you fail would be cataclysmic, as Dr. Zandi says, far worse 

than the costs that you have outlined. 

Second, bankruptcy, I think it is pretty clear, is not a viable option because no one is going to buy a car from a bankrupt company, 

and it takes so long and it is so complicated that it does not work. 

And I would—this is my own 2 cents. I think one of these prepacked bankruptcies has similar problems because you cannot 

bring the others in. So we have to do something. That is on the 

side of making sure you are viable, which I think I want to do and 

I think most of us want to do. 

On the other hand, our real problem is this: I think that there 

is a general view that we want to see the conditions before we give 

you the money, and you folks sort of want the money and say let 

the conditions work out. Mr. Nardelli said let us see how things are 

on March 1st. And in all due respect, folks, I do not think there 

is the faith that those next 3 months will work out given the past 

history. 

And so what I think some of us are searching for us here is a 

way that we can make sure you continue, make sure you are viable 

on into the future. My third point is make sure that the burden is 

spread evenly. I think the workers, Mr. Gettelfinger, have taken 

more of the hit, and I have not heard much about the bond holders, 

the lenders who are getting paid 12 percent, and people like that. 

And the only way this is going to work is if everybody gives. If everybody gives. 

And so the question I have is: Why isn’t the best solution for us 

to pass something on Monday—and, again, I do not care where the 

money comes from, frankly. OK? That is a dispute that others 

have. I would take it out of the TARP, if need be, temporarily out 

of the 136 funds. That to me is not the issue. The issue is how are 

these real conditions that are created and imposed by someone who 

is overlooking you outside. So I do not like the words ‘‘oversight 

board,’’ like Mr. Dodaro. 

Second, who is going to do this negotiating? You may not have 

leverage, frankly, over the dealers or over the bond holders or over 

the others, except to threaten to go out of business? Which is not 

very good leverage. You are saying, well, I will cut my nose to spite 

68 

my face. Why isn’t the best solution the one I was sort of positing 

before, that we pass legislation that gives, you know, a specific 

amount of money, not a small sum, to a designee of the President 

in a certain sense. He has control. It could be the Treasury Secretary. That person quickly calls in all the players and says we 

have some carrots for you. We not only have money, but we have 

the ability. We give him the ability maybe to impose for a period 

of time a guarantee of the warranties and maybe even some help 

with the funding, because the funding is part and parcel. But, in 

return, every one of you around the table, you executives, the workers—which have already given quite a bit based on yesterday’s 

statement—the bond holders, the dealers, everyone gives. 

That seems to me to be the best model given that we do not have 

much time, that there is not much taste for giving the money and 

then seeing if the conditions are met down the road, and that the 

alternatives of either letting you go under a bankruptcy are the 

worst. And you have said you agree with the Chrysler model when 

Senator Dodd posited the question to each of the three of you. 

Would you agree with this kind of model? What do you think of 

the—what are the pros and cons? Would you agree to the kind of 

thing that I am mentioning here? Go ahead, Mr. Wagoner. 

Mr. WAGONER. Senator, yes, it would be very helpful for us, 

whether it is a board or an individual, to have someone to work 

with on this to submit our proposals, and then for that person to 

say, OK, don’t agree with that, you have got to change this. And 

if that person was to have strong powers to execute it, that would 

be fine with us. 

Senator SCHUMER. Good. Yes. You see a board, when you have 

3 or 4 months like Chrysler, a board may work. You don’t have 

much time. 

Mr. WAGONER. Yes, sir. 

Senator SCHUMER. And we may not even have time until the 

next administration. 

Mr. WAGONER. That is correct. Yes, sir. 

Senator SCHUMER. What do you think, Mr.—well, let me ask Mr. 

Gettelfinger. What do you think of that idea? 

Mr. GETTELFINGER. Well, I think it would work. I mean, it is difficult, but I think there is something we are missing here, quite 

frankly -unfair trade agreements, supporting our competition to 

come in, not doing anything about health care in this country. And 

I will just use as an example South Korea. Here we are talking 

about a country that can ship whatever that number of automobiles is, 669,000, and every manufacturer in this country can 

ship back less than 5,000. How do we compete with that? 

Senator SCHUMER. Right. 

Mr. GETTELFINGER. How do we compete when we subsidize the 

competition, or how do we deal with currency intervention, or what 

do we do about not having an industrial policy? Those are the 

things that I think we are missing in this picture. We keep saying, 

are we going to be competitive? Can we compete? Who are we competing against becomes the question, and how low do you go. We 

use the term ‘‘race to the bottom,’’ and it appears to me that we 

are missing that as part of this discussion. 

Senator SCHUMER. Right. 

69 

Mr. GETTELFINGER. Thank you. 

Senator SCHUMER. Although those are longer-term than the 

kinds of things—we are having sort of an urgency here. 

Mr. GETTELFINGER. I agree, but indirectly, Senator, they are tied. 

They are interlinked. 

Senator SCHUMER. What do you think of the idea, Mr. Mulally? 

Mr. MULALLY. We would be open to your suggestion. 

Senator SCHUMER. Mr. Nardelli? 

Mr. NARDELLI. Yes, Senator. Basically, it is the same, and you 

are just asking to compress the schedule. 

Senator SCHUMER. Yes, exactly. Yes. And one person as opposed 

to a board. 

Mr. NARDELLI. Fine, sir. 

Senator SCHUMER. Mr. Fleming? 

Mr. FLEMING. The dealers absolutely would want to participate 

in that with the manufacturers and the regulators. But if I can, 

Senator, the one concern that we have is that there can be some 

unintended consequences, as well, for dealers depending on what 

those details are, and so as long as we are at the table as a partner—— 

Senator SCHUMER. You would be at the table, but you would 

have to give something. 

Mr. FLEMING. We are giving a lot now, Senator—— 

Senator SCHUMER. OK. 

Mr. FLEMING. ——let me tell you. 

Senator SCHUMER. Yes, everyone is—look, if we do nothing, everyone is giving a lot, too. 

Mr. Wandell? 

Mr. WANDELL. Yes, I think absolutely, and I think, just speaking 

for our company and I am sure for most of the supply base, I think 

most of the suppliers are more than willing to line up and, I think, 

have for a long time, and I think what the suppliers are looking 

for is a healthy industry where they can be more competitive. 

Senator SCHUMER. Right. Dr. Zandi? 

Mr. ZANDI. I think it is a reasonably good idea, given you have 

a short period of time to make some very tough decisions. One person makes sense if you are confident in that person. 

Senator SCHUMER. Thank you, Mr. Chairman. 

Chairman DODD. Thank you, Senator Schumer. 

Just before I turn to Senator Corker, I think that idea has been 

raised and I like the idea of a trustee. I think a trustee—I think 

we use the word ‘‘trustee’’ and I think it takes on a different connotation than a broad idea, but I think it has a lot of merit, as 

well, particularly in the short term here. We are talking—the timeframe we have, as you point out, with the Chrysler, I think they 

went back, and I wasn’t in the Senate in those days, but it was 

months in working that out. We don’t have months, to put it quite 

candidly. We don’t have weeks. In fact, Mr. Gettelfinger, when you 

raised the issue, said in the near term. Before I turn to Senator 

Corker, how near term do you think bankruptcy is? 

Mr. GETTELFINGER. I do not believe at this point in time, on the 

data that I have seen, that General Motors will make it out of the 

end of the year. 

70 

Chairman DODD. So this month? You think they would be bankrupt in the month of December? 

Mr. GETTELFINGER. Unless something changes dramatically, and 

I would hope that it does. But again, we are—in looking at the 

companies, Chrysler is in trouble. I had mentioned that at the last 

hearing. I believe I was asked to rate the companies—— 

Chairman DODD. Yes, you did. 

Mr. GETTELFINGER. ——where they stood. And that is the way I 

rated them. However, there is still additional data coming in. We 

do need the market to turn in our favor a bit. But honestly, we are 

down to the wire. 

Chairman DODD. Yes. 

Mr. GETTELFINGER. We would not, Senator, have called the meeting we called yesterday and took the action that we took as a union 

if we didn’t believe that was real. We brought in an outside analyst 

to help us make that determination. So I think that time is of the 

essence, and in our testimony we said that we needed to do something this month and that was the reason. 

Chairman DODD. And so your conclusion is by the end of this 

year, by the end of this month, we could lose General Motors as 

a corporation? 

Mr. GETTELFINGER. I believe that we could lose General Motors 

by the end of this month. 

Chairman DODD. Thank you. 

Senator Corker. 

Senator CORKER. Mr. Chairman, thank you, and gentlemen, 

thank you all for being here. Just to follow on that thought, Mr. 

Chairman, there is nothing like a crisis or a worry about being 

alive that does more to heighten the senses and create focus, and 

I hope that whatever happens here, that does not go away without 

proper things occurring. And I think that Senator Schumer is alluding to that. I think Senator Crapo was alluding to that. 

We talked a great deal about Chapter 11 reorganization. I don’t 

want to waste my time hearing the talking points against that. I 

have certainly met with analysts that represent stockholders and 

bondholders and others. I have certainly talked to each of you and 

your representatives, the UAW. So I am not going to go down that 

line of questioning today, even though I still believe that there are 

many things that will be very, very difficult to work out without 

Chapter 11 reorganizations. 

You know, I could follow one narrative which, you know, I know 

this is somewhat loose, but in essence, what many of you have said, 

there are so many problems to work out that you would be in 

Chapter 11 forever. Now, I know that there are disruptions with 

the supply chain and I know they are thinly capitalized, so I am 

going to take a little different tack, and again, I thank you all for 

being here. 

But I want to start by just sort of laying out how things are. I 

spent 2 days meeting with analysts in your industry and I notice 

the new word that they are using is not the ‘‘Big Three,’’ but the 

‘‘Detroit Three.’’ And much of it has to do with the market cap of 

these organizations. I think GM’s market cap today is about $3.4 

billion. I think—excuse me. Ford’s is $3.4 billion. GM’s is $1.8 billion. And I will throw a little change on the table and say Chrysler 

71 

is worth a half-a-billion and that is probably exaggerating. So we 

are talking about $6 billion. 

And just to compare this to companies around the world, Toyota is worth $138 billion. I mean, even little BMW, which is just kind 

of a niche company, has a market cap, a value, if you will, of about 

$14 billion. So I just want to put that in context of these large loan 

asks, if you will, that are underway. 

And then from that, I know that each of you have added up your particular ask to about $38 billion, and then there are some of you 

that are asking for TARP money, I understand, as part of your finance company operations. I just want to set those aside. I know 

that Chrysler have said they have asked for $8.5 billion through 

Section 136, which passed last year, which put $25 billion on the 

table for efficiencies, for investing in new technologies, and I would 

like for Ford and GM each to tell us how much you have asked for 

under that vehicle, too. 

Mr. WAGONER. Yes. We filed a little while ago $3.7 billion, and 

later, at the end of this week, our second batch of projects will go 

in and if all approved, those would be, as I recall, about $4.5 billion. 

Senator CORKER. So about $8 billion? 

Mr. WAGONER. About eight, although they obviously have to be 

approved, Senator. 

Senator CORKER. OK. I understand that. And Ford? 

Mr. MULALLY. We think that it will be around $5 billion cumulative. 

Senator CORKER. OK, so that is $21.5 billion, so about $60 billion 

in requests, Mr. Chairman, are already in. I do want to highlight 

that certainly this is vastly different than $25 billion. 

I did talk to Secretary Bodman yesterday, who oversees this program in Energy, and he said he had sent a letter to everyone rejecting their proposals. Just for a moment, how important is this 

136 funding that has been rejected? Would you rate it high or low? 

Is this very important to the capital structures? I don’t want a long 

narrative, just—you haven’t seen the letter yet? OK. I can give you 

a copy after the meeting. But all applicants were turned down. But 

how important is that to the overall capital structure of these companies? 

Mr. WAGONER. Well, it is included in our cash-flows. As you 

know, it is not advance money, though. It is spread out as the 

money as spent, and so as I recall, the amount that we would receive next year in our cash-flows is about $2 billion. 

Senator CORKER. OK. Important, not important? 

Mr. MULALLY. I think it is important, and we have in ours 

through 2011 that $5 billion. But I think it also is important because of what it is focused on, and that is the basic enabling technology to really make a step forward in fuel efficiency. 

Senator CORKER. OK. 

Mr. NARDELLI. Senator, of the $8.6 billion you referenced, we 

have put six into this plan. That is why I wanted to be very clear 

with Senator Menendez that in addition to the 34, there is 25 of 

this money. We put in about 70 percent of our request. We were 

told the guidelines would be somewhere around 80. I haven’t received the letter, but I have heard of the letter and one of it was 

72 

that there was not an audit report, but they subsequently found 

that. 

Senator CORKER. So these are important parts of your capital 

structure which is now, we are talking roughly in formal applications—I consider this today a formal application—of about $60 billion. 

The interesting thing to me all along has been that all three of 

you have come in together. I have read the plans and re-read the 

plans and I would sort of qualify them this way. Ford’s plan is kind 

of life is wonderful. You have already done a lot of the things that 

need to be done, and fortunately, whether you were lucky or smart 

back in 2006, you borrowed money at lower rates and were able to 

fund yourself. I think it was probably because you all were forward 

thinking and congratulate you for that. 

Chrysler doesn’t really want to be a stand-alone business. I 

mean, that is well documented. The fact is that, basically, what 

your plan is about is you want to hang around long enough so that 

you can date somebody and hopefully get married soon, before you 

run out of money. 

So I have to tell you, I have a little trouble when I look at that 

plan. I know that you haven’t invested in product development. I 

know you don’t have the technologies to really compete as a standalone. I know that your dealership levels all across the State might 

be really valuable to a foreign company coming in, but I have to 

tell you that it troubles me a little bit knowing that basically all 

we are really doing is providing a little capital for you all to hang 

around long enough to get married. 

And I consider you to be a very honest broker, Mr. Nardelli. I 

really appreciate the conversations we have had, and so I want to 

ask you this question. I talked with a board member last night at 

Cerberus, and I know that they own 80 percent of your company 

and I know there has been a lot of narrative, and I don’t know 

whether this is true or not, that in essence, what they really wanted out of the purchase from Daimler-Benz was the finance companies and the auto stuff was sort of a bonus, OK. And I talked to 

the board member last night and said, look, you guys are in asking 

us for public money today. Cerberus owns 80 percent of this company and has cash, lots of cash, that they are unwilling to put into 

this company. You mentioned about what a great partner they 

were. I don’t know. 

I have to tell you, I have some trouble. These other guys have 

a different problem because they cannot access cash. They don’t 

have a father sitting up here with cash that can inject into their 

companies. They have to go out on the public markets. You are in 

a different situation. You are a portfolio company in a private investment firm that has lots of money and they are unwilling to invest that money in your company. 

And I want to add one other thing to it. We wouldn’t be here if 

it weren’t for GM, and we are going to talk about them in just 1 

second. We all know this. It is almost like you lucked up. I mean, 

you guys were getting ready to be bankrupt and all of a sudden 

GM is in trouble and they have sort of the clout, if you will, and 

Ford joins in, to come up here and ask for public monies and this 

is like a flyer for you guys. All of a sudden, this is life again, OK. 

73 

We might get $7 billion even though our portfolio parent won’t inject any more cash in us. 

And I have a little trouble with that, and I wonder if you might 

just make me feel better about that. 

Mr. NARDELLI. Well, I am going to make myself feel better. The 

fact is, we got a divorce last August and so— 

Senator CORKER. Well, they still own 80 percent of your company, though, right? 

Mr. NARDELLI. No, sir. Daimler owns 20. 

Senator CORKER. They still—no. Cerberus owns 80 percent, is 

that correct? 

Mr. NARDELLI. That is correct. 

Senator CORKER. OK. 

Mr. NARDELLI. But I wanted to say, last August, we got a divorce 

from Daimler, and so some of your criticism is spot on, the fact that 

the company was somewhat hollowed out, the fact that it was 

functionalized. The fact is that all functions reported back to Stuttgart. The fact is that there were European designs trying to be sold 

in the U.S. market. We canceled some of those products upon my 

arrival. We immediately terminated four nameplates. We immediately started on our restructuring plan and we have taken out 

1.2 million. I can assure you, Senator, that I don’t wake up every 

morning thinking about how to sell the company. We are busting 

our guts, and the people that are left there are busting their guts 

to make this thing work. 

Senator CORKER. But there is no future for the company as a 

stand-alone, is that correct? 

Mr. NARDELLI. I don’t agree with that, sir, or I wouldn’t have 

been here, and I appreciate your comment as being a stand-up guy. 

For 38 years, I have made my reputation on delivering on my—— 

Senator CORKER. Speak to the investment company that owns 

you that has cash and has a portfolio of companies that I assume 

are earning money that they could borrow against if they didn’t. 

What is it that keeps them from making you whole? 

Mr. NARDELLI. If you think about—again, the misconception of a 

private equity company is that there are a few guys with a lot of 

money who invest in various companies. 

Senator CORKER. No, I know this is a lot of guys with a lot of 

money, so—— 

Mr. NARDELLI. No, sir. This is the same investors that he has as 

shareholders and that Rick has as shareholders. These are pension 

funds. These are—— 

Senator CORKER. So they are not willing to give you the lifeline. 

What the board member said to me—and I want to move on because I am going to run out of time—what the board member said 

to me is that there is no way they would make additional investments in the automobile industry at this time. And so here we are 

as a public entity being asked to do that, and I just want to say— 

and I will come back to you in a minute, if I can. I am going to 

run out of time here—— 

Chairman DODD. Bob, would you just, because I want to pick up 

on this point that you just raised, which I think is a valuable one— 

Mr. Nardelli, I am reading your report here—— 

Mr. NARDELLI. Yes. 

74 

Chairman DODD. ——and on point three, major business assumptions, let me read it to you. ‘‘Chrysler remains focused upon developing partnerships, strategic alliances, or consolidation as a fundamental element of its restructuring to expand its product portfolio, 

generate incremental revenue, and create additional operational 

synergies related to manufacturing, purchasing, and distribution.’’ 

That hardly sounds like a go-alone deal. I apologize, but I just—— 

Mr. NARDELLI. May I respond to that, sir? It is—— 

Senator CORKER. Look, there is not a human being alive in the 

automobile world that thinks that Chrysler is doing anything other 

than finding somebody to marry and that this cash is here long 

enough for you to do that, and I want to move on. I certainly will 

never be convinced of anything different and I don’t think there is 

an analyst on Wall Street, not that we should be paying particular 

attention to them—— 

[Laughter.] 

Senator CORKER. ——that believes that. But let me just move on, 

if I can. 

Mr. NARDELLI. May I just for the record disagree, sir? 

Senator CORKER. All right. I understand you disagree, but I 

would go back to your plan and your plan says that you want to 

consolidate. So let me move on, then, to—— 

Mr. NARDELLI. Sir, may I respond to that just 1 second? Those 

comments are, as in my opening comment, that alliance, for example, where we produce all of Volkswagen’s minivans for North 

America; two, that alliance with Nissan, they have entrusted us 

with their entire product line of trucks for 2011. Those are alliances and partnerships. It is sharing manufacturing facilities to 

avoid heavy capital expenditures on transmissions, on axles. So 

that is really trying to improve our viability—— 

Senator CORKER. Right. 

Mr. NARDELLI. ——sustainability, not selling ourselves. 

Senator CORKER. OK. I know that you and GM spent an inordinate amount of time trying to figure out a consolidation. That is 

a fact. I know that both of you were intricately involved in that. 

That is a fact. I know that a plan was presented that actually 

showed that there would be less public money necessary if the two 

of you consolidated. And I know that Chrysler has been very excited about that possibility but GM rejected that at the board. 

And again, these are the kinds of things that we need to force 

to happen. There is nobody that I know of that thinks that three 

companies with the market share that you have, the downward 

trend that exists, the unsustainable debt that it out there, there is 

nobody, no thinking person thinks that all three companies can 

survive, OK. 

So I go back and I just want to ask—I want to get into GM more 

deeply. I gave up a little time earlier, but I would like to ask Mr. 

Wagoner, I know that this plan exists and I know that you were 

very involved in putting it together. I know that the board turned 

it down. And I know that you have tremendous issues to deal with 

and maybe turned it down because you have got too many fish to 

fry right now. But what was the reason that you turned that down? 

Mr. WAGONER. We did consider an acquisition. I would say two 

things happened during the process. One, the market dropped draVerDate Nov 24 2008 08:28 Oct 09, 2009 Jkt 048080 PO 00000 Frm 00078 Fmt 6633 Sfmt 6633 L:\HEARINGS 2008\12-04 EXAMINING THE STATE OF THE DOMESTIC AUTOMOBILE IND
75 

matically so our own funding needs increased more than we 

thought, and so as we discussed that with the board, they said, 

boy, we had better make sure we have enough funding to take care 

of our own business. And as you know, any kind of merger-acquisition activity is pretty human resources intensive. 

Second of all, at the beginning of these conversations, there was 

a lot of discussion about public funding, be it public market funding being available. And as the credit market conditions deteriorated, that opportunity changed. And so as a result of that, the 

whole issue of focusing on the very important issue of liquidity for 

GM was, I think, appropriately at the top of the issue for our 

board. 

Senator CORKER. Let me ask you this. The plan at the time, and 

I realize things have changed, it did say that there would be lesser 

outside money necessary, a pretty large amount, if the two of you 

all merged, did it or did it not? 

Mr. WAGONER. Well, I—what I can tell you, Senator, is at the 

time that we made the decision not to proceed, we did not have the 

capital, cash—we were concerned we didn’t have the cash to make 

it until the deal could be closed and the financial institutions could 

not assure us that they could provide that funding. 

Senator CORKER. OK. Let me get into your plan just briefly, and 

again, thank you for your patience. I looked at your plan and I 

would agree with others that I think your plan was fairly thoughtful. I told your COO that yesterday. And I think it is a nice first 

step, OK. And you can tell that the senses have been heightened 

a little bit over the last couple weeks and it is obvious that you 

guys have put a lot of thought into survival. 

There are a couple of things. Your debt loads are unsustainable 

at any level of sales, OK. I know we had 17 million sales recently. 

We are on about a ten million sale run now. Next year, you are 

projecting about 11 million. But at the debt levels you have and the 

liabilities you have, it doesn’t matter if you were at 20 million. You 

can’t survive, OK. So that has to change. The makeup of your capital structure has to change. 

So I noticed yesterday in your plan that you had about $28 billion in unsecured debt. We checked yesterday and your unsecured 

debt is selling for 19 to 21 cents, the bonds. And so basically you 

had given about a 50-cent haircut to bond holders that we understand will be glad to be taken out at 30 cents on the dollar. So 

again, a not very aggressive step as it relates to what could happen, if you will, by March 31. 

The problem is the UAW is there and bond holders are not willing to take a haircut unless he takes what I would call a real haircut. Now, there has been a lot of lauding about the changes the 

UAW has made. To be candid, in this proposal, not so much, OK, 

and so let me sort of move into that. 

You have got VEBA liabilities of about $21 billion, Voluntary 

Employment Benefit Association payments. If you go into bankruptcy, those are toast. They are gone. And I think the UAW 

knows that. 

Most of the people that are looking at your structure say that 

VEBA, at least half of it has got to be equitized. In other words, 

instead of taking money, they have got to take equity, OK, and 

76 

those are the kind of things that it seems to me that we would 

want to put in the legislation if we did anything other than Chapter 11 debt financing. 

And so I guess I would ask, it starts with Mr. Gettelfinger, because the bond holders are not going to take a haircut of 30 cents 

on the dollar unless he is willing to change his capital structure, 

and I would just like for him in front of all of us right now to give 

us a little sense of how heightened his senses are as it relates to 

this company surviving. 

Mr. GETTELFINGER. Well, first of all, let me just back up to the 

changes that were made—— 

Senator CORKER. I have read all those and it was in your testimony. 

Mr. GETTELFINGER. No, please—— 

Senator CORKER. I know we went through this last time. I understand about jobs bank, and I want to get into that. I understand 

about the—I am very understanding of the changes. I met with 

UAW representatives yesterday. We went through them again. So 

I understand about jobs. If there is something else other than jobs 

bank and if your numbers work out by 2012, I will say it is going 

to be tough to reach that because you are not hiring new employees. It is going to be tough to reach those levels. But if you would, 

just respond to VEBA. 

Mr. GETTELFINGER. VEBA. 

Senator CORKER. Yes, $21 billion—— 

Mr. GETTELFINGER. Oh-five changes roll through. It is a negative 

plan amendment, Senator, instead of a curtailment. And so the 

company does not get the full benefit of that until 20—— 

Senator CORKER. Twenty-ten. 

Mr. GETTELFINGER. ——2009—— 

Senator CORKER. The company will not be here in 2010, OK, unless we do something, and I am asking you if by March 31, to get 

back on Senator Schumer’s line of thinking, I am asking you if by 

March 31, you would agree to equitize, turn half of that obligation 

into equity so that this company has a balance sheet that will allow 

them to survive. I am asking that question. 

Mr. GETTELFINGER. And what I would respond to that, Senator, 

is that we have brought in two professional groups to help us. We 

took action yesterday to delay or to defer the payments that are 

due on January the first of 2010. 

Senator CORKER. But I am not going to get the payments if they 

go bankrupt, so again, I would like to ask—it is a serious question. 

Are you willing to take to your membership that type of proposal, 

which is the only way these guys—you have got to look at the fact 

they have X-debt today. They need to do away with at least twothirds of their bond indebtedness. They have got to do away with 

at least half of their VEBA obligations in order to survive. And I 

am just asking if you are willing to do that, because otherwise, 

there is really no reason for us to be contemplating all these 

things. 

Mr. GETTELFINGER. I understand that, Senator, but I also understand that I am here as a representative of people. Right here is 

a letter from a person that gets $322 a month in pension, $322 a 

month. We gave her a bonus. Do you know what she did with it, 

77 

Senator? She gave 10 percent to charity, she kept $100 out for 

Christmas, and she put the other $300 in an emergency operating 

fund. That is the people we are talking about. 

And I cannot answer your question directly without expert advice, and I have suggested, sir, that we have brought in the Lazard 

Group to assist us. While it may not mean anything here, we took 

action yesterday to talk about a deferral of our 2010 VEBA payments because we recognize the liability that is out there on the 

company’s books. We also recognize the value of spreading that out, 

that payment. But that is a tremendous risk that we are willing 

to take. It may not mean a lot to many people, but to others, when 

we are talking about people that worked on their lines, that gave 

their entire life for that, and their pension is at risk, that is very 

critical—— 

Senator CORKER. Well, all of their benefits are at risk, OK—— 

Mr. GETTELFINGER. I understand that, Senator. 

Senator CORKER. Let me ask you another question. 

Chairman DODD. Bob, can I—— 

Senator CORKER. Yes. 

Chairman DODD. I am going to come right back to you—— 

Senator CORKER. OK. 

Chairman DODD. ——but I have got three other members, and 

I wanted to give you some more time because you deferred earlier, 

and I will come back to you on that, but let me turn to Senators 

Casey, Tester, and then back and forth here. 

Senator CASEY. Thank you, Mr. Chairman. 

Chairman DODD. Thank you, Bob. 

Senator CASEY. First of all, I wanted to thank the witnesses who 

are here for your testimony and for the work that went into this 

testimony. For me, this debate is pretty simple, as complex as the 

financing, as complex as the challenges are. It is about jobs, and 

I come from Pennsylvania, which is not normally considered an 

auto State, but when you look at the numbers in our State on supplier jobs, direct and indirect, it is more than 80,000, more than 

83,000 jobs in that sector. When you look at dealerships—and Mr. 

Fleming, we appreciate the testimony you provided—look at dealers in Pennsylvania, 50,000 jobs. 

I was looking at unemployment data from September 2007 to 

September 2008 in Pennsylvania. September to September, up 

91,000 unemployment. Our State, and I know the country, as well, 

but I can speak for my State, cannot sustain any more hits. I am 

not saying that if we don’t act, we are going to lose every single 

one of those jobs, but we can’t afford to lose another 5,000 or 

10,000 or 15,000 or 25,000 jobs. 

Our State, candidly, is a been there, done that State. We went 

through this in the steel industry way back in the 1970s, where 

hundreds of thousands of people in a couple of counties in Pennsylvania lost their job in three or 4 years, hundreds of thousands of 

people in one fell swoop. We can’t allow that to happen again. 

I was just talking to some dealers this morning. We lost 56 dealers in Pennsylvania last year. This year, it is above 60 already. 

Just yesterday, there were three. This is happening in real time. 

This isn’t some theory. Jobs are being lost right now. So in our 

78 

State, we cannot afford to do anything, in my judgment, but to act 

and to do something here. 

I have to say also, with regard to the labor concessions, Mr. 

Gettelfinger, I wanted to review some of those because I am 

stunned by the kind of—when you hear the talking heads on television, when you read what some people say in this town and 

across the country about the mythology that is out there about how 

we got to this situation, and, frankly, the scapegoating of the men 

and women of organized labor, in particular auto workers. 

Point number one, in 2005, cuts in wages for active workers and 

health care benefits for retirees, point number one. I am reading 

from your testimony. Cuts for new workers, bringing the wage level 

down to $14 an hour. How many industries are doing that? Reducing the companies’ liabilities for retiree health care by 50 percent. 

And I realize these have been in the record before, but it is very 

important. And wages and benefits, you said yourself that they are 

about 10 percent of the budget. You would think, listening to some 

of the people talk out there, some of the so-called experts, that 

wages and benefits were 70 percent of the costs. So there is a lot 

of mythology, a lot of myth generally that has been put on the 

record. 

Since 2003, downsizing by the companies has reduced their workforce by 150,000 people. That doesn’t get said very often. The labor 

cost gap with foreign transplant operations will be largely or completely eliminated, OK. So I think it is important to put this information on the record for this hearing. And then we have heard this garbage about $73 an hour. It is 

a total lie, and some people have perpetrated that deliberately in 

a calculated way to mislead the American people about what we 

are doing here. It is a lie and they know it is a lie. 

So with that as my predicate, and I know I am almost out of 

time, at least according to the original time agreements, I have a 

question for the three CEOs with regard to accountability. One 

thing that I think is very important here is that we not just talk 

about but demonstrate to taxpayers that we get it on the question 

of accountability and that you get it. And I know you have a lot 

built into your plans. 

I think it is very important that we take a look at this on a 

monthly basis. If I had my way with regard to this legislation, I 

would insist upon monthly reporting, monthly benchmarking or 

compliance with benchmarks, monthly compliance or the meeting 

of milestones. I think it is very important that we have provisions 

that talk about it from month to month. 

So I would ask all three of you, starting with Mr. Wagoner, two 

questions, really. One is with regard to monthly reporting and the 

distribution of public dollars based upon that monthly reporting, 

would you agree to that, and also would you be willing to make 

government assistance the most senior debt secured by the assets 

that we have talked about here today. Would you agree to both of 

those? 

Mr. WAGONER. Yes on the first one, and on the second, we do 

have some secured debt, but we have a lot of collateral that is not 

secured, and so for that piece, we could cover any near-term funding. So yes to the second one, as well. 

79 

Senator CASEY. And Mr. Nardelli? 

Mr. NARDELLI. Yes, sir. Certainly on the monthly, we have committed to that in our testimony. The majority of our equity is secured and therefore I certainly am not in a position to commit that 

that would automatically become unsecuritized or subordinate to 

the government. As what was talked about earlier about having or 

appointing someone, I think it was said that this Committee certainly has the power to make that happen. So I would ask certainly 

this panel and Congress, if that is their wishes and that is the criteria, then that is something certainly this panel has the authority 

to do. 

Senator CASEY. Mr. Mulally? 

Mr. MULALLY. If we needed to access the taxpayer money, then 

monthly is very understandable and we would comply. On your second question, our current covenants right now with the debt we 

have, we would be breaking those covenants and we could be put 

in default. But having said that, there just has to be a way and 

I would be committed to figuring out that way to get us all together 

to figure out a way to protect the taxpayer. I understand completely. 

Senator CASEY. On the question of credit, each of you have credit 

financing entities that we all know about, but my question on that 

is one of the ways that I think would give taxpayers some assurance here that the dollars would get to where they are supposed 

to get to and rectify some of the problems is that we focus on getting direct help on financing. Would it be helpful to you to have direct infusions of capital into your credit entities so that you have, 

and I would assume that this would be helpful, that you would 

have, unlike the banks, who have been sitting on a lot of our taxpayer money—without a lot of questions asked, by the way—you 

would be infusing an entity with dollars where you would have 

lending that would happen almost immediately because of the inability for most people to walk in and buy a car without access to 

credit. I would just ask each of the three of you to tell me briefly. 

Mr. NARDELLI. Sir, it is not helpful, vital. Just this past Saturday, we have 240 dealers that have thrown their keys in because 

they have not been able to get access to financing. We have another 

250 that have been put on credit hold. That has impacted us another 63,000 units on an annualized basis. 

Senator CASEY. Mr. Mulally? 

Mr. MULALLY. Yes. I think a couple of other things to get at your 

real question that are helping and could help even more is with respect to the Federal Reserve, they have put in place now a nearterm asset-backed commercial paper facility which we are already 

accessing which helps free up the credit, which is terrific. They are 

also working with Treasury on a medium-term asset-backed commercial paper facility. 

Another thing that would really help on the credit being made 

available for the customers is if we can get our application for an 

industrial loan approved by the FDIC, which again would help on 

freeing up the credit for our customers. 

Senator CASEY. Thank you. 

Mr. FLEMING. Senator, could I just—— 

Senator CASEY. Sure. 

80 

Mr. FLEMING. From the dealers’ perspective, credit is a very, very 

important issue and it is different across the country. Areas where 

there were more difficulties with the subprime loans, the local and 

regional banks don’t even have access to credit to help the dealers 

out. One of the concepts that we have discussed on a local level in 

Connecticut is trying to free that capital up that right now Treasury is buying in some of these local and regional banks. 

The hold-up is that these small commercial banks and community banks and regional banks don’t have the expertise for financing automotive paper and credit. Some of these organizations that 

are represented here, the captive credits have that expertise. If you 

can free the—if the credit is freed up at that local level and you 

can provide some central ability for the expertise, the backroom operation, if you will, that could free a tremendous amount of credit 

up at the local level, and that is money that is already out there 

that is sitting in those banks right now. 

Senator CASEY. Thank you, and we want to hear more about 

that. 

Mr. Wagoner, and then I am done. 

Mr. WAGONER. Certainly, additional capital in the finance companies would be helpful. Our approach has been to file for a bank 

holding company, and as part of that we will need to raise some 

capital there, as well, assuming we get it approved. 

Senator CASEY. Thank you. 

Chairman DODD. Thank you very much, Senator Casey. 

Senator Tester. 

Senator TESTER. Thank you, Mr. Chairman, and I also want to 

echo, thank you for being here again. Those of you that haven’t testified before, thanks for being here. 

Just a couple of things, actually for my benefit. Senator Bayh 

brought up an issue about nothing is for certain. Trust me, as a 

farmer, I know nothing is for certain. The best-laid plans can go 

upside down in a hurry. But I do want to know what the landscape 

is and I do want you guys to be as honest as possible. If the 

chances you are going to be back here in a year are high, be honest 

and tell me. I think your industry is important. I think the manufacturing industry is important. 

So just go down the line and just tell me. If things stay the way 

they are now, are you going to be back here in a year? Just go right 

down the line, the Big Three, the Detroit Three or whatever you 

call it. 

Mr. NARDELLI. Sir, if we are fortunate enough to get the funding, 

as I said, we have built in some 136 money. We have identified $4 

billion of cost out starting March 31. We have made the point 

about the importance of the finance company. I believe, I believe, 

sir, that we will get through 2009 because we have laid in a very 

conservative plan. 

Senator TESTER. And if the economy stays static, will you get 

through 2010? 

Mr. NARDELLI. Yes, sir. We—— 

Senator TESTER. That is good enough. Next? 

Mr. MULALLY. Yes. As we discussed, we believe we have sufficient liquidity today, but clearly, your point is very important. If 

81 

the economy and the industry degrade significantly, we would be 

asking for that bridge loan, too, to keep going. 

Senator TESTER. Got you. Yes? 

Mr. WAGONER. Our downside plan and our submission was based 

on 10.5 million units next year, which is about where the industry 

has been running the next couple of months, so that is why we 

added the additional $6 billion credit facility. If the 10.5 continued 

for a couple more years, then we would need to either cut more 

costs or get more funding because our baseline plan assumes it 

goes up by about a million units a year. 

Senator TESTER. Thank you. I would just say this. You guys have 

been put under far more scrutiny, far more scrutiny than the people up here on the board for far less money. And I am not happy 

about the transparency or the accountability, as I said before, of 

what the administration has done in regard to throwing hundreds 

of billions of dollars out the door. And the fact when I listen to you 

guys testify that you can’t even get credit, and that is what this 

was for, is nothing short of ridiculous and I would love to have 

those birds in here again because they need to be talked to, or at 

least get some questions answered. 

One of the things that they have done with—— 

[Interruption from gallery.] 

Senator TESTER. I hope this doesn’t count against my time. 

[Interruption from gallery.] 

Senator TESTER. I would like to tell you that one of the problems 

I have got with the use of the TARP funds is for bank consolidation, and I would hope that—well, for example, Capital One is just 

acquiring Chevy Chase Bank. They are a recipient of TARP funds. 

We have a similar situation that could be here, and Senator Corker 

has talked about it, and that is the potential consolidation. You 

talked about it in your plan, Mr. Nardelli. I just need assurance 

that no dollars given to you would be used for a merger, either domestic or foreign. 

Mr. NARDELLI. Sir, I can assure you that if that is incorporated 

into the guidelines, then it will not be. I would come back and— 

for example, one of the things in my proposal was if you take the 

$25 billion out of 136 and the three of us were to create an independent technology center, I would submit to you that it would be 

more efficient and more effective, as evidenced in the hybrid technology that we jointly developed, that Rick and I did in, as a matter of fact, a vehicle that I drove down here. 

Senator TESTER. I understand. It is just that I don’t want to 

make the same mistake again. We should have asked tougher questions with the previous—— 

Mr. NARDELLI. Yes, sir—— 

Senator TESTER. and I don’t want to—and we will get onto this 

with some other folks, too, as we go forward. 

You know, Mr. Wandell, you have not been asked any questions, 

and I feel an obligation that at least you get involved in this. How 

is your business doing at this point in time with the economic turndown? 

Mr. WANDELL. Well, as I mentioned, luckily, we are diversified 

into several businesses and we are global, so in general, we are 

doing well. But—— 

82 

Senator TESTER. OK. That is basically what I needed to know, 

because you are going to be asked to be part of the equation to reduce some of your costs, too, to be able to make these folks whole. 

You see that as an absolute, no problem, possibility? 

Mr. WANDELL. Yes. That is the way we come to work every day. 

Every year, we are asked for price-downs from our customers and 

that is part of the equation. 

Senator TESTER. The 136 dollars to be used to increase your 

CAF? standards, as I read it, and I just want you to confirm this, 

as I read your business plan, those were critical to make this $34 

billion work across the board. I don’t want to put words in your 

mouth, but yes? 

Mr. NARDELLI. Yes. 

Mr. MULALLY. Yes, they are included. 

Mr. WAGONER. Yes. 

Senator TESTER. OK. The issue of dealerships, and I don’t want 

to get into this very deep because we can spend all day on this, but 

we are talking about potentially closing some dealerships. At least 

that is what I read. Have you identified what the metrics are going 

to be to close dealerships? 

Mr. NARDELLI. The program we started last August when we became privately held was to go out to every region and identify the 

dealers that are in that region and work in harmony with them to 

facilitate a consolidation that would make the remaining dealers 

more profitable and we would put all three brands under one roof. 

Senator TESTER. OK. Is that fairly typical of the way the other 

two would answer the question? 

Mr. MULALLY. Yes, and I would just add a little bit more clarity. 

We have a tremendous set of dealers throughout the United 

States—— 

Senator TESTER. I know you do. 

Mr. MULALLY. ——and we are very, very strong in, of course, all 

the small and medium-sized communities. The area that we are 

working together with the dealers, and they are very encouraged 

by this, too, are in the big metropolitan areas, because the most important thing we do is to get their throughput and their profitability up and we are on plan for that. 

Senator TESTER. What about the rural areas? 

Mr. MULALLY. They are in very good shape. They are doing a 

great job. 

Senator TESTER. You have got dealerships in towns of less than 

3,500 people. Are you going to keep them? 

Mr. MULALLY. You bet. They are the fabric of the community. 

Senator TESTER. The same with GM? 

Mr. WAGONER. Yes. What we do, the individual dealers make the 

calls there. That number has been slimming down gradually over 

time just because of the economics of the car business, but it is 

their call. 

Senator TESTER. I come out of the State legislature, and I will 

tell you a big complaint we had from the Auto Dealers Association 

is that the manufacturers were trying to consolidate, consolidate, 

consolidate the dealerships. I heard it over and over and over 

again. We had to deal with that at the State level, State laws. You 

are saying that attitude doesn’t exist anymore? 

83 

Mr. WAGONER. If we have a situation, let us say, where you have 

three dealers in a community and none of them can be profitable, 

we try to work with them. But, I mean, they have to make the 

calls. 

Senator TESTER. OK. A last question, and I have got a bunch 

more but time is of the essence so just bear with me just for a second. The 136 money, $8 billion, $8 billion, and $5 billion, where is 

that 136 money going to be spent? I know it is going to be spent 

to increase CAF? standards. Is it going to be spent in the U.S.? 

Mr. NARDELLI. One of the requirements is that it is based here 

in the U.S. and we are spending it primarily on our electric vehicles. 

Senator TESTER. OK. 

Mr. MULALLY. Yes, and all enabling technology, power train, 

weight, aerodynamics. 

Senator TESTER. And GM? 

Mr. WAGONER. Yes, and I would just add, and obviously a big 

piece of our initial money is to fund batteries— 

Senator TESTER. One of the things I talked about earlier, and I 

will stay with you, Mr. Wagoner, real quick, in the earlier question 

was, is this money, if we put up $25 or $34 billion now, if it is 

going to be spent in the U.S. I heard a rumor that you were going 

to expand a facility, or at least announced the expansion of a facility in Mexico, a manufacturing facility. Can you tell me if there is 

any credence to that? 

Mr. WAGONER. We have—all the announcements we have about 

Mexico, I am not aware of anything additional. I mean, we have 

got three assembly plants there. We don’t plan any more. 

Senator TESTER. How about expansions of the existing ones that 

are there? 

Mr. WAGONER. No, sir, I am not aware of anything. 

Senator TESTER. OK. I will just tell you— 

Mr. WAGONER. I will get back to you—— 

Senator TESTER. ——whether it is millions of dollars that you 

have in Mexico or whether it is this, if we allocate this money and 

2 weeks from now you guys announce an expansion of a manufacturing plant in Michigan, I am going to be unhappy. 

Chairman DODD. Not Michigan—— 

Senator TESTER. Mexico. What did I say? 

[Laughter.] 

Senator TESTER. I said Michigan, didn’t I? 

[Laughter.] 

Senator TESTER. Exactly, in Southern Montana. In Mexico, right. 

By the way, thank you for the correction. 

[Laughter.] 

Mr. WAGONER. Let me check, and if there is anything that comes 

up, I will get back to you, but I don’t think there is—— 

Senator TESTER. I mean, the part of my justification to keep you 

folks solvent and in business and employ folks at good wages with 

good benefits is, number one, we need a manufacturing base in this 

country. We can’t afford to lose it. 

But number two, I don’t want to give American taxpayer dollars 

to somebody who is going to invest it in some other country than 

this country. That has been a problem. 

84 

Mr. WAGONER. Senator, let me just be clear. No funding that 

comes out of this would go to fund a facility overseas. 

Senator TESTER. We had the conversation before on that, and I 

will tell you that it is really tough for people to differentiate if you 

guys get a $34 billion loan, bailout, whatever you want to call it, 

that within a few months if there is an expansion announced and 

it is not in Michigan, or some other place in the United States— 

Ohio, Montana—it is going to be very, very tough to justify. 

Thank you for being here. I appreciate your time. You have done 

far more as far as justifying your case than any of these folks up 

here. Thank you. 

Chairman DODD. Thank you. Let me just raise the question, and 

I will go ahead to my colleagues, as well, but I can just tell you, 

to the CEOs, at least talking to my dealers in Connecticut, and Mr. 

Fleming is here, one of the problems is on this rebate issue, where 

they are providing rebates to customers who can come in and qualify for a loan but the dealers are not getting compensated from the 

manufacturer very quickly from the rebates, so their margins are 

very small, putting tremendous economic pressure on these dealers. 

I don’t know if that is just unique to my State. I suspect it is not. 

And I will wait for a turn to come around, but I raise that issue 

because it is one that really the dealers are not happy with the 

manufacturers about some of these issues. I wouldn’t want the 

time to go by and assume somehow this is all kumbaya between 

the manufacturers and the dealers. It is not. 

Senator Carper. 

Senator CARPER. Thank you, Mr. Chairman. 

Every now and then in our business, we face the voters and one 

of the questions that is sometimes on their mind is what have you 

done for me lately? And I think you all are going through a little 

bit of that here today in terms of what have you done for us lately 

in terms of productivity? What have you done for us lately in terms 

of bringing down the labor costs? What have you done for us lately 

in terms of improving quality? What have you done for us lately 

in terms of improving the fuel efficiency of the vehicles that you 

build? 

Actually, I think any fair-minded person would say on every one 

of those fronts, you have done a lot. You have done a lot. That 

doesn’t mean it is time to stop, but I think I am a fair-minded person. I think most of us are. But I want to commend you for what 

you have done and commend you for what I believe you are willing 

to do next to merit the support that we are talking about providing. 

Mark Zandi over here at this end of the table is a smart guy, and 

whenever we were trying to put together a stimulus package, he 

was good enough to provide something that I call the ‘‘bang for the 

buck chart’’ and what are the things that we could do when we are 

looking into a recession, moving into a recession, to try to turn that 

around. Does it make sense, do we get more bang for the buck for 

Food Stamps? Do we get more bang for the buck for extending unemployment benefits? Do we get more bang for the buck by providing these stimulus checks, these tax rebate checks that go out? 

And he is always very, very helpful. 

If you had to—this is an unusual thing to ask, but thinking 

about that ‘‘bang for the buck chart,’’ would the money that we are 

85 

talking about providing here, whether it is $34 billion or $25 billion, sort of where would that be on the ‘‘bang for the buck chart,’’ 

Dr. Zandi? 

Mr. ZANDI. It would have a high bang for the buck. I mean, just 

to give you kind of a range, the infrastructure spending has the 

highest, $1.80. Certain kind of tax cuts, $1.10, close to a dollar. 

This is more like direct government spending, so it would be $1.50 

to $1.80, somewhere in that range, I would think. On the fly, that 

would be sort of the bang for the buck, I would think. 

Senator CARPER. All right. Well, that is what I am looking for. 

You make four points, and I have gone back and re-read these 

several times. You make four points in your testimony, and I want 

us to revisit them again and I want to especially dwell on the 

fourth point, if we could. Would you just sum them up really quick, 

starting with the first one, I think your first point about—just take 

it and just summarize very briefly in your own words. 

Mr. ZANDI. Sure. Point one is that the Federal Government 

should provide aid. Without it, they would go into liquidation, there 

would be mass layoffs, and at this point in our economy’s economic 

situation, that would be extremely damaging. So I don’t think you 

have a choice. 

Point two is that the cost of ensuring that the auto makers don’t 

go into bankruptcy at some point in the next couple of years is 

going to end up being measurably higher than $34 billion. I give 

you a range of $75 to $125 billion, but I think the odds are high 

that it is going to be measurably more than—— 

Senator CARPER. I saw that number and I wondered, does the 

higher number, your higher number, $75 or $125 billion, does that 

include the so-called Section 136 money which we have already offered—— 

Mr. ZANDI. Yes. 

Senator CARPER. ——for retooling the plants so the folks can 

make more energy-efficient vehicles? 

Mr. ZANDI. Sure. 

Senator CARPER. OK. 

Mr. ZANDI. I mean, Chrysler is basically saying, I don’t need to 

come to you today for as much money because I am going to use 

that money. So yes, that would be part of it, yes. 

Senator CARPER. Was it Chrysler that said that or Ford that said 

that? 

Mr. ZANDI. I think all three of—— 

Mr. NARDELLI. All three of us. 

Mr. WAGONER. All three of us said it. 

Senator CARPER. Fair enough. 

Mr. ZANDI. All right. So yes, I think that is—— 

Senator CARPER. All right. 

Mr. ZANDI. And when I say $75 to $125 billion, I am talking the 

total commitment taxpayers are going to have to make to these organizations to ensure that they do not go into bankruptcy over the 

next 2 years. That is TARP money, that is Section 136 money—— 

Senator CARPER. Go on to point number three, if you will. 

Mr. ZANDI. Yes. Point number three is that if they can stick to 

the script that they have laid out, they will become viable companies on the other end of this with that help. But sticking to the 

86 

script outside of bankruptcy is going to be very, very difficult to do 

because you have so many stakeholders, creditors, UAW, suppliers, 

dealers. All have different interests. It is going to be very difficult 

for them to stick to the script, and therefore in theory, it looks 

great. In practice, I think it is going to be tough. And I would plan 

it on the likelihood that they are not going to stick to the script. 

And that gets to point four, what I would do. I would give them $34 billion. I would—— 

Senator CARPER. All at once? 

Mr. ZANDI. No. I would say, you need, according to the plan, I think roughly GM needs $10 billion to make it through to March 

31. Chrysler needs $7 billion. Ford doesn’t need anything. I would 

give them $17 billion and that should ensure that we don’t go into 

bankruptcy liquidation through March 31. 

I would establish a mechanism, a board or I think Senator Schumer’s idea is probably a better one in the context of the time limitations, someone that says, are you meeting—we are going to have 

very clear benchmarks. Are you meeting the benchmarks? We get 

to March 31. We say, this is a good investment, we are going to 

give you the next tranche, or it is not a good investment and we 

are going to be throwing good money after bad. 

And use the time between now and then to get ready, to prepare 

for a bankruptcy. Really think through, what does it mean for the 

financial system? What does it mean for the PBGC? What do I 

need to do as a government to provide dip financing? What do I 

need to do to guarantee the warranties? You know, all those things. 

You have got 3 months and you should have it figured out, what 

is next. 

But I think I would also make it very clear to everyone that this 

is it, because when you say this is it and you stick to this is it, then 

that makes a much greater chance that I am wrong on point three, 

and that is the most important thing. 

Senator CARPER. Yes. I think your point about sticking to the 

script is an important, real important point. 

In your testimony, and when you talked about point number 

four, you talked about the Federal Government providing the support in two tranches you talked about the first one maybe being 

$17 billion—in exchange for warrants and restrictions on a variety 

of things, including executive compensation, dividend payments, 

and that sort of thing. 

In the situation with Chrysler—GM and Ford, I can see where 

the warrants work out. We did Chrysler warrants 29 years ago, I 

think it was 29 years ago. 

Mr. NARDELLI. We have done $300 million additional—— 

Senator CARPER. But that was when Chrysler was publicly held, 

and my question of you, Dr. Zandi, is how do we do warrants with 

Chrysler in this situation or something akin to warrants so that we 

have a reasonable return for the taxpayers in light of our willingness to take on this risk? 

Mr. ZANDI. You know, I think it is a great question for Mr. 

Nardelli. How would they compensate the government for this? 

Senator CARPER. Mr. Nardelli? 

Mr. NARDELLI. Well, I know that Cerberus has already committed to forego all of their carry-forward interest. They are more 

87 

than willing to make sure that all of the upside benefit goes back 

to the taxpayers. And so I think when you bring everybody to the 

table, Cerberus is more than willing to provide the security and the 

commitment that the taxpayers do recover from their investment 

in this company, sir. 

Senator CARPER. All right. Let me just say, Mr. Chairman, this 

is a smart group of people, as you know, and I think the folks on 

the auto side and the labor side, they don’t get enough credit for 

what they have already done. They have actually, I think, positioned these companies and this industry, domestic industry here, 

within a couple of years, and Ford is a little bit ahead of the game 

and we commend them for that, but they have actually positioned 

themselves to make a go of it. And part of the key is providing, as 

Dr. Zandi suggests, enough money to keep the wolf from the door 

here for the next couple of months while the necessary further concessions are made by not just labor, not just management, not just 

the shareholders, not just the bondholders, but the whole kit and 

caboodle. 

And the idea—I am going to come back to it, but a point I think we touched on earlier, where would this, if it is $17 billion here in 

this first tranche, where would it come from, and I would like for 

us to explore whether it might come from some of these financial 

institutions that have gotten, I think close to $250 billion of capital 

injection in return for making loans to these companies that might 

be guaranteed by the Federal Government. 

I want to thank you all, but I especially want to thank you, Dr. 

Zandi, for again bringing, I think, a lot of wisdom to this hearing. 

I think you have given us a lot to think, not just think about, but 

I think a lot to act on. 

Thank you, Mr. Chairman. 

Chairman DODD. Thank you very much. Thank you very much, 

Senator. 

I just point out, and again I understand other obligations, but I 

had asked the Treasury to be here, the Federal Reserve to be here 

to talk about it. There are options for dealing with this. To ask 535 

Members of Congress in the space of 72 hours to try and craft 

something here is challenging, to put it mildly. There are other 

means by which this could be dealt with. That chart says it all. But 

looking about—trying to get some help out of an authorized fund 

to assist at a moment like this, not to mention the 13(3) provisions 

within the Federal Reserve Bank that could help give us time to 

come back and do some things that may be necessary would be the 

way I would like to suggest to go, or the idea that you have suggested has some merit, as well, but it is—— 

Senator CARPER. Well, this oversight board that we have been 

talking about, not just an oversight like to kind of be a spectator, 

but—— 

Chairman DODD. We don’t need legislation to create that. That 

could be done automatically by the very powers that exist today 

that could help out of this. I will get back to that in a minute. 

But also, I just want to make a quick point, your money, Dr. 

Zandi, doesn’t have to come from public money. That money, that 

gap could be made up, in fact, by private capital coming into these 

institutions, as well, is that correct? 

88 

Mr. ZANDI. Sure. 

Chairman DODD. OK. 

Mr. ZANDI. If private capital came in—— 

Chairman DODD. If we start doing things properly here and 

things start to move in the right direction, you might see those resources. 

Senator Bennett? 

Senator BENNETT. Thank you very much, Mr. Chairman, and 

thanks to all of you. This will come to an end. You can look forward 

to that with some confidence. 

A few reactions and then some questions. I don’t think you need 

any more loans because loans carry interest with them and interest 

is part of your problem right now. Even if the loan has a government guarantee, it is something that has to be repaid and what 

you need is more capital that is patient capital that can wait out 

the scenario that Mr. Wandell has talked about, or I guess it was— 

whichever. Yes, you are the economist. 

Mr. ZANDI. I am the economist. 

Senator BENNETT. You are the economist on the end. OK. I have 

got it straight. 

Let us talk about capacity. The industry has too much, and based 

on what we heard in our last hearing, Mr. Chairman, that is not 

going to change. As the industry becomes more efficient and produces longer-lasting cars, people are not going to trade as often and 

the overcapacity problem is going to continue to be there. 

I will confess that I am adding to your problem. Mr. Mulally, my 

Ford Escape is 4 years old and has got at least another 4 years left 

in it. Mr. Wagoner, I have got a 1996 Oldsmobile that is still running just fine, and as long as you are producing spare parts, it has 

only got 82,000 miles on it, and I am not going to trade it in. And 

therefore, I am adding to your problem because it used to be that 

people changed their cars every three or 4 years. You are making 

them well enough and lasting long enough that this is a problem. 

When I congratulated the dealer that sold me the Oldsmobile, he 

said, ‘‘I can’t make any money if you keep driving that car.’’ 

What we are really talking about here is creating for the first 

time in America an industrial policy for a particular segment of the 

industry. This is America’s version of MITI, if you will, where we 

look at the question of capacity in the industry as a whole. We look 

at the question of competitiveness around the world. We look at the 

question of how much public money is going to go into the industry. 

All of these are questions that the Japanese have addressed, and 

we have never had an industrial policy for a variety of good reasons, and whether we should or shouldn’t is a discussion for another time and another place. 

But as we address all of these issues, it falls under that general 

rubric of should we have an industrial policy for the auto industry, 

and if we should, what should it be and what should be the Federal 

role. And to come up with the answer to those very complicated 

questions, as you say, Mr. Chairman, in 72 hours is something the 

Congress, frankly, is not equipped to do. 

So I think there needs to be some very heavy discussions very 

quickly on that issue, not just how are we going to bail out this 

industry in this circumstance, but what is going to be the long-term 

89 

goal and role of the American government in the 21st century in 

a globalized economy competing with other countries that do have 

an industrial policy and should we rethink our decision not to have 

one, and if we do have one, who in the world is it going to be? 

What is going to be the American equivalent of MITI? And how do 

we address all these issues? It is a very, very tough question that 

this industry and this circumstance has thrown back in our face 

after we thought we were through with it when we discussed the 

Japanese back in the 1970s. 

Now, back to the question of overcapacity, everything I have seen 

with this says to me that a merger between General Motors and 

Chrysler is a good idea. It is not a shotgun wedding. It is not something you do dramatically and drastically because of the difficulty 

of the circumstance. It is a marriage that makes sense. All the 

work has been done so that it could be done and papers could be 

signed very quickly, and out of it, the synergies you get are there 

and the economies you get. 

Now, I know, Mr. Gettelfinger, you don’t like it because it would 

mean losses of assembly line jobs. It is the middle management 

and top management that would get hit the first, because instead 

of two corporate structures, you would have only one. And the 

acres and acres of MBAs that are there in the middle management 

for both companies would be shrunk significantly. 

I understand, Mr. Wagoner, you said, well, we had other priorities. We were pressed by this. We couldn’t think about it. I think 

you need to talk about it again. Can you react to that, not from 

the standpoint of this crisis, but from the standpoint of the business synergies that would occur if there were not a crisis and the 

two of you were looking at it strictly in terms of what it would do 

for you long-term. 

Mr. WAGONER. The analysis, as we have reported in other places, 

showed significant cost savings, some of those—significant cost savings, and some of those were—a large portion initially were exactly 

the point you raised, Senator Bennett, the sort of squishing together of two headquarters. There was some significant job loss, 

but beyond that, it looked like there was material savings, platform 

savings as we combined product platforms together. And then over 

time, some possibilities of actually incremental sales. For example, 

Chrysler hasn’t historically had a big overseas distribution network. General Motors does, so that would open up prospects. 

But as you correctly said, as it became clear that such an opportunity would not generate incremental funding from the market— 

initially, we had been told it would, but as the market conditions 

deteriorated, it wouldn’t—then we had to move our focus to the 

near-term cash issues that we are facing. 

Senator BENNETT. Mr. Nardelli? 

Mr. NARDELLI. Senator, let me just add to that. When we were 

looking at that, the range of opportunities were somewhere between $8 to $10 billion annually. In the case that you have cited 

where we are running a factory with one shift and Rick is running 

one with one shift, I am not sure there is a significant labor reduction, in talking with Ron, the opportunity to move those direct 

workers from one factory across town to another. 

90 

I think the thing Rick talked about is one of the biggest costs we face is developing a new platform, somewhere around $1 billion to 

$1.3 billion, for example, if we were able to as an industry or two 

of the three in the industry here share common platforms with different top hats. I have mentioned before in my oral comments with 

the charts, if you just look at annualized savings on all of the 

NAFTA buy, you are talking about $3 to $4 billion in aggregation 

for suppliers. You are looking at increasing plant utilization from 

70 to 90 percent. There are opportunities significantly in advanced 

technology, as Rick and I cooperated on the hybrid. 

So the point here, I think, is not whether there is significant 

synergies and opportunities. I think the issue has become one of 

survival in the immediacy. How do we keep our doors open between now and the end of the year, and in looking month by 

month? And I think if the challenge is how might we look at getting more synergies between two of us or the three of us so that 

the U.S. auto industry really does become not only a competitor 

among States, but a competitor among nations, I think that is a 

fair question and a fair challenge to put to us. 

Senator BENNETT. The reason you don’t do it is because—is not 

for business reasons. Let me tell you what I am hearing and you 

can correct me if I am wrong. The reason you don’t do it is not because it is not a good business decision. Long-term, it is a very 

good business decision. Eight to ten billion dollars a year in savings 

is not trivial in the circumstance we are talking about here. 

The reason you don’t do it is because it will not attract shortterm financing. We are not talking about short-term financing. We 

are talking about government financing. Government capital is the 

most patient capital there is. What if we made as a condition of 

giving you patient capital, among all the other requirements that 

you have been talking about of stick to the script, what if we made 

as a condition of giving you patient capital the requirement that 

you do this, because saving $8 to $10 billion a year on behalf of 

the creditor sounds to me like a good idea. 

Now, if I am a creditor who has to get interest payments next 

month on my loan, it does not. But if I am a creditor who has to 

answer to the taxpayers of what is going to happen over several 

years, it does. 

So if we write in the proviso that you don’t get a dime unless 

General Motors and Chrysler combine, how would you react to 

that? Mr. Gettelfinger, I would like to hear your response, too. 

Mr. GETTELFINGER. Well, I think having an outside expert look 

at that, also. I think there may be a disagreement on the real advantages to it. I appreciate what the companies are saying. But, 

you know, when the transaction came about with Daimler, a couple 

of things happened. Number one was the financial arm was split 

off from the company, and indirectly, the equity stake that we had 

in that as workers drifted apart. There was additional liability that 

was shifted to the company, debt, if you will. And the synergies 

that we have talked about here, I think that that is debatable, just 

how effective they would be. 

But you are right on the mark, though, when you said the concern about what would happen, because it would be unbelievable, 

the number of people that would lose their jobs, and you are right 

91 

as far as it would be the management people first, because they do, 

they have dual headquarters. 

But beyond that, you are talking about now taking a Chrysler 

product manufactured by General Motors. I would say that, to me, 

when General Motors, Chrysler, and I believe it was BMW come 

together and developed the two-mode hybrid, there was an alliance 

that helped those companies go. And I truly believe that that is the 

kind of alliance that Chrysler needs as opposed to a merger with 

General Motors. 

Senator BENNETT. Mr. Wagoner? 

Mr. WAGONER. It would have been my presumption that given 

the near-term funding requirements that we have put forth, that 

this whole role of what we call the Federal oversight board, or industry trustee or whatever, if there was a desire to integrate, as 

you say, industrial policy as part of it, we would obviously be very 

willing to look at any of this stuff on their merits. Given where we 

are today, though, you know, our focus is the near-term liquidity. 

Senator BENNETT. Yes, but you are talking to a potential lender 

of patient capital in large amounts. Forget what you have just said 

about the short-term and where you are today. 

Mr. WAGONER. OK. 

Senator BENNETT. If I say to you, this is a condition, would you 

resist it? Mr. Gettelfinger would because he thinks the past history 

says it won’t work. 

Mr. WAGONER. I would be very willing to look at it seriously. I 

would prefer to do it in a way that Mr. Gettelfinger felt comfortable 

proceeding, because a lot of them affect his workforce, and so I 

think we would want to work with him together on it, but we 

would certainly be willing to look at it and consider it very seriously. 

Senator BENNETT. Mr. Nardelli? 

Mr. NARDELLI. Senator Bennett, the first job that would go would 

be mine, but if, in fact, that is the criteria that means we get 

money to save Chrysler and the people that have worked there for 

80-some years, I would do it. 

Senator BENNETT. OK. Doctor, do you want to comment on that 

in terms of sticking to the script? 

Mr. ZANDI. I don’t have a strong opinion on this. The only thing 

I will say is, you know, I think this might be a good question for 

the trustee or for the board, and it is probably wise—I am always 

a little concerned about trying to engage in very specific industrial 

policy. I think that is a difficult thing for government to do well, 

so I would be very cautious in that respect. But I don’t have a 

strong view on it one way or the other. 

Senator BENNETT. Well, I agree, it is difficult for the government 

to do well, but we are doing it whether we like it or not. 

Mr. ZANDI. Well, there are different flavors of that. 

Senator BENNETT. Yes. 

Mr. ZANDI. Right. 

Senator BENNETT. But that is the situation we are in with respect to this. 

Thank you, Mr. Chairman. 

Chairman DODD. Thank you, Senator. First, I appreciate the candor of our witnesses. It is a rather profound question that Senator 

92 

Bennett has raised and your responses have—I have been sitting 

on the Committee for a long time. That was rather unique responses to the question. Mr. Nardelli, I must admire your answer. 

I am not sure it is the right policy or not, but I appreciate your 

answer to the question. 

And it is why I always get a little nervous about Congress, with 

535 of us up here. We do a lot of things well. Some things, we don’t 

do terribly well, and micromanaging a lot is what I get nervous 

about. That is why we sometimes gives broader authority on the 

assumption people will exercise that authority with some discretion 

and prudence, but I appreciate Senator Bennett raising it. A very 

provocative set of questions. Thank you. 

Senator Brown. 

Senator BROWN. Thank you, Mr. Chairman. 

There was discussion earlier that suggested that the Department 

of Energy had rejected the auto companies’ 135 applications. My 

staff checked with DOE and that is not the case. As is very common in grant or loan applications, as you all know, DOE, I believe, 

has asked for more information. I just wanted to set the record 

straight there. 

I wanted to follow up on Senator Tester’s question. Auto suppliers, of course, as auto companies, have a lot to worry about these 

days. One of these concerns is that the tax dollars will go into this 

program and their concern is that they not be used to offshore 

American supplier jobs. I know some products, as I think Mr. Wagoner said, like batteries for electric vehicles are not produced sufficient to your needs domestically, but I would like just yes or no on 

each of the three CEOs for you to commit or pledge to maintain 

or to increase your U.S. value-added content if you receive taxpayer 

support, both from your companies directly that you will increase 

or keep the same the value-added content, and on your suppliers 

that you use, if you would commit that if you get tax dollars. 

Mr. Wagoner, if you would start first, just yes or no. 

Mr. WAGONER. Senator, I have to look at the data. Certainly, our 

intention—we are finding the U.S. suppliers are, frankly, more 

competitive today in a lot of areas than they have been in years. 

So I feel like that that will be the direction, but I would like to look 

at data and respond to you, if I could. 

Senator BROWN. Mr. Mulally? 

Mr. MULALLY. The vast majority of all our research and development is led out of the United States. We have no plans to change 

that. 

Senator BROWN. Not just research and development. I am talking 

more than research and development. I am talking about everything you do. The concern I hear from so many people, because 

they have watched what has happened with the banks, they have 

watched money go for all kinds of purposes, including buying other 

banks. Put that aside. But they want to make sure this money is 

meant for American jobs in the United States, whether it is suppliers, whether it is directly with Ford. 

Mr. MULALLY. No, I understand and we operate, as you know, all 

around the world in the markets and our plan is to profitably grow 

our operations in the United States. 

Senator BROWN. OK. Mr. Nardelli? 

93 

Mr. NARDELLI. Senator, in my testimony, again, 73 percent of our 

sales are in the United States. Sixty-one percent of our production 

is in the United States. Seventy-four percent of our employees are 

United States. And 78 percent of our material is purchased here. 

So we are, I like to say, the most quintessential American company 

you have got here. 

Senator BROWN. But 100 percent of these dollars will come from 

U.S. taxpayers. 

Mr. NARDELLI. I understand that, sir, and again, I couldn’t agree 

with you more that we have to make sure as we work toward gaining independence on oil, we can’t become dependent on foreign 

technology. So your point about battery technology and the future 

of this industry needs to be right here. 

Senator BROWN. OK. People will be watching. 

Mr. NARDELLI. Yes, sir. 

Senator BROWN. Mr. Gettelfinger, I get the sense that some people think it is OK if domestic auto makers go bankrupt because all 

those jobs will be replaced by foreign transplant companies. Do you 

think the jobs lost in one of the Big Three and all the jobs to it 

will be replaced by a like number by Honda and Toyota and other 

transplants? 

Mr. GETTELFINGER. I think there is an organization called the 

Level Field Institute and they measure cars, the value of cars to 

workers, and I am going off the top of my head, but I believe for 

every—if you use 2,500 vehicles as a benchmark, the domestic auto 

companies would employ 78 workers for every 2,500 vehicles they 

sold, and if you combined the foreign nameplates, it would be 33. 

And the reason is because of the imports that they bring in now. 

So no, if we lose the auto companies, the jobs are gone. There 

will be some of them replaced. There would be an expansion of production, I am sure, in some places. But it is gone. And it is also 

significant to point out that while we sell about 50 percent of the 

automobiles, they buy 80 percent of the parts. 

Senator BROWN. OK. Thank you. 

Mr. Wagoner, I don’t think a lot of us fully appreciate what goes 

into changing a product in your business. As we have seen gas 

prices go to $4 and then come back down in the space of a few 

months, we get frustrated when your industry’s response lags. 

If I could be parochial for a minute, what does it take to ramp 

up production, for example, for building the Chevy Cruze at 

Lordstown or a similar product change? 

Mr. WAGONER. It depends on how the plant has been tooled, but 

a good rule of thumb would be half-a-billion dollars or so just to 

get the car up and running. 

Senator BROWN. In what kind of time period, typically? 

Mr. WAGONER. Usually, it takes from the go, I mean, if we have 

to develop the product, as well, that is a three-year cycle. If you 

can use a product that has been developed for other reasons and 

bring it in, then you can do it faster than that. But it is a longcycle business. 

Senator BROWN. If Congress approves this money next week, 

what happens in Lordstown with building your most fuel-efficient 

vehicle? 

Mr. WAGONER. We are going to proceed ahead. 

94 

Senator BROWN. On what time table? 

Mr. WAGONER. Time table, the Cruze is scheduled to start in 

2010. 

Senator BROWN. OK. Mr. Mulally, my last question. You, I assume, I know more about the airline industry likely than anybody 

in this room. We have heard that Detroit should reorganize, should 

do Chapter 11 and reorganize just like the airlines have done. Give 

us your thoughts on whether bankruptcy would work from your 

perspective and give us a quick tutorial, if you will, on the financing of bankruptcy. I mean, I know your company, Boeing, was close 

to those that went through bankruptcy. Tell us what you can tell 

us based on that experience. 

Mr. MULALLY. Yes. I am very glad you pointed out that clarification, because I was with Boeing Commercial Airplanes, not the airlines, which I love the airlines and our relationship with them. 

I think that I absolutely agree with the testimony of my colleagues and also our other professional witnesses in that in the 

United States, the customers have great choices, great choices in 

automobiles. Part of that decision process is believing in the company that you are buying your car from, and you want to know 

that they are going to be there, they are going to be there for you, 

the residual values are going to be in place. This is a very, very 

important relationship and I think that any threat of a company 

going into bankruptcy really, really hurts sales. 

I agree with, I think, everything that has been said, that the 

sales would fall off so fast that you couldn’t restructure enough to 

get back out. So I think, you know, continue to improve your business year over year is just absolutely the right thing to do. 

Senator BROWN. Thank you. Thank you, Mr. Chairman. 

Chairman DODD. Thank you, Senator Brown, very much. 

I am going to turn to Senator Corker in a minute, but let me ask 

something, if I can, of you, Mr. Fleming, in dealing with the dealers, auto dealers. And again, this may be more anecdotal than not, 

but the issue of franchise laws in our various States. Even if, in 

fact, we have here the industry making decisions about reducing 

the number of consolidating dealerships around, to what extent is 

that impeded by the inability of them to do so because of State 

laws on franchises? You might tell me the genesis of these laws, 

and as I understand, it is not a total prohibition. It just makes it 

rather difficult to do it, to put it mildly. And obviously, would you 

support an effort here that would allow us in a way to trump, in 

effect, State statutes in these areas if this is a major area of reducing cost, by consolidation of dealerships? 

Mr. FLEMING. Senator, there is a very great danger, I think, in 

preempting franchise laws at a State level. The first issue, I think, 

that would arise is that the lending institutions in the States depend on the franchise laws with respect to the risk that they are 

going to assume. So one of the unintended consequences of Federal 

preemption of State franchise laws, or another concern, of course, 

would be going into bankruptcy, would be that the lending institutions would further tighten credit. 

I also think, Senator, that there is a misunderstanding about 

whether or not franchise laws could prevent the Big Three, in this 

case, from doing the things that they are recommending to you 

95 

today. I don’t think that State franchise laws do that. I brought a 

copy, Senator, of a boilerplate franchise agreement, General Motors 

agreement. When I was Commissioner of Consumer Protection, one 

of my jobs was to make sure that contracts that renters sign, for 

example, the average consumer wasn’t lopsided. This agreement is 

absolutely lopsided toward the manufacturer. They can basically do 

anything they want. Many of the franchise holders in Connecticut 

that are— 

Chairman DODD. What do you mean by that, James? What do 

you mean, they can do anything? Can they shut down a franchise, 

even though franchise laws exist? 

Mr. FLEMING. There is no veto in—I can’t think of any State law 

where there is an absolute veto over termination. And given the 

economic situation that exists right now, many dealers are going 

to voluntarily move to do that because of economic decisions. In 

that instance, there would be little or no liability on the part of the 

manufacturer. I think the liability would occur in that we could 

end up in bankruptcy, of course. I think we could end up losing 

dealerships that we did not want to lose. 

So if some entity was to be put together where the dealers had 

input into it, some board, as members have talked about today, I 

think that certainly the dealers would be willing to work with that 

board to discuss those types of issues within—we are not exempt 

from antitrust, so that is why we don’t have those types of discussions with the manufacturers now. But that type of discussion 

could, I think, occur. But I think you will find that dealers add 

such a tremendous value at that level that you may not want to 

go in that direction. 

Chairman DODD. Tell me quickly, I mentioned to you earlier 

about the issue of the rebates. Obviously, we see all the advertisements that there are so many thousands of dollars that you get if 

you go in and you purchase so-and-so car, and based on, at least 

as I recall the conversations we had over those two or 3 hours a 

week or so ago in Connecticut, the concerns about whether or not 

dealers were actually being compensated for the rebates they provide and the pressures that it puts on them economically. 

Mr. FLEMING. Dealers carry about 110—nationwide, about $110 

billion worth of inventory costs. When the car, for example, leaves 

Detroit, the dealer owns it from that point. That is about $110 billion in inventory costs. 

Another thing happens with respect to the issue that you raise. 

When the manufacturers offer our dealers some kind of an incentive, they are actually floating with the dealers’ money during the 

time period that that car is sold and when the manufacturer decides to reimburse the dealer for that cost, because remember the 

dealer is carrying the car that entire time. So there are tremendous 

benefits to the franchise system that is in place. But I don’t think 

you will find that State franchise laws would do anything to prohibit what the manufacturers are trying to discuss with the Committee today. 

Chairman DODD. Tell me about the floor plans, the costs. And I 

want you to explain that, as they had to explain it to me the other 

day. I am learning more about this than I understood before, about 

what a floor plan is and how it works. 

96 

Mr. FLEMING. We have tried to, as our dealers are talking to 

members of the Connecticut delegation and around the country, 

make sure that we don’t use jargon which is going to be misunderstood. But what a floor plan is is the ability of a dealer to finance 

his inventory. And again, that is how you are paying for the $100 

billion worth of inventory that the manufacturers sell to the dealer 

before it ends up in a consumer’s hands. 

So the issue that most dealers are facing right now is that the 

credit situation is such that they cannot get good access to financing for floor planning. The captives, the GMACs, have made it 

more difficult and they have economic reasons why they have done 

that. The regional banks, in Connecticut, there are two. If they 

were step out of that business, the dealer would have no ability to 

finance that inventory. That hurts Detroit because they can’t move 

their product, and in the case of a dealer in East Hartford that I 

was talking to, they have actually had to cut back on the inventory 

that they have on their lot because they cannot get that proper financing. 

Chairman DODD. And this goes back to the point that until consumers start buying automobiles, the long-term success of these 

plans don’t work. 

Mr. FLEMING. That is correct. 

Chairman DODD. That is why this is such a circular—that is why 

I think it is so important to understand this piece of the business, 

that if you can’t finance the floor plan, the manufacturer cannot 

provide the automobiles to the dealer. The consumer can’t afford to 

buy the car because the restrictions on the FICA scores are so high. 

You have the choking, not unlike what we are talking about in the 

financial system, and you end up clogging up the system and it 

doesn’t work. And so it is important, we are all talking about this 

from a Detroit perspective, a lot of that today, I think we are paying enough time, and why I wanted you here and the suppliers, in 

a sense, because you need to understand how this works on these 

dealerships all over the country and what problems they face in 

terms of having that product move and the consumers having the 

access to it. 

Can I ask the CEOs quickly to respond to what Mr. Fleming has 

just talked about here in terms of the rebate issues and these other 

questions and just any comments you may have on that? 

Mr. NARDELLI. I will make a couple of quick comments. One of 

the things I inherited was an inventory in the field of about 

600,000 units. We have consciously tried to reduce that. We wanted 

to get it down significantly. We have not been able to do it, but it 

is down 200,000 units. That saves our dealers about a million dollars a day in floor planning costs, point one. 

Point two, we have not consciously made a decision to delay payments of incentives. We have a current schedule, and at this time, 

we are continuing to pay as per rearranged on the incentive payment—— 

Chairman DODD. How quickly does that happen, Mr. Nardelli? 

Just give me a—— 

Mr. NARDELLI. Generally, we pay about once a week. So we pay 

down our incentives to our dealers once a week. So as they report 

the sale of the car, we will pay it. 

97 

On the last one, on the wholesale costs, back to the credit situation, on your chart, sir, our floor planning costs have gone up a 

couple hundred basis points and some of the governance that has 

been put on our new conduit is that the dealers now have to pay 

their floor planning—in other words, they can have nothing on 

floor plan beyond a certain period of time. So these new restrictions 

have been imposed on these dealers as a result of the financial crisis. So in addition to your point that you have made about consumer availability to be able to buy a car or a dealer to order it, 

just what they have on the floor plan is going up and their ability 

to get access to order is not available. So we have this perfect 

storm, if you will—— 

Chairman DODD. I presume some of these banks that we provided this financial injections of cash are exactly the very institutions on whom you rely for the credit you are talking about. 

Mr. NARDELLI. Those financial institutions provided the conduit 

to the Chrysler Financial Company, yes, sir. 

Chairman DODD. Do the other two have comments? Mr. Wagoner? 

Mr. WAGONER. Yes. We pay dealer cash incentive with about a 

2-week delay, is the normal process we have been using for them. 

I would like to add a comment, though, that you were onto. Just 

if you look at one of the reasons why our cash needs are going up 

so much, or funding needs going up so much in the near term, it 

is exactly this issue that dealers, because they can’t get as much 

credit, are having to reduce their wholesale inventories. 

And just, for example, in the month of January, our current estimate, which I think is optimistic, is that we will produce about 30 

percent less vehicles than we did in January a year ago and it is 

possible that we could actually produce even more than 50 percent 

less. And part of that is to try to help dealers get their inventories 

down so they can have the possibility of surviving, given the tight 

credit for them. 

But it obviously drives huge cash needs at our level and I think 

it really makes your point that this whole system is very reliant 

on a reasonable flow of credit from consumer to dealer to manufacturer and also to supplier, as well. And so this tightness of credit 

certainly has hurt the financial industry and the housing industry, 

but the auto industry has traditionally been a huge relier on credit 

and we are seeing it play right through. 

Chairman DODD. Before going to Ford, I raised this question 2 

weeks ago with you because obviously it would address some of the 

Treasury’s concerns about they only presume to be interested 

where there was a systemic financial risk involved, and while we 

have talked about credit default swaps and what can happen here, 

which is a little complicated, people understand, but certainly that 

is there, this also relates very directly in my view to the systemic 

financial issue. 

That is why when I asked the question candidly, I didn’t get a 

very good answer. I was trying to set it up a little bit so you could 

explain why this was, in fact, fell into the very category that Treasury is using for its rejection of utilizing the TARP authority, in a 

sense, and why I specifically gave them that authority, along with 

98 

my colleagues, obviously, 2 months ago to be able to respond to situations like this. 

Well, Ford, do you want to respond? 

Mr. MULALLY. You bet. Senator Dodd, just on your last comment 

about the systemic risk, Goldman Sachs did a study and made an 

assessment of your very question and they came up with a trillion 

dollars—— 

Chairman DODD. Right. 

Mr. MULALLY. ——following your systemic risk—— 

Chairman DODD. I think that was J.P.Morgan. Was it 

J.P.Morgan or was it—— 

Mr. MULALLY. I thought it was Goldman Sachs. But anyway, it 

is to your point. It validates it. 

Mr. Fleming, I think, really summarized the situation well with 

credit. In Ford’s case, we are very unique in that our finance company, we finance nearly 77 percent of that floor plan that you have 

been talking about on the wholesale sales and it is a real competitive advantage for us. We haven’t changed our policy on the payments that you described, but—— 

Chairman DODD. How often does Ford—— 

Mr. MULALLY. But back to the—— 

Chairman DODD. How often do you pay your—— 

Mr. MULALLY. Let me just check. I will have to get back to you 

on that, but I think that the really important point is that freeing 

up the credit is the most important thing we do, because that is 

where it starts, because they are on the front line with the consumer. 

Chairman DODD. Thank you very much. 

Senator Corker. 

Senator CORKER. Mr. Chairman, thank you. 

This hearing is ending, I realize, and this will be the last time 

that we talk about this before either action is taken or action is not 

taken. We have had a lot of involvement with all of you, and I have 

to tell you candidly, each of you are very likeable as human beings 

and I think have been very forthcoming in many, many ways. But 

this is not about personalities. This is about trying to solve a problem. 

And so Chairman Dodd has got to decide, it seems, as to whether 

he is going to try to pursue some legislation that has sort of broadbased bipartisan support or whether he is going to—he sees that 

that is not possible and he punts, or he with Senator Reed and others decide to punt and sort of throw it back to the administration 

to either do something through Treasury or maybe let Chairman 

Bernanke at the Fed do something through 13(3). So we are kind 

of at that point, it seems. 

The issue, it seems, is that there are lots of—there are a number 

of Republicans that would be willing to consider if you were all to 

go bankrupt through Chapter 11 reorganization, they would be 

willing to consider government money, debtor in possession financing, that has first priority, but this would be in new companies that 

had shed all the many problems that each of you have because of 

the histories of your companies. 

So what we have discussed today a little bit, and numbers of people have done it, is how do we get a scenario like that set up where 

99 

the sense of survival is still there and that parties come to the 

table and are willing to negotiate in good faith? I think Dr. Zandi 

hit it on the head. I mean, it is really tough to keep people following a game plan, I learned, after the money has left your hands, 

OK. There is really no stick left for us to keep the discipline in 

place. 

And so there has been a discussion about maybe some amounts 

of money being put forth and something having to occur by March 

31. And so I am going to try it one more time. I know I didn’t get 

very far this last time, but there are things that—you know, GM 

is the reason that we are here, in essence. There is no way we 

would be having these meetings if it weren’t for General Motors. 

I think that is pretty much a fact. Ford, Alan, your parents didn’t 

raise a fool. I mean, if you can come up here and get $9 billion 

worth of unsecured financing at 2.5 percent, certainly you are going 

to come, and I applaud you for being here. But we are really here 

because of GM. Chrysler would have never been able to be here on 

their own, I don’t think. 

And I applaud Senator Bennett’s exchange with Mr. Nardelli and 

certainly Rick Wagoner regarding the consolidation. I would like to 

see that happen. I am a little bit remiss because I don’t sit in your 

seats and I think to force that when we don’t know the circumstances is a little bit problematic. But candidly, I have told Mr. 

Nardelli and I have told the board of Cerberus that I hope that is 

an outcome because our country cannot really deal with three separate U.S. auto makers. And I know that there are some synergies 

there. 

Let me clarify one thing. I got a frantic e-mail from Secretary 

Bodman, OK, and so I just—I know Sherrod Brown did a good job 

clarifying—— 

Chairman DODD. People are watching. That is good. 

[Laughter.] 

Senator CORKER. He, in essence, sent your applications back asking for more information, OK. So I take that as a rejection. Maybe 

I was a little bit too harsh. But the fact is that under 136, to receive funds, which you have all said are important to you, you have 

to be going entities. The Secretary has to certify, and this is pretty 

important, that each of you are going entities. 

Well, so I will go back to GM, which is why we are here, and 

again, I think you put forth a thoughtful plan, is you meet with 

people who follow you and invest in you. There are three things 

that basically cause you not to be a viable entity. As a matter of 

fact, we just got a quote while we were talking. In a 5-year credit 

default swap right now in your companies, basically, it is predicting 

that GM will default on its loans, 96 percent chance, OK, and Ford 

will default, 91 percent chance, and the large suppliers at 80 percent. So, I mean, you are really close to the end in most people’s 

minds. 

There are three things that have kept GM, according to, I think, 

you and others, from being competitive. One is you have an 

unsustainable debt level. That has just occurred over time, and I 

realize we have had a pretty big peak to trough drop in cars sold, 

that it is unsustainable. And the fact is that all of you have got 

to be companies, in order to be successful, that whenever we get 

100 

through doing whatever it is we might do, people are going to want 

to invest in you, right? I mean, that is the measure of a going concern. Will somebody else invest dollars in you? 

So reorganization is an interesting thing, because we know that 

going through that process, as painful as it is, you guys would come 

out without all the legacy stuff. To the dealers—I have had a lot 

of them calling in—probably a lot less dealers, and I am certainly 

not advocating that. That is just probably a fact of what would 

occur after bankruptcy. And the fact is, your cost structure would 

be far different. 

So I am going to try one more time, and I am going to ask Mr. 

Wagoner, if we put language in, and I know that we are somewhat 

paying attention here more so than we did I know the others, and 

probably because we didn’t with the others, we are paying more attention with you—if we put something in—here is what is going to 

happen. If we put government dollars into General Motors, immediately, immediately, the day that money is deposited, your bond 

holders all of a sudden, instead of being willing to take 19 to 21 

cents on the dollar, it is going to go way up because all of a sudden, 

we are in the game. And as Senator Bennett mentioned, we are patient and we print money here. I mean, there is no end to it, unfortunately. So that is a problem. That is a real problem. 

The bond holders, on the other hand, as I mentioned, are not 

going to take the kind of haircut they would unless Mr. 

Gettelfinger at UAW takes a bigger haircut, and Mr. Gettelfinger, 

you and I—I have to tell you, you have been an honest broker in 

this, too, in the way that you have talked with us and you have 

done a lot of things in the past, but the past is the past. We have 

got companies here that are about to go bankrupt and all of the 

contracts that you have negotiated, if they go bankrupt, are out the 

window, toast. It is over. All these VEBA arrangements, they are 

gone. 

So let me just ask of this as a reasonable thing to sort of put in 

place a bankruptcy-type situation where we would say that your 

bond holders would have to take 30 cents on the dollar, which is 

a 50 percent premium over where they are trading today, by March 

31; that the UAW, and there are two representatives here that represent the folks in Tennessee and I have found them great to work 

with. The problem is that the rest of the citizens in our State and 

in Montana and in Connecticut and Utah, they have a tough time 

thinking about us loaning money to companies that are paying 

way, way above industry standard to workers while they are not 

getting paid that money. So in essence, they are subsidizing that 

through their taxpayer dollars. 

So my question would be, would it be reasonable to ask that the 

UAW by that time have agreed to pay scales that are equivalent 

to the transplants, and would it be reasonable that the UAW not 

just do away with the jobs bank, which is a situation where you 

continue to pay people whether they are working or not, but they 

also do away with the sub piece? 

Now, it is interesting sitting where I sit, because when labor 

comes in, they say, by the way, will you ask the companies this and 

make sure that they do that. And when the companies come in, 

they send me e-mails back saying, by the way, will you make sure 

101 

that labor does away with these sub payments because they are 

worse by far than the job banks. They make us very, very uncompetitive. 

So again, if money goes out the door, we lose that leverage. It 

is over. The concern that Dr. Zandi has becomes real. It is never 

going to happen. There is no way the bond holders will do the 

things they need to do if they know the spigot is unlimited, and 

there is no way you can survive without a vastly changed capital 

structure. 

So if the Senate and the House were to say, we will forward the 

money to get you through March 31, period, and potentially more 

will come with a trustee, if your bond holders have gotten rid of 

their debt at 30 cents on the dollar, because if you bankrupt, it is 

toast, and if the UAW will get their wages rationalized to where 

we are paying exactly the same, not a penny more, to what the 

transplants are making, would that be something that you think 

would cause your companies to be where they need to be for the 

long haul? And by the way, I would add to that the VEBA payment 

of $21 billion is no small deal. That is a big deal. You can’t pay 

that right now. That is not possible. 

So I would add to that that at least half of that would have to 

be equitized into the company to get the capital structure where almost every analyst in the world is looking at your company says 

you have to be to be that kind of going entity that would actually 

allow people to invest in you in the future, which is what you have 

got to have to be a successful company. Is that something that 

would be reasonable? 

Mr. WAGONER. Thanks, Senator Corker. I appreciate you taking 

so much time to look into our plan and meet with our people. It 

is helpful to have the conversations. 

The plan we submitted, which you know because we went 

through, I think tries to address exactly what you want, not as specific in the amounts, either vis-a-vis the VEBA or the bond holders, 

but frankly, your idea of advancing money and saying, if you don’t 

have these buttoned up, and you are putting more terms on it than 

we were specific on by a certain date, it is over, conceptually is one 

that I think would be constructive. And I think, frankly, having our 

idea of then as we were calling it the Federal oversight board as 

a forcing mechanism to force all of the pieces to come together as 

a contingency for getting this significant amount of additional 

money is a valid one. 

I guess I am, frankly, a little reluctant to give a specific sort of 

set of parameters between Mr. Gettelfinger and I because there are 

a lot of levers that we can pull to get their costs down, and he indicated yesterday in his comments he is willing to work with us. I 

guess if we were given a target of the kind of savings from each 

bucket, I would prefer the opportunity to work with him on that 

and figure out what is the best way to do that. 

Senator CORKER. And I realize that you have—let me put it a different way. If we put those stipulations in place and said that by 

March 31, either you met those stipulations, which are a lot like 

a bankruptcy proceeding, OK, a lot like it except you are not bankrupt, and we said that if you don’t do that by March 31, you either 

have to pay us back 100 percent of the $10 billion that would have 

102 

been forwarded or immediately file Chapter 11, would you take our 

money? 

Mr. WAGONER. Yes, I would. I am taking your point to be that— 

and I really think it is consistent with what we filed here, that—— 

Senator CORKER. Well, you made a step in that direction, and I 

will say that we got on the phone after your proposal came out and 

sort of got back with all the analysts and they, too, said it was 

thoughtful and it was a step in the right direction, but that you 

couldn’t be a going entity if that is all you did, OK. 

And so what I would like to do is to—I know that—here is the 

rub that is probably going to exist. Look, I was a card-carrying 

union person in my earlier life and I was a trustee on a pension 

fund to make sure that people got good benefits and I prided myself in paying our employees above industry standard wages always. The problem is that you have this built-in problem that is 

not going to be solved unless it is forced to be solved, and there is 

no way that Mr. Gettelfinger, there is no way that he is going to 

sit down and do the things that he has to do to make you competitive unless he knows the end game is bankruptcy. He is not going 

to do it. It is not possible. He can’t get his membership—it is not 

just that he is not the best there is at Dale Carnegie attributes, 

OK. He can’t make it happen with his membership without that 

happening. 

So I would just say to the Chairman, I realize that we will have 

a partisan divide on some of these issues, but it sounds to me like 

everybody’s senses, if you will, are pretty alive right now and are 

willing to do some things that might make sense for the company. 

Usually when the government says, ‘‘We are here to help you,’’ 

most people run away, and that is for a good reason. I actually see 

that a big stick by the government in this case could actually cause 

your company for the first time in modern history to have the tools 

and the leverage to actually do the things that will make you 

strong for the future, because the fact of the matter is you have to 

build a company that can do well during the troughs, right—— 

Mr. WAGONER. Sure. 

Senator CORKER. ——and that is not where you are, and then do 

really well during the peaks because they come every seven or 8 

years. 

Now, let us move over to—— 

Mr. WAGONER. Can I just make one comment, Senator? 

Senator CORKER. OK. 

Mr. WAGONER. I agree with you, and I think what has played out 

here is we have sort of redefined the trough, because if you had 

asked me, and I suspect my colleagues, what is the probability of 

the U.S. industry running to 12 million, we would have said, boy, 

that sounds like a 1-percenter. So we are going through a painful 

process of redefining the trough. I think the opportunity is exactly 

as you indicate, OK, tough times, you have really got to get leaned 

down. And when, hopefully 1 day, the economy and the industry 

comes back, we can be a very profitable enterprise and fund the advanced technologies. 

Your point about—and I am not here to defend Mr. Gettelfinger 

and I am not even sure he wants me to, but I think you have to 

look at what has been done between the companies and the union 

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over the last 3 years, and I don’t necessarily draw the conclusion 

that we can’t continue to work together to get that wage gap maybe 

with the same vehemence that you do. I do think I need to recognize the fact that Mr. Gettelfinger has done more to address competitiveness issues in the last 3 years than I suspect have been 

done, I don’t know, in the last 30 or 40. I just want to make sure 

that is fairly recognized. 

Chairman DODD. I sense that. I really do. The problem is that 

with the industry, you are in a trending-down industry. Each of 

you are losing market share within that downward trending industry and you have got unsustainable balance sheets, and so this is 

a draconian kind of thing that has to occur. So let us move on. 

Ford, of course, I think would like to benefit from any of the negotiations that take place. I think they don’t want to be left out. 

If, in fact, your contract changes, I think they probably want their 

contract to change. 

But let me move to Chrysler then. I know that while this is happening, you are going to be going to spas and getting facials and 

hopefully finding someone to marry you, OK, but in the interim—— 

Mr. NARDELLI. I have been married for 38 years. I am doing just 

fine. 

Senator CORKER. I am talking about the company. So what is it 

that—what is the right thing to do as it relates to your company 

when the best thing for our country and the best thing for the automobile industry and the best thing for the wonderful employees 

that work at your company is for you all to go away as a standalone entity? So what, as we negotiate this deal, is the best thing 

for us to do? 

Mr. NARDELLI. Well, if we use your suggestion, then the best 

thing, I think, for you to do and for the auto industry is to provide 

us the $4 billion that we said we needed to get us through March 

31. 

Senator CORKER. And you would agree to all of the things that 

just were said? I don’t know what we would do about—your debt 

issue is very different, obviously—— 

Mr. NARDELLI. It is all secured—— 

Senator CORKER. Yes—— 

Mr. NARDELLI. ——and so it is much different than an unsecured. But this is the Committee that sets the rules, so if you have 

got the power to consolidate an industry, you have got the power 

to work on, I guess, secured debt. 

Senator CORKER. OK. So your debt is all unsecured—— 

Mr. NARDELLI. Secured. 

Senator CORKER. Secured. So the problem, the one last component that is very problematic is we don’t have a way—GM has 

about $20 billion in unsecured debt, but candidly, the security we 

would have is kind of problematic. I mean, it is franchise. It is the 

kind of stuff that goes away when the company goes away, so there 

is not a lot to secure, is there? Is there much real estate to go with 

that? 

Mr. WAGONER. No, primarily trademarks and overseas subsidiaries, which frankly could have some value under certain circumstances. 

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Senator CORKER. Yes. 

Mr. NARDELLI. So the point, Senator, is ours is secured and I 

think this Committee, who has oversight over lending and banking, 

would have a hell of a time if they just unilaterally reject that on 

any future financial company’s putting money into a company and 

getting secured positions. But again, you guys have the power to 

make that go away, I guess. 

Senator CORKER. Mr. Chairman, I thank you. I just want to say 

that, to me, making them equivalent to the transplants means all 

the things. It means sub. It means 50 percent on VEBA equitized. 

It means all those things. But certainly to me that is an interesting 

thing that apparently all three of these folks, and I don’t know 

what Mr. Gettelfinger and Mr. Wagoner will talk about afterwards, 

but I think there is a potential here at least for some serious discussion. I thank you for the hearing and I thank all of you for participating. 

Chairman DODD. Well, I thank you, Senator, and again, I am 

reading from an article here, and I presume you may have seen it, 

as well, just talking about that equivalency. The base wages between the Big Three and foreign companies are roughly comparable, with a veteran UAW member earning $28 an hour in the 

Big Three compared to about $25 an hour at Toyota’s plant in 

Georgetown, Kentucky. Toyota pays less at other American factories. So there is some disparity, but there is a lot of comparability, too, I am told. Now, again, I am relying on some documentation here. I appreciate the point. 

Let me say to our guests here at our hearing that Senator Bob 

Corker, while a new member of the Senate and sitting in the seat 

I sat in not that many years ago at the very end of the table, works 

as hard as any Member of this Committee does to understand 

issues that come before us. And as the Chairman of this Committee, I am very grateful to him. He was invaluable back several 

months ago in working through issues that were tremendously 

complex and difficult. You are a workhorse and I am pleased to 

have you a part of this Committee, and your suggestions and ideas 

and always trying to figure out a way for us to get things done. 

This Committee doesn’t function well on a partisan basis. In the 

22 months I have been Chairman of it, we have never acted that 

way. On virtually every issue we come out of this Committee with, 

we try to seek consensus and work forward, and Bob Bennett falls 

into that category, as well, and most members here. My Democratic 

colleagues have been tremendously helpful. So I am very grateful 

to him and the rest of our colleagues. 

We have kept you here for 6 hours today. That is a long time, 

and I know you have got a full day tomorrow in the other body, 

in the House, to deal with these issues. Obviously, we have got 

some challenges in front of us over these coming days to figure out 

how to move forward. 

And while not predicting again a consensus here, I think you get 

a sense that all of us appreciate up here that inaction is unacceptable. I think that is a—obviously, I can’t speak for everyone, but 

my sense is that that is how many of us feel. That is not an acceptable alternative. We also are not about to write a check and just 

105 

hand it over. That is not going to happen, either, I promise you 

that. 

The question is, can we in the hours given us here do a lot of 

the things we have talked about today? Can we get some help, 

frankly, from the administration level, where, frankly, I am very 

disappointed that we didn’t get participation today, that there has 

been a flat-out rejection of even stepping up with us to talk about 

this, that this falls all in our lap up here as Democrats and Republicans in the waning hours of a Congress with hours to go to try 

and answer this question, given the implications. 

I think most people concede it is probably the case, that if this 

were to collapse, to use your language, Dr. Zandi, it is a catastrophe, and I worry about that. Maybe history would prove us 

wrong, but that is a hell of a bet to make with one out of every 

ten jobs in this country and the implications if you are wrong here. 

And so we need to try and sit down over these next 24, 48 hours 

or so and see what we can do to pull something together here to 

make some sense to allow us to get to a point where we can do a 

lot of the things we have talked about here today. And I take Bob 

Corker’s point well. I realize you are right. When you start writing 

checks and then try to do something after the fact, it gets very 

hard. And to coin a phrase, nothing concentrates the mind like a 

death sentence and we are looking at a death sentence here if we 

don’t respond intelligently and prudently. 

So I am very grateful to all of you. You have come back again, 

and obviously you needed to be here, given the reaction that people 

have. And I will make the point I made at the outset. Those of us 

here who helped write this emergency economic stabilization bill, 

in retrospect, I thought we gave the kind of accountability standards and so forth that would see prudent practices and I am disappointed, to put it mildly, we haven’t seen a lot of that, but intend 

to make sure that those people are back before us here explaining 

why it is we are making some of these decisions without greater 

accountability. And I think those who said it earlier said it well. 

You are probably in a sense here paying a price because of how 

some of these other matters have been handled, and therefore we 

are sitting here demanding greater accountability and greater protections for taxpayers in the midst of all of this. 

So I plan as Chairman of the Committee, and I have talked to 

many members already, they are going to be here over the next day 

or two or three to meet with the leadership of the House and the 

Senate to see what possibly can be done here to address this. But 

as the Chairman of the Committee, I want to express my gratitude 

to all of you for coming out today and sharing your thoughts with 

us. And as has been said, these proposals, these plans were a giant 

step forward from where we were a couple of weeks ago, and obviously more needs to be done, but my intention as Chairman of this 

Committee is not to walk away from this. We are not going to leave 

town without trying. I am not a miracle worker, no one is here. But 

I am not going to pack a bag and leave and go back to Connecticut. 

I am going to stay here and try and get this done. 

So I thank all of you for being here and we look forward to your 

continuing cooperation and to work with us. 

The Committee will stand adjourned. 

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[Whereupon, at 3:45 p.m., the hearing was adjourned.] 

[Prepared statements and response to written questions supplied 

for the record follow:] 

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PREPARED STATEMENT OF SENATOR DANIEL K. AKAKA 

Mr. Chairman, thank you for conducting this hearing today. I am greatly concerned about the potential consequences of the collapse of the domestic automobile 

industry. With more than 730,000 workers employed in the automotive vehicle and 

parts industries, the financial condition of Chrysler, Ford, and General Motors is 

significant to our economy. These automakers are tied to suppliers, dealers, bondholders, and many others whose welfare is directly linked to their solvency. 

An auto industry collapse would be devastating, particularly during the current 

recession. However, we must make sure that the assistance is coupled with business 

practice changes that ensure the near and long term vitality of these companies. I 

look forward to continuing to work with you and the other Members of this Committee to bring about enactment of legislation that will help stabilize the financial 

condition of our domestic automakers. Thank you, Mr. Chairman. 

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PREPARED STATEMENT OF GENE L. DODARO 

ACTING COMPTROLLER GENERAL OF THE UNITED STATES, 

GOVERNMENT ACCOUNTABILITY OFFICE

DECEMBER 4, 2008 

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PREPARED STATEMENT OF G. RICHARD WAGONER, JR. 

CHAIRMAN AND CHIEF EXECUTIVE OFFICER, 

GENERAL MOTORS

DECEMBER 4, 2008 

Thank you, Mr. Chairman, I appreciate the opportunity to return to this Committee to speak about the urgent need for federal assistance for General Motors and 

the domestic auto industry. It’s fair to say that last month’s hearings were difficult 

for us, but we learned a lot. For sure, we took very seriously the concerns raised 

by the Members of this Committee, and that has accelerated a healthy internal review, and a lot of good discussion with our partners and stakeholders. 

It’s no secret that GM, like our fellow domestic automakers, has struggled in the 

face of increased competition from foreign manufacturers with lower wage, 

healthcare, and benefit costs. We made decisions that were right for the times, collective bargaining agreements, investments in full-size trucks and SUVs that consumers wanted, and others. But we made mistakes, as well, such as failing to build 

sufficient flexibility into our operations, and not moving fast enough to invest in 

smaller, more fuel-efficient vehicles for the U.S. market. 

We have addressed these and many other issues in the plan for long-term viability that we submitted to this Committee 2 days ago. Our plan demonstrates why 

GM needs temporary government funding, how it will be used, how we intend to 

repay the taxpayers, and why such funding is necessary for the company, and beneficial to the U.S. economy. 

Our plan dramatically accelerates and expands the restructuring that we’ve been 

driving in North America for the past several years. It’s a blueprint for creating a 

new General Motors, one that is lean, profitable, self-sustaining, and fully committed to product excellence and technology leadership, especially in alternative propulsion. 

Key elements of our plan include: 

• Increased production of hybrid, flex-fuel, and other fuel-efficient vehicles, and 

an increased commitment to new, energy-efficient technologies like those in the 

Chevy Volt. 

• Significant changes to our market and retail operations, including a reduction 

in brands, models, and retail outlets. 

• Further manufacturing and structural cost reductions. 

• Full labor cost competitiveness with foreign manufacturers in the U.S. by no 

later than 2012. 

• Significant capital restructuring involving our debt and post-retirement 

healthcare obligations. 

• Continued suspension of GM’s common stock dividend for the life of any federal 

loans associated with the plan. 

• Changes in executive compensation. For example, I will reduce my salary to $1, 

Board members have elected to reduce their annual retainer to $1, and the next 

four most senior officers will reduce their total cash compensation by about 50 

percent in 2009. 

• And as of this week, the cessation of all corporate aircraft operations. 

These and other actions detailed in our plan affect everyone associated with GM, 

but we believe they’re necessary to position the company for long-term success. And 

we believe this success is fully achievable, if we are able to weather the ongoing 

global financial crisis and the lowest per-capita U.S. vehicle sales in 50 years. 

Toward that end, our plan respectfully requests that the Federal Government 

make available $12 billion in short-term loans, along with a $6 billion line of credit 

in the event the current severe market downturn persists. Specifically, we’re seeking 

an immediate loan of $4 billion, and a second draw of up to $4 billion in January. 

Our intent is to begin to repay the loans as soon as 2011, and under baseline industry assumptions, fully repay them by 2012. And should GM share prices increase 

as a result of the plan, warrants issued as part of the loans would allow taxpayers 

to benefit. 

Our plan also proposes the creation of a Federal Oversight Board to help facilitate 

restructuring negotiations with a range of stakeholders. This Board would oversee 

the loans and restructuring plan, and protect taxpayer investments, in part by assuring that loans are made contingent on GM achieving its benchmarks. 

Let me close by noting that GM has been an important part of American culture 

for 100 years, and for most of that time, we’ve stood as the world’s leading autoVerDate Nov 24 2008 08:28 Oct 09, 2009 Jkt 048080 PO 00000 Frm 00125 Fmt 6621 Sfmt 6621 L:\HEARINGS 2008\12-04 EXAMINING THE STATE OF THE DOMESTIC AUTOMOBILE IND
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maker. We’re here today because we made mistakes. And we’re here because forces 

beyond our control have pushed us to the brink. Most importantly, we’re here because saving General Motors, and all this company represents, is a job worth doing. 

Thank you. I look forward to your questions. 

EXECUTIVE SUMMARY 

General Motors Restructuring Plan For Long-Term Viability 

Overview 

This Restructuring Plan is a blueprint for creating a new GM, one that is lean, 

profitable, self-sustaining and fully competitive. The Plan calls for: 

• A dramatic shift in the company’s U.S. portfolio, with 22 of 24 new vehicle 

launches in 2009–2012 being more fuel-efficient cars and crossovers 

• Full compliance with the 2007 Energy Independence and Security Act, and extensive investment in a wide array of advanced propulsion technologies 

• Reduction in brands, nameplates, and retail outlets, to focus available resources 

and growth strategies on the company’s profitable operations 

• Full labor cost competitiveness with foreign manufacturers in the U.S. by no 

later than 2012 

• Further manufacturing and structural cost reductions through increased productivity and employment reductions 

• Balance sheet restructuring and supplementing liquidity via temporary Federal 

assistance 

Temporary Federal Bridge Loans 

GM is seeking a term bridge loan facility from the Federal Government of $12 

billion to cover operating requirements under a baseline forecast of 12 million U.S. 

industry vehicle sales for 2009. In addition, GM is seeking a revolving credit facility 

of $6 billion that could be drawn should severe industry conditions continue, resulting in sales of 10.5 million total vehicles in 2009. 

This bridge loan is expected to be fully repaid by 2012 under the baseline industry 

assumptions. Also, warrants issued as part of the loans would allow taxpayers to 

benefit from growth in the company’s share price that might result from successful 

completion of the plan. GM anticipates an initial draw of $4 billion in December 

2008 with the next draw of $8 billion by March 2009. Any draws would be conditioned on achieving specific restructuring benchmarks. 

Product Portfolio and Fuel Efficiency 

While remaining a full-line manufacturer, GM will substantially change its product mix over the next 4 years, and launch predominately high mileage, energy-efficient cars and crossovers. In addition, the Chevy Volt, which can travel up to 40 

miles on electricity alone, is scheduled for production in 2010, with other versions 

to follow. 

By 2012, more than half of GM vehicles will be flex-fuel capable, and the company 

will offer 15 hybrid models. GM will continue development of hydrogen fuel cell 

technology, which, when commercially deployed, will reduce automotive emissions to 

just water vapor. GM expects to become a significant creator of green jobs in the 

United States, as well helping suppliers and dealers transform the U.S. economy. 

Market and Retail Operations 

In the U.S., GM will focus its product development and marketing efforts on four 

core brands - Chevrolet, Cadillac, Buick and GMC. Pontiac will be a specialty brand 

with reduced product offerings within the Buick-Pontiac-GMC channel. Hummer 

has recently been put under strategic review, which includes the possible sale of the 

brand, and GM will immediately undertake a strategic review of the Saab brand, 

and explore alternatives for the Saturn brand. 

Manufacturing and Structural Costs 

GM will accelerate its current efforts to reduce manufacturing and structural 

costs, building on significant progress made over the past several years. With 

planned assembly plant consolidations, further productivity improvements in the 

plan, and additional changes to be negotiated, GM’s wages and benefits for both current workers and new hires will be fully competitive with Toyota by 2012. 

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Balance Sheet Restructuring 

GM plans to engage current lenders, bond holders and its unions to significantly 

reduce the debt currently carried on its balance sheet. GM’s plan would preserve 

the status of existing trade creditors and honor all outstanding warranty obligations 

to both dealers and consumers, in the U.S. and globally. 

Compensation and Dividends 

The plan calls for shared sacrifice, including further reduction in the number of 

executives and total compensation paid to senior leadership. For example, the chairman and CEO will reduce his salary to $1 per year. The common stock dividend 

will remain suspended during the life of the loans. 

Federal Oversight Board 

Given the importance and urgency of this restructuring for GM, other domestic 

manufacturers and the U.S. economy as a whole, the company supports the formation of a Federal oversight board. The board would help facilitate restructuring negotiations with a range of stakeholders. 

Sustainability 

Once GM has completed the restructuring actions laid out in the plan, the company will be able to operate profitably at industry volumes between 12.5 and 13 million vehicles. This is substantially below the 17 million industry levels averaged 

over the last nine years, so it is considered to be a reasonably conservative assumption for gauging liquidity needs. 

The complete Plan is attached to this testimony. I look forward to working with 

your Committee on legislation that addresses the liquidity challenges facing GM and 

the auto industry. 

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PREPARED STATEMENT OF RON GETTELFINGER 

PRESIDENT, 

INTERNATIONAL UNION, UNITED AUTOMOBILE, AEROSPACE, AND AGRICULTURAL

IMPLEMENT WORKERS OF AMERICA

DECEMBER 4, 2008 

Mr. Chairman, my name is Ron Gettelfinger. I am President of the International 

Union, United Automobile, Aerospace and Agricultural Implement Workers of America (UAW). The UAW represents one million active and retired members, many of 

whom work for or receive retirement benefits from the Detroit-based auto companies 

and auto parts suppliers across the United States. We welcome the opportunity to 

appear before this Committee to present our views on the state of the domestic automobile industry: Part II. 

The UAW believes the situation at GM, Ford, and Chrysler is extremely dire. As 

is evident from the materials which have been submitted by the companies in response to the letter from Speaker Pelosi and Majority Leader Reid, it is imperative 

that the federal government act this month to provide an emergency bridge loan to 

the domestic auto companies. Without such assistance, GM could run out of funds 

by the end of the year, and Chrysler soon thereafter. These companies would then 

be forced to liquidate, ceasing all business operations. The collapse of these companies would inevitably drag down numerous auto parts suppliers, which in turn could 

lead to the collapse of Ford. 

The UAW appreciates the desire by Congress, as expressed in the letter from 

Speaker Pelosi and Majority Leader Reid, to ensure that any assistance from the 

Federal Government is conditioned on strict accountability by the companies and a 

demonstration that they can be viable businesses in the future. We fully support 

both of these key principles. 

Specifically, the UAW supports conditioning any emergency bridge loan on strict 

accountability measures, including: 

• tough limits on executive compensation, prohibiting golden parachutes and 

other abuses, and making it clear that top executives must share in any sacrifices; 

• a prohibition on dividend payments by the companies; 

• giving the federal government an equity stake in the companies so that taxpayers are protected; and 

• establishing an Advisory Board to oversee the operations of the companies to 

ensure that all funds from the emergency bridge loan are spent in the United 

States, that the companies are pursuing viable restructuring plans, and that 

the companies are meeting requirements to produce advanced, more fuel efficient vehicles. 

We are prepared to work with Members of this Committee to incorporate other 

accountability requirements that may be appropriate. 

In addition, the UAW supports conditioning any emergency bridge loan on the 

companies pursuing restructuring plans that will ensure the viability of their operations in the coming years. For such restructuring plans to succeed, we recognize 

that all stakeholders—equity and bondholders, suppliers, dealers, workers and retirees, and management—must come to the table and share in the sacrifices that will 

be needed. 

The UAW and the workers and retirees we represent are prepared to do our part 

to ensure that the companies can continue as viable operations. As indicated in our 

previous testimony, workers and retirees have already stepped forward and made 

enormous sacrifices. 

• In 2005 the UAW reopened its contract mid-term and accepted cuts in wages 

for active workers and health care benefits for retirees. 

• In the 2007 contract the UAW agreed to slash wages for new workers by 50 

percent to about $14 per hour, and to exclude new workers from the traditional 

health care and pension plans. The UAW also allowed the companies to 

outsource cleaning work at even lower rates. 

• Under the 2007 contract, beginning January 1, 2010, the liabilities for health 

care for existing retirees will be transferred from the companies to an independent VEBA fund. Taken together, the changes in the 2005 and 2007 contract 

reduced the companies’ liabilities for retiree health care benefits by 50 percent. 

• As a result of the 2005 and 2007 contracts, workers have not received any base 

wage increase since 2005 at GM and Ford, and since 2006 at Chrysler. All of 

163 

these workers will not receive any increase through the end of the contract in 

2011. Workers have also accepted reductions in cost of living adjustments. 

• New local operating agreements at many facilities provided dramatic flexibilities and reductions in classifications, and have saved the companies billions of 

dollars. 

• Reforms in the 2007 contract have largely eliminated the jobs banks. 

• Since 2003 downsizing by the companies has reduced their workforce by 

150,000, resulting in enormous savings for GM, Ford, and Chrysler. 

Thanks to the changes in the 2005 and 2007 contracts, and changes that have 

subsequently been agreed to by the UAW, the labor cost gap with the foreign transplant operations will be largely or completely eliminated when the contracts 3 are 

fully implemented. Industry observers applauded the sacrifices made by workers 

and retirees, calling the 2007 contract a ‘‘transformational’’ agreement. 

The UAW is continuing to negotiate with the domestic auto companies on an ongoing basis over ways to make their operations more efficient and competitive. We 

recognize that the current crisis may require all stakeholders, including the workers 

and retirees, to make further sacrifices to ensure the future viability of the companies. We are willing to do our part. In particular, we recognize that the contributions owed by the companies to the retiree health care VEBA fund may need to be 

spread out. The UAW has retained outside experts to work with us on how this can 

be accomplished, while still protecting the retirees. We also recognize that adjustments may need to be made in other areas. 

But the UAW vigorously opposes any attempt to make workers and retirees the 

scapegoats and to make them shoulder the entire burden of any restructuring. 

Wages and benefits only make up 10 percent of the costs of the domestic auto companies. So the current difficulties facing the Detroit-based auto companies cannot 

be blamed on workers and retirees. 

Contrary to an often-repeated myth, UAW members at GM, Ford, and Chrysler are not paid $73 an hour. The truth is, wages for UAW members range from about 

$14 per hour for newly hired workers to $28 per hour for assemblers. The $73 an 

hour figure is outdated and inaccurate. It includes not only the costs of health care, 

pensions and other compensation for current workers, but also includes the costs of 

pensions and health care for all of the retired workers, spread out over the active 

workforce. Obviously, active workers do not receive any of this compensation, so it 

is simply not accurate to describe it as part of their ‘‘earnings.’’ Furthermore, as previously indicated, the overall labor costs at the Detroit-based auto companies were 

dramatically lowered by the changes in the 2005 and 2007 contracts, which largely 

or completely eliminated the gap with the foreign transplant operations. 

The UAW submits that it is not feasible for Congress to hammer out the details 

of a complete restructuring plan during the coming week. There is simply not 

enough time to work through the many difficult and complex issues associated with 

all of the key stakeholders, including equity and bondholders, suppliers, dealers, 

management, workers and retirees, as well as changes in the business operations 

of the companies. 

What Congress can and should do is to put in place a process that will require 

all of the stakeholders to participate in a restructuring of the companies outside of 

bankruptcy. This process should ensure that there is fairness in the sacrifices, and 

that the companies will be able to continue as viable business operations. This process can begin immediately under the supervision of the next administration. By 

doing this, Congress can make sure that the emergency assistance is indeed a 

bridge to a brighter future. 

Contrary to the assertions by some commentators, in the current environment a 

Chapter 11 reorganization—even a so-called ‘‘pre-packaged′′ bankruptcy—is simply 

not a viable option for restructuring the Detroit-based auto companies. As previously indicated, research has indicated that the public will not buy vehicles from 

a company in bankruptcy. It also is doubtful that the companies could obtain debtorin-possession financing to operate during a bankruptcy. In addition, attached to this 

testimony is a more detailed analysis prepared with the assistance of experienced 

bankruptcy practitioners explaining why a ‘‘pre-packaged’’ bankruptcy is not a feasible option for the domestic auto companies because of the size and complexity of 

the issues that would necessarily be involved in any restructuring, including relationships with thousands of dealers and suppliers and major changes in business 

operations. Thus, the UAW wishes to underscore that any bankruptcy filings by the 

domestic auto companies at this time would inevitably lead to Chapter 7 liquidations and the cessation of all business operations. 

The collapse of the domestic auto companies would have disastrous consequences 

for millions of workers and retirees and for the entire country. 

164 

• Hundreds of thousands of workers would directly lose their jobs at GM, Ford, 

and Chrysler, and a total of three million workers would see their jobs eliminated at suppliers, dealerships and the thousands of other businesses that depend on the auto industry. 

• One million retirees could lose part of their pension benefits, and would also 

face the complete elimination of their health insurance coverage, an especially 

harsh blow to the 40 percent who are younger than 65 and not yet eligible for 

Medicare. 

• The Pension Benefit Guarantee Corporation could be saddled with enormous 

pension liabilities, jeopardizing its ability to protect the pensions of millions of 

other workers and retirees. To prevent this from happening, the federal government could be forced to pay for a costly bailout of the PBGC. The federal government would also be liable for a 65 percent health care tax credit for pre-65 

retirees from the auto companies, at a cost of as much as $2 billion per year. 

• Revenues to the Federal, State, and local governments would drop sharply, forcing cuts in vital social services at a time when they are urgently needed. 

• The ripple effects from the collapse of the Detroit-based auto companies would 

deal a serious blow to the entire economy, making the current recession much 

deeper and longer. 

• There also would be a serious negative impact on many financial institutions 

that hold large amounts of debt from the Detroit-based auto companies and 

their auto finance associates. This could pose a systemic danger to our already 

weakened financial sector. 

For all of these reasons, the UAW submits it is imperative that Congress and the 

Bush administration act next week to provide an emergency bridge loan to the Detroit-based auto companies. The consequences of inaction are simply too devastating; 

the economic and human toll are too costly. 

The UAW believes that the recent actions by the federal government to provide 

an enormous bailout to Citigroup reinforce the case for providing an emergency 

bridge loan to the Detroit-based auto companies. The total assistance provided to 

Citigroup will dwarf that being sought by the domestic auto companies. Citigroup 

received this assistance without being required to submit any ‘‘plan’’ for changing 

its operations or demonstrating its future viability. It was not required to change 

its management. And it is still able to continue paying bonuses and other forms of 

lucrative executive compensation. 

If the Federal Government can provide this type of blank check to Wall Street, 

the UAW submits that Main Street is no less deserving of assistance. Since the domestic auto companies have come forward with detailed plans relating to accountability and their future viability, there is simply no justification for withholding the 

emergency bridge loan that is necessary for them to continue operations. 

The UAW also notes that other governments around the world are actively considering programs to provide emergency assistance to their auto industries. In particular, the European Union is considering a $51 billion loan program for automakers. And there are ongoing discussions with Germany, Great Britain, Sweden, 

Belgium, Poland, South Korea, China, and other nations about steps their governments can take to assist their auto industries. Clearly, other governments recognize 

the economic importance of maintaining their auto industries. The UAW submits 

that the economic importance of GM, Ford, and Chrysler to the U.S. economy is no 

less important and no less deserving of assistance. 

It is not enough, however, for the federal government to provide an emergency 

bridge loan to the Detroit-based auto companies, and to oversee and facilitate the 

restructuring of the companies. The 111th Congress and the Obama administration 

have a responsibility to pursue policies in a number of areas that will be critically 

important to the future viability of the domestic auto companies, as well as the well 

being of our entire nation. 

First, the UAW is very pleased that Congressional leaders and the Obama transition staff are already making plans to move forward quickly with a major economic 

stimulus package that will create jobs and give a boost to the entire economy. We 

believe this is urgently needed to prevent the economy from slipping into a deeper 

and more serious recession. This is particularly important for the auto sector. In 

order for the Detroit-based auto companies to succeed, it is vital that auto sales rebound from the record low levels we have seen in recent months. The single most 

important thing that can be done to increase auto sales is to reinvigorate the overall 

economy. 

Second, the UAW believes it is critically important that Congress and the Obama 

administration move forward quickly with plans to reform our broken health care 

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system, and to put in place programs that will guarantee health insurance coverage 

for all Americans, contain costs, ensure quality of care, and establish more equitable 

financing mechanisms. In particular, we believe any health care reform initiative 

should include proposals to address the challenges associated with providing health 

care to the pre-Medicare population aged 55–65. 

There can be no doubt that one of the major financial challenges facing the Detroit-based auto companies in future years is the cost of providing health care to 

almost a million retirees. Although the 2005 and 2007 contracts greatly reduced the 

companies’ retiree health care liabilities, they are still enormous and a major problem that hinders the ability of the companies to obtain financing from private lenders. All of the other major auto producing nations have national health care systems 

that spread the costs of providing health care across their societies. As a result, the 

automakers in these countries are not burdened by retiree health care legacy costs. 

Accordingly, the UAW is hopeful that the enactment of national health care reform 

in the United States would help to establish a level playing field among all employers, and alleviate the retiree health care legacy costs facing the Detroit-based auto 

companies. 

Third, during the coming year Congress and the Obama administration are likely 

to consider major new initiatives dealing with energy security and climate change. 

The UAW strongly supports prompt action in both of these vital areas. Specifically, 

besides requiring automakers to comply with the tougher new fuel economy standards that were enacted in 2007, we believe Congress and the Obama administration 

should take steps to ensure that fuel economy improvements continue in the years 

following 2020, and that the companies move expeditiously to introduce advanced 

technology vehicles. In particular, we support an aggressive program to increase domestic production of plug-in hybrids and their key components, and to expand the 

infrastructure that will be needed to support these vehicles. To help achieve these 

objectives, Congress and the Obama administration should make sure that the Section 136 Advanced Technology Vehicles Manufacturing Incentive Program 

(ATVMIP) continues to be fully funded, and that additional resources are provided 

to ensure that production of advanced, more fuel efficient vehicles and their key 

components is ramped up quickly. In addition, the UAW strongly supports the enactment of an economy-wide cap-and-trade program to aggressively reduce emissions of greenhouse gases that are causing climate change. 

Although these initiatives pose challenges for the auto industry, the UAW also believes they can provide great opportunities. Properly structured, these initiatives 

can not only ensure that our nation reduces its consumption of oil and emissions 

of greenhouse gas emissions. They also can ensure that the more fuel efficient vehicles of the future and their key components are built in the United States by the 

domestic auto companies and American workers. In effect, these initiatives can be 

an important part of the restructuring that is necessary to ensure the future viability of the domestic auto companies. 

Fourth, Congress and the Obama administration must make sure that our nation’s trade policies promote fair trade, not so-called ‘‘free trade’’ that fails to provide 

a level playing field and instead places our domestic automakers at a significant 

competitive disadvantage. In particular, prompt action needs to be taken to eliminate unfair currency manipulation by China and Japan. In addition, Congress and 

the Obama administration should insist that the U.S.-Korea free trade agreement 

must be renegotiated to require that Korea dismantle the non-tariff barriers that 

have kept its market closed to U.S.-built automotive products, before it is granted 

any further access to the U.S. market. 

By pursuing all of these policies, Congress and the Obama administration can 

benefit our entire country. The UAW also believes that these policies can provide 

a basis under which a restructured domestic auto industry can remain viable and 

strong in the coming years. 

In conclusion, the UAW appreciates the opportunity to testify before this Committee on the state of the domestic automobile industry: Part II. We strongly urge 

this Committee and the entire Congress to act promptly to approve an emergency 

bridge loan to the Detroit-based auto companies to enable them to continue operations and to avoid the disastrous consequences that their liquidation would involve 

for millions of workers and retirees and for our entire Nation. 

Pre-Packaged Bankruptcy Is Not the Path To Revitalize the Domestic Auto 

Companies 

Some commentators have suggested a pre-packaged bankruptcy as an alternative 

to (or as part of) government-backed relief for the domestic auto companies. But the 

promoters have not explained how pre-packaged bankruptcy procedures can be sucVerDate Nov 24 2008 08:28 Oct 09, 2009 Jkt 048080 PO 00000 Frm 00169 Fmt 6621 Sfmt 6621 L:\HEARINGS 2008\12-04 EXAMINING THE STATE OF THE DOMESTIC AUTOMOBILE IND
166 

1 Joe Nocera, ‘‘Road Ahead Is Long for G.M.,’’ The New York Times, November 22, 2008. 2 Zachary Kouwe and Louse Story, ‘‘Big Three’s Troubles May Touch Financial Sector,’’ The 

New York Times, November 24, 2008. 3 Zachary Kouwe and Louse Story, ‘‘Big Three’s Troubles May Touch Financial Sector,’’ The 

New York Times, November 24, 2008. 

cessfully brought to bear in a case with the complexity and scope of one or all of 

the Detroit-based auto companies. Indeed, bankruptcy experts are skeptical that 

pre-packaged bankruptcy can work. As one noted business writer who has consulted 

with bankruptcy experts has concluded, ‘‘it makes no sense.’’ 1

In a pre-packaged bankruptcy, a company negotiates a financial restructuring 

with its major creditors outside of bankruptcy, lines up all or most of its major 

creditors in support of the proposed debt restructuring, and then uses the bankruptcy process to achieve a quick, consensual approval of its repayment plan. Any 

minority, dissenting creditors are out-voted by the pre-arranged majority support for 

the plan. Bankruptcy law permits pre-packaged deals as an efficient form of business restructuring. 

Pre-packs can work with financial restructurings, i.e., those that do not involve 

substantial operational issues. Where a company must restructure its balance sheet, 

but the business is otherwise sound, large creditors holding secured and unsecured 

debt are more likely to agree on the business fundamentals, and therefore more 

likely to reach a negotiated agreement on restructuring terms—for example, swapping debt for equity or extending debt maturities. But the domestic automobile manufacturers are in the midst of a much broader restructuring which is, to a large degree, operational. They are shifting their product mix; they are developing new-technology vehicles; and they are revamping their production locations. None of these 

issues can realistically be addressed in a pre-packaged bankruptcy, which is aimed 

at obtaining the consent of creditors to renegotiated terms on their financial debt 

instruments. Pre-packs were not intended for operational restructuring scenarios. 

In fact, no one has explained how the basic elements of a pre-packaged bankruptcy can be achieved in the case of the domestic auto companies. Who are the debt 

holders, and can enough of them agree on negotiated terms? The New York Times 

reports that the domestic automakers owe more than $100 billion to banks and 

bondholders. The originating banks have probably syndicated, or sold off, pieces of 

the debt to others. Some $56 billion in new debt securities was reportedly issued 

to investors such as pension funds, insurancecompanies and hedge funds. 2 For a 

pre-packaged bankruptcy to work—or even get organized—the lion’s share of the 

outstanding debt holders need to be identified, agree to come to the table, and then 

agree on restructuring terms. This process would be a lengthy and expensive one, 

undertaken in an uncertain and weak economic environment. 

The same types of problems would exist for other claimants. The various creditors 

engaged in the process would likely want to see a business plan before negotiating 

restructured terms. Thus, the pre-packaged bankruptcy would be the proverbial tail 

wagging the dog. Assumptions made by some proponents of a pre-pack about whether stakeholders will participate in a pre-packaged effort and what the likely outcomes would be are unsupported supposition. Also unanswered are questions about 

how a bankruptcy filing would deal with GMAC and the other auto finance entities 

or the companies’ overseas operations. 

A pre-packaged bankruptcy could disintegrate into a regular, contested bankruptcy proceeding. First, the likelihood of obtaining the requisite consents is already 

challenged by the size, potential scope, and lack of transparency of the debt holders. 

Second, pre-packs must follow solicitation rules which are governed by securities 

laws, not bankruptcy law. The company would have to put together a solicitation 

that successfully navigates these rules. And, once in bankruptcy court, the efficient 

nature of the approval process would depend on sufficient compliance with the solicitation rules, and a sufficient supporting majority, to overcome challenges by dissenting creditors or others. If the approval process became prolonged, then the advantages of speed and efficiency would be lost. 

Pre-packaged bankruptcy would not eliminate the risks associated with a bankruptcy filing. It would not eliminate the threat of systemic risk resulting from the 

effects of a bankruptcy by one or all of the domestic automakers on the financial 

markets. 3 Moreover, a pre-packaged bankruptcy is still a bankruptcy as far as customers are concerned. The promoters have not explained how pre-packaged bankruptcy would allay the concerns of the majority of consumers who have said they 

would not buy an automobile from a company in bankruptcy. Given this consumer 

reaction, a bankruptcy filing by any one of the domestic automakers in the current 

environment is a dangerous ‘‘bet the economy’’ proposition. 

167 

None of the elements of an auto industry restructuring require a bankruptcy proceeding. Restructuring milestones, repayment terms, taxpayer protections and other 

conditions of a loan can be established through legislation. Moreover, legislation can 

establish a process under which the actual restructuring of the domestic auto companies is supervised by the next administration. This can ensure that all stakeholders come to the table and share in the sacrifices that will be required, and that 

the domestic auto companies will be viable businesses after the restructuring is 

completed. In contrast, putting the fate of an auto industry restructuring in the 

hands of a bankruptcy court, even if a pre-packaged plan were realistically possible, 

would put narrow creditor interests ahead of all other stakeholders and ahead of 

important national concerns, including health care and pension policy, energy and 

transportation policy, and the negative effects of the economic downturn. These are 

interests that must be addressed and balanced by our elected government. 

PREPARED STATEMENT OF ALAN R. MULALLY 

PRESIDENT AND CHIEF EXECUTIVE OFFICER, 

FORD MOTOR COMPANY

DECEMBER 4, 2008 

Mr. Chairman, Senator Shelby, and Members of the Committee. Thank you for 

the opportunity to share Ford’s plan. We appreciate the valid concerns raised by 

Congress about the future viability of the industry. We hope that our submission 

and today’s testimony will help instill confidence in Ford’s commitment to change, 

including our accountability and shared sacrifice during this difficult economic period. 

On Tuesday, Ford Motor Company submitted to your Committee our comprehensive business plan, which details the company’s path to profitability through an acceleration of our aggressive restructuring actions and the introduction of more highquality, safe and fuel-efficient vehicles-including a broader range of hybrid-electric 

vehicles and the introduction of advanced plug-in hybrids and full electric vehicles. 

In addition to our plan, we are also here today to request support for the industry. 

In the near-term, Ford does not require access to a government bridge loan. However, we request a credit line of $9 billion as a critical backstop or safeguard against 

worsening conditions as we drive transformational change in our company. 

One Plan: Beginning earlier this decade, we recognized the challenges the domestic auto industry faced and began implementing a disciplined global business plan 

to completely transform Ford, to improve our efficiency, cut costs and champion innovation. Our plan builds on the success we have seen in the past 2 years by accelerating the development of our new products that customers want and value. Our 

plan is anchored by four key priorities: 

• Aggressively restructure to operate profitably at the current demand and changing model mix; 

• Accelerate development of new products our customers want and value; 

• Finance our plan and improve our balance sheet; and 

• Work together effectively as one team, leveraging our global assets. 

One Goal: Our team and plan is dedicated and focused on delivering profitable 

growth for all. While market, economic and business conditions recently have deteriorated worldwide at a rate never before seen, we have made substantial progress 

since we launched our plan in late 2006: 

• We obtained financing by going to the markets in December 2006 to raise $23.5 

billion in liquidity, consisting of $18.5 billion of senior secured debt and credit 

facilities, substantially secured by all of our domestic assets, and $5 billion of 

unsecured convertible debt. 

• We have implemented our strategy to simplify our brand structure. As a result, 

we sold Aston Martin, Jaguar, Land Rover and the majority of our ownership 

of Mazda, and we’re considering our options for Volvo. We have divested other 

non-core assets. These sales have also helped our overall liquidity and generated $3.7 billion in additional capital to re-invest in the business. 

• To achieve maximum efficiency, we will have reduced our North American operating costs by more than $5 billion between year end 2005 and 2008. 

• We have taken painful downsizing actions to match capacity and market share 

in North America, including closing 17 plants and downsizing by 12,000 salaried employees and 44,000 hourly employees. 

168 

Ford is committed to building a sustainable future for the benefit of all Americans, and we believe Ford is on the right path to achieve this vision. I know the 

Members of the Committee have had an opportunity to review our plans over the 

last 2 days, so I will highlight new details about Ford’s future plans and forecasts: 

• Ford’s plan calls for an investment of approximately $14 billion in the U.S. on 

advanced technologies and products to improve fuel efficiency during the next 

7 years. 

• Based on current business planning assumptions—including U.S. industry sales 

for 2009, 2010, and 2011 of 12.5 million units, 14.5 million units and 15.5 million units, respectively—Ford expects both our overall and our North American 

automotive business pre-tax results to be break even or profitable in 2011. 

• As part of a continuing focus on building the Ford brand, we are exploring strategic options for Volvo Car Corporation, including the possible sale of the Sweden-based premium automaker. The strategic review is in line with a broad 

range of actions we are taking to focus on the Ford brand and ensure we have 

the resources to fund our plan. Since 2007, Ford has sold Aston Martin, Jaguar, 

Land Rover, and the majority of its stake in Mazda. 

• Half of the Ford, Lincoln, and Mercury light-duty nameplates by 2010 will qualify as ‘‘Advanced Technology Vehicles’’ under the U.S. Energy Independence and 

Security Act—increasing to 75 percent in 2011 and more than 90 percent in 

2014. We have included these projects in our application to the Department of 

Energy for loans under that Act and we hope to receive $5 billion in direct loans 

by 2011 to support Ford’s investment in advanced technologies and products. 

• From our largest light duty trucks to our smallest cars, Ford will improve the 

fuel economy of our fleet an average of 14 percent for 2009 models, 26 percent 

for 2012 models and 36 percent for 2015 models—compared with the fuel economy of its 2005 fleet. Overall, we expect to achieve cumulative gasoline fuel savings from advanced technology vehicles of 16 billion gallons from 2005 to 2015. 

• Next month at the North American International Auto Show in Detroit, we will 

discuss in detail Ford’s accelerated vehicle electrification plan, which includes 

bringing a family of hybrids, plug-in hybrids and battery electric vehicles to 

market by 2012. The work will include partnering with battery and powertrain 

systems suppliers to deliver a full battery electric vehicle (BEV) in a van-type 

vehicle for commercial fleet use in 2010 and a BEV sedan in 2011. We will develop these vehicles in a manner that enables it to reduce costs and ultimately 

make BEVs more affordable for consumers. 

• The 2007 UAW-Ford labor agreement resulted in significant progress being 

made in reducing the company’s total labor cost. Given the present economic 

crisis and its impact upon the automotive industry, however, we are presently 

engaged in discussions with the UAW with the objective to further reduce our 

cost structure and eliminate the remaining labor cost gap that exists between 

Ford and the transplants. 

• As previously announced, Ford plans two additional plant closures this quarter 

and four additional plant closures between 2009 and 2011. We have announced 

our intent to close or sell what will be four remaining ACH plants. And we will 

continue to aggressively match manufacturing capacity to real demand. 

• Ford will continue to work to reduce its dealer and supplier base to increase 

efficiency and promote mutual profitability. By year end, we estimate we will 

have 3,790 U.S. dealers, a reduction of 606 dealers overall—or 14 percent from 

year-end 2005—including a reduction of 16 percent in large markets. In addition, Ford has been able to reduce the number of production suppliers eligible 

for major sourcing from 3,400 in 2004 to approximately 1,600 today, a reduction 

of 53 percent. We eventually plan to further reduce the number of suppliers eligible for major sourcing to 750. 

• After reducing our workforce by 50 percent in just three years, we are also canceling all bonuses and merit increases for North America salaried employees— 

including top management—in 2009. And should Ford need to access funds 

from a potential government bridge loan, I will work for a salary of $1 a year— 

as a sign of my confidence in the company’s transformation plan and future. 

• We are moving ahead with plans we announced this summer to leverage the 

company’s global product strengths and bring more small, fuel-efficient vehicles 

to the U.S. The plan includes delivering best-in-class or among the best fuel 

economy with every new vehicle introduced. We are also introducing industryleading, fuel-saving EcoBoost engines and doubling the number and volume of 

hybrid vehicles. 

169 

• This product acceleration will result in a balanced product portfolio with a complete family of small, medium and large cars, utilities and trucks. And we are 

increasing our investment in cars and crossovers from approximately 60 percent 

in 2007 to 80 percent of our total product investment in 2010. 

Our plan is working, but there is clearly more to do—something that is increasingly difficult in this tough economic climate. That is why we are seeking access to 

a $9 billion bridge loan, even though we hope to complete our transformation without accessing any of these funds. 

Despite the serious global economic downturn, Ford does not anticipate a liquidity 

crisis in 2009—barring a bankruptcy by one of our domestic competitors or a more 

severe economic downturn that would further cripple automotive sales and create 

additional cash challenges. 

In particular, the collapse of one or both of our domestic competitors would threaten Ford because we have 80 percent overlap in supplier networks and nearly 25 percent of Ford’s top dealers also own GM and Chrysler franchises. 

The impact of a bankruptcy also reaches beyond Ford and the U.S. auto industry. 

It would cause further stress to our domestic banking industry and private retirement systems. Goldman Sachs estimates the impact at up to $1 trillion. 

We also believe effective restructuring involves a broader dialogue with all our 

stakeholders. President-elect Obama has indicated an interest in such a discussion. 

There are a number of complicated questions that will need to be considered, for 

example: 

• How do we create a dealer body that meets market demand and is profitable 

for all? 

• How do we develop a healthy and viable supplier base? 

• How do we work with the UAW to ensure that our cost structure is competitive 

with the foreign transplants? 

• How do we address the significant debt obligation of the domestic industry? 

We are prepared to work together with this Committee and all of the parties to 

address these critical issues as part of our plan. 

Ford has a comprehensive transformation plan that will ensure our future viability—as evidenced by our profitability in the first quarter of 2008. While we clearly 

still have much more to do, I am more convinced than ever that we have the right 

plan that will create a viable Ford going forward and position us for profitable 

growth. 

Thank you. 

PREPARED STATEMENT OF ROBERT NARDELLI 

CHAIRMAN AND CHIEF EXECUTIVE OFFICER, 

CHRYSLER LLC 

DECEMBER 4, 2008 

I appreciate the opportunity to represent the one million people who depend on 

Chrysler for their livelihoods. Before I answer your questions regarding our loan request, let me state clearly why we’re here: Chrysler requests a $7 billion loan to 

bridge the current financial crisis. 

In exchange, Chrysler is committed to: continue our restructuring, including negotiating cost-saving concessions from all constituents; investing in fuel-efficient cars 

and trucks that people want to buy and beginning repayment of our government 

loan in 2012. I also want to reinforce the need for Chrysler Financial to receive immediate assistance from TARP—as its continued vitality is a critical assumption to 

our plan. 

Chrysler requires this loan to get back to our transformation that began just over 

1 year ago. As a newly independent company in 2007, Chrysler was on track for 

financial profitability. Since August of 2007, we have eliminated more than 1.2 million units, or 30 percent of our capacity. We reduced our fixed costs by $2.4 billion 

and separated more than 32,000 workers, including 5,000 on the Wednesday before 

Thanksgiving. And at the same time, we invested more than half a billion dollars 

in product improvements in our first 60 days, improved our J.D. Power quality 

scores and reduced our warranty claims by 29 percent. As a result, through the first 

half of 2008, Chrysler met or exceeded its operating plan and ended the first half 

of the year with $9.4 billion in unrestricted cash. 

We are here because of the financial crisis that started in 2007 and accelerated 

at the end of the second quarter of 2008. As consumer confidence fell and credit 

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markets remained frozen, the lowest U.S. auto sales in more than 20 years put tremendous pressure on our cash position. U.S. industry sales fell from 17 million a 

year in 2007, to a monthly annualized rate of 10.5 million last month—a 6.5 million 

unit decline. 

What does that mean for Chrysler? At 10 percent market share, it translates to 

a loss of 650,000 vehicles, or roughly $16 billion in lost revenue opportunity. With 

such a huge hit to our sales and revenue base, Chrysler requires the loan to continue the restructuring and fund our product renaissance. 

Chrysler has a sound plan for financial viability that includes shared sacrifice 

from all constituents. We have identified approximately $4 billion of potential cost 

savings and improvements that have been included in our plan. We are committed 

to negotiate with all constituents to achieve our savings targets. Our plan also includes producing high-quality, fuel-efficient cars and trucks that people want to buy, 

while supporting our country’s energy security and environmental sustainability 

goals. 

For the 2009 model year, 73 percent of our products will offer improved fuel economy compared with 2008 models. We plan on launching additional small, fuel-efficient vehicles. ENVI is our breakthrough family of all-electric and range-extended 

electric vehicles—similar to the one parked outside. 

Chrysler’s long-range product plan is robust, realistic, and green. The plan features 24 major launches from 2009 through 2012. It includes a hybrid Ram truck 

and our first electric-drive vehicle in 2010 with three additional models by 2013. 

A key feature of Chrysler’s future is our capability as an electric vehicle company. 

Through our GEM neighborhood electric vehicle division, Chrysler is the largest producer of electric-drive vehicles in the U.S. today. Combined with the new products 

from our ENVI group, we expect that 500,000 Chrysler electric-drive vehicles will 

be on the road by 2013. 

Chrysler will continue to aggressively pursue new business models that include 

alliances, partnerships and consolidations. This model is currently successful in 

helping Chrysler increase the efficient utilization of our manufacturing capacity. For 

example, in North America today, Chrysler manufactures all Volkswagen minivans, 

and beginning in 2011, we will produce all Nissan full-size trucks. 

With government collaboration, our industry can accelerate how America drives 

cutting-edge technology. An Automotive Energy Security Alliance would: coordinate 

public and private spending already devoted to advanced vehicle technologies; 

produce basic technology available to all manufacturers; work with national labs 

and major research universities and draw private investment to meet our national 

energy and environmental goals. Such an alliance would help ensure that as a country, we do not trade our current dependence on foreign oil for a future dependence 

on foreign technologies. 

I recognize that this is a significant amount of public money. However, we believe 

this is the least costly alternative considering the depth of the economic crisis and 

the options we face. 

Thank you. 

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PREPARED STATEMENT OF JAMES T. FLEMING 

PRESIDENT, 

CONNECTICUT AUTOMOTIVE RETAILERS ASSOCIATION

DECEMBER 4, 2008 

Chairman Dodd, Ranking Member Shelby, and Members of the Committee: My 

name is Jim Fleming. I am President of the Connecticut Automotive Retailers Association. We are comprised of approximately 300 members who collectively employ 

more than 14,000 people in jobs that pay good wages with benefits. Our dealer 

members are small businesspeople and entrepreneurs, many of whose families have 

been in the business for generations. Several of them are sitting behind me today. 

My testimony also reflects the views of the National Automobile Dealers Association 

and their 19,700 members. 

We very much appreciate the fact that you are seeking the retail dealer’s perspective today on the important issue of assisting the domestic automobile industry. 

What you end up doing or not doing will have just as much impact on us as it will 

on the manufacturers. If they go under, so do we. It is that simple. 

You know how difficult times are—so do the small businesspeople that run the 

dealerships in this country. People are not coming into our showrooms and buying 

cars. Consumer confidence has evaporated. Sales are way, way down and dealerships are going under. In 2007, we had 325 new car dealerships in Connecticut. Now 

we have 300: a loss of 25 dealers in one year. Nationwide, nearly 700 mostly family 

owned new car retail businesses have closed in the last 11 months—that equates 

to some 20,000 newly unemployed women and men. Last year in Connecticut, our 

employees totaled about 15,000 in good jobs with benefits and retirement plans: now 

it is 14,300, down 700. That reduction equals $23 million in lost payroll. 

Let me put a human face on this issue. Senator Dodd already knows this because 

he met with the small business people in Connecticut who run the dealerships. If 

you have not done the same, please do so before you vote on this issue. We are not 

Wall Street or Detroit: we are Main Street in East Hartford or New Britain, Connecticut. Let me give you just one example of what has been happening as our dealers head into this holiday season. A Connecticut dealer who sells domestic and foreign brands and has been in the Hartford area for three generations has told me 

the following: 

• In the last month, thirty customers walked through his doors and all were interested in purchasing a new car. Normally, most of those customers would 

have qualified for credit, but banks are so squeamish—they couldn’t get financed. Thirty sales were lost. 

• The dealer had no alternative but to cut back. He has had to lay-off 30 employees, fully 10 percent of his workforce. That’s $1 million in payroll lost to those 

workers and their families. It’s also a loss in revenue to the government of 

$200,000 through payroll, Social Security and Medicare taxes that now won’t 

be paid. 

• This dealer has also essentially wiped out his advertising budget, slashing $1 

million in that line item for the next year. What will the Ad firm do? I think 

cut back as well. The local newspapers, radio and television stations will feel 

those cuts, and they, too, will cut back or lay-off employees as a result. Auto 

advertising accounts for almost 35 percent of the revenue to the local networks 

in our State. In many cases it is now down to single digits. 

• This dealer has also reduced his inventory, compounding the problems that Detroit is having. He is buying fewer cars from the manufacturers. That also 

means less in sales tax revenue to the state in the future. I might add that we 

traditionally sell $9 billion in vehicles in Connecticut, with the State receiving 

hundreds of millions of dollars in sales tax revenue; car sales alone account for 

17 percent of the State sales tax. With fewer vehicle sales, there is a ripple effect: fewer mechanics, fewer orders for parts or tires, and fewer shipments of 

these parts by FedEx or UPS. 

Members of the Committee, this is not a bailout bill for Detroit or Wall Street. 

This is about investing in the future of our small towns and businesses, in the 

economies and budgets of our State governments, and ultimately, in the overall welfare of our country. 

So, I guess the question is: will you help the industry? There are two possible answers to this, a ‘‘no’’ or a ‘‘yes.’’ Saying ‘‘maybe’’ really means ‘‘no’’—taking no action 

or allowing bankruptcy will have very real implications for the people who you represent back home. Members of the Committee: I served in public office for 28 years 

190 

in Connecticut as a state senator and member of the Governor’s cabinet. I know 

what it is like to cast tough votes and make difficult decisions. The right thing to 

do here is to provide the bridge loans to the manufacturers.If you say ‘‘no,’’ then 

here is the bottom-line: If GM, Ford, or Chrysler go bankrupt, our members who 

retail those cars will also go under. There is just no doubt in my mind about that. 

Most consumers will not buy a car made by a bankrupt company. The brand will 

be tainted and consumers will lack confidence that there is anyone standing behind 

the product or warranty. The retail dealership system for any bankrupt brand will 

collapse. Consumer choice will be drastically limited as to the choice of new automobiles and the distance needed to travel for service and warranty work will increase dramatically. Banks will not have confidence to deal with franchised dealers 

if the risk is too great or the rules are abruptly changed. 

If you say ‘‘yes’’ to some type of financing package for the manufacturers, it will 

give us time to ride out this economic tsunami. You are right to demand to know 

how the funds will be used and to assure accountability with public funds. James 

Madison said that ‘‘if men were angels we would not need government’’. Well men 

are not angels, so put their feet to the fire, and hold these gentlemen and their 

boards accountable; impose timelines, make sure the people’s funds are properly 

handled, and push them to produce more efficient vehicles. The people I represent, 

the 300 dealers and their 14,000 employees, will sell them to the public. But do the 

right thing here and support this legislation. A resurgence of the automobile industry is necessary for a recovery of the overall U.S. economy. So hold the industry accountable. But be sure that you leave a well-capitalized, financially sound dealer 

network in place, as it is essential to the success of every automobile manufacturer, 

especially a manufacturer facing economic challenges. 

Franchised dealerships are independent, mostly family-owned businesses, not the 

‘‘company owned’’ stores that many other retail industries employ. As such, it is the 

dealer—and not the manufacturer—that invests in the land, buildings, equipment, 

computers, tools, personnel, training, advertising and promotions, and good will necessary to sell and service vehicles. Through these multimillion dollar dealer investments—$11.3 million per dealership on average—manufacturers are able to externalize virtually all of the costs associated with establishing and maintaining their 

national retail distribution network. 

A key element in preserving a strong dealer network is maintaining the current 

state franchise laws; stability in the automotive industry cannot be found by altering them. The pre-emption or suspension of State franchise laws would further 

threaten the economic stability of Main Street and further erode the national infrastructure essential to the recovery of troubled manufacturers. If the manufacturers 

are empowered to ignore these statutes, they will act precipitously to the detriment 

of the dealers and the local communities they support. The consequences of wholesale dealer terminations would include closed businesses, terminated employees, increased foreclosures, and idle real estate, thereby deepening the current recession 

and threatening even the dealerships that the manufacturers would designate for 

survival. 

Moreover, even in the absence of the this type of actual manufacturer abuse, any 

elimination or suspension of the State franchise laws would operate to increase the 

cost of the capital that is needed for the efficient distribution of vehicles. Dealer investments are premised on the existence of franchise law protections. If the franchise laws were not present to protect those investments, the investments would 

carry more risk. And that risk, in turn, would command a risk premium. Indeed, 

publicly traded auto retailers routinely disclose the possible repeal of State franchise 

laws as a risk factor in their public filings. If those laws were in fact to be removed, 

that risk would mature into a reality and the capital investment markets would respond accordingly. Existing capital would seek safer havens, and the cost of attracting new capital would rise. While this would be very visible in the public capital 

markets, the same phenomenon would play out in the private capital arena as private dealers made decisions where to place their resources. And these increased 

costs would have to be paid somewhere in the overall industry value chain. Thus, 

far from saving manufacturers anything, the removal of the State franchise laws 

would actually raise their costs of operation. 

Think carefully about the value that the dealer franchise network provides. Keep 

it healthy and intact. The American dealerships absorb massive costs to market, 

sell, finance, distribute and service the vehicles produced by the manufacturers. The 

buildings, service bays, the very signs on Main Street for GM, Chrysler, Jeep, and 

Ford are paid for by the dealers. The American public makes two big purchases— 

homes and cars. They want to eyeball the person who sells them a car, not some 

computer screen or massive corporate entity. When they have a problem they want 

to go to the local business and have it resolved. 

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So what am I asking? Pass this legislation and do so soon. Help bring back consumer confidence in the automobile sector. You can play a major role in doing that 

by saying ‘‘yes’’ to an assistance package for the industry that will provide bridge 

loans for the domestic automobile manufacturers and includes elements to stimulate 

business on Main Street right now: 

• Allow a temporary deduction of interest on consumer new auto loans and of the 

sales taxes on new vehicle purchases. Senators Mikulski and Bond have a bill, 

S. 3684, that would do this and I urge its swift passage. 

• Enact a temporary expansion of the definition of a ‘‘small business’’ to provide 

dealers access to working capital through Small Business Administration loan 

guarantees. 

• Provide for a temporary, refundable consumer tax credit for car and truck buyers. 

• Fund state fleet modernization programs, often called ‘‘cash for clunkers’’ where 

consumers are given a direct incentive to upgrade older vehicles to more environmentally-friendly ones. 

• Enact temporary increases in the expensing and depreciation of business vehicle 

purchases. 

• Finally, ensure that the recently announced TALF initiative extends to floor 

planning loans or inventory financing for retail dealers. 

Mr. Chairman, we appreciate the fact that you have included the retail automotive dealers in this discussion. I’ve just outlined specific steps that you could take 

that will help us ride out the current economic storm. The U.S. domestic auto industry hangs in the balance—and so do dealers and their local communities. Thank 

you. 

PREPARED STATEMENT OF KEITH WANDELL 

PRESIDENT, 

JOHNSON CONTROLS, INC. 

DECEMBER 4, 2008 

Chairman Dodd, Senator Shelby, and Members of the Committee, thank you for 

the opportunity to provide testimony on the state of the domestic automotive industry. My name is Keith Wandell and I am President and Chief Operating Officer of 

Johnson Controls, Inc., a global multi-industry company with sales of $38 billion in 

2008. Approximately 37 percent of our sales involve the supply of systems and services to improve the energy efficiency of nonresidential and residential buildings 

worldwide. We are also the largest supplier of batteries to the automotive 

aftermarket and original equipment manufacturers. 

In addition, Johnson Controls is the 7th largest automotive supplier in the world. 

We are the third largest supplier in North America behind Magna, a Canadian company, and Delphi, a U.S. company which has been in bankruptcy since 2005. Our 

global sales of seats and other interior products to the auto industry totaled $19 billion, $6.7 billion of which are to the North American market. We supply every automaker with a presence in the U.S.: Chrysler, Ford, GM, Honda, Hyundai-Kia, 

Mazda, Mercedes, Mitsubishi, Nissan, and Toyota. Johnson Controls has 43,000 employees in the U.S. with operations in all 50 States. Some 22,000 are employed in 

the States represented by the members of this Committee. 

While Johnson Controls is a key supplier to the global automotive industry we 

are an atypical automotive supplier. We are much larger and more diversified by 

product, geography, and markets. Being a supplier of interior systems, we are less 

capital intensive than many automotive suppliers. We are profitable, and we have 

a strong balance sheet. We do, however, share the same issues and concerns about 

the domestic automotive industry as those suppliers which are solely dedicated to 

the automotive market. 

A Detroit 3, failure would have dire economic ramifications for the vast interconnected supply chain of companies providing the parts and components which enable the U.S. automakers to assemble vehicles. Our main concern is that once cascading supply chain interruptions would begin, many suppliers will fail due to the 

interdependence of the supply chain, causing some companies to fail that could otherwise have continued operations. Many of the companies which would be impacted 

are small, women and minority-owned businesses. 

At Johnson Controls we are proud to have many joint-ventures/partnerships and 

supply arrangements with women and minority-owned businesses. This year for the 

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second time we were named ‘‘Corporation of the Year’’ by the National Minority 

Supplier Development Council, in part, in recognition of the $1.7 billion of goods and 

services we purchased from minority and female-owned business. I can assure you 

that each of the Detroit 3 is equally committed to the development of women and 

minority-owned businesses with a combined purchase of approximately $12 billion 

from such businesses in the last year. Should any one of the U.S. automakers suddenly fail, the vast majority of these businesses will fail and fail quickly. 

Let me share an example with you. Recently, a minority supplier to Johnson Controls, Plastech Engineered Products, failed and went into bankruptcy. This supplier 

had $800 million of revenue, shipped 6,200 part numbers from 11,350 tool sets providing parts to 52 vehicle assembly plants, 121 vehicle lines and 12 customers: General Motors, Ford, Chrysler, Volkswagen, Mercedes, Honda, Toyota, Nissan, 

Hyundai-Kia, AM General, Mazda, and Mitsubishi. Had Johnson Controls and the 

first-tier lending group not acquired Plastech’s assets out of bankruptcy, assembled 

an operating team to manage the process, and provided bridge financing, the supplier would have been liquidated, and forced the shutdown of these 52 assembly 

plants to one degree or another for varying durations. 

A year ago approximately 20 percent of Johnson Controls automotive suppliers 

were financially distressed according to independent third parties. Since the rapid 

deterioration of industry volumes that number has grown to beyond 35 percent and 

continues to grow. Johnson Controls suppliers employ 100,000 people in the U.S. so 

you can understand how serious this situation has become. 

Should one of the Detroit 3 fail a significant number of supplier failures would 

occur and become unmanageable. These suppliers, in general, support all three 

automakers and many, like Plastech and Johnson Controls, also supply the Asian 

and European transplants in the U.S. I can assure you that even though Toyota, 

Nissan, Honda, and other foreign automakers are not here today, they too are deeply concerned about the viability of the U.S. supply base. The automotive suppliers 

are financially distressed due to reduced cash flows resulting from the recent volume reductions, they are experiencing higher borrowing costs and many cannot access the credit markets at all. 

None of us would disagree that major changes are needed in the North American 

automotive industry. This is obvious as shown in the plans submitted by the Detroit 

3 for these hearings. It is in the best interest of all constituents that these changes 

occur in an orderly fashion which is unlikely if we allow even one of these companies to fail. 

It is extremely important that we have a sound, healthy and sustainable U.S.- 

owned automotive industry that is competitive globally. I do not believe that Americans want to yield an industry that impacts millions of jobs, invests billions of dollars in technology, and will help secure our energy independence through new, innovative, and environmentally friendly transportation. It is just as important that our 

domestic supply base is strong as it delivers 70 percent of the value-added components of a vehicle and 40 percent of the research and development dollars spent. 

The plans that have been submitted address many of the issues that have been 

burdensome to the health of this industry: excess capacity, proliferation of brands, 

a sub-optimized dealer network and an uncompetitive cost structure. Given the opportunity to continue to address these challenges the Detroit 3 would be able to invest at an even greater rate to bring to market the consumer-desired fuel efficient, 

environmentally friendly vehicles. 

Our company is also a leader in helping to develop fuel efficient vehicles. In our 

automotive seating and interiors business we are constantly striving to reduce 

weight in our components to help increase fuel efficiency and to introduce recyclable 

and renewable materials into our products. We are also developing the next generation of battery systems for hybrid and plug-in electric vehicles, and we are working 

with the Detroit 3 to bring these environmentally favorable vehicles to market. 

I was also asked to comment on the potential impact of a Detroit 3 failure on 

Johnson Controls. Earlier I said that we are diversified, profitable, and have a 

strong balance sheet. Unlike many automotive suppliers, we would weather this 

storm largely due to our strong non-automotive businesses. A Detroit 3 failure 

would have a short/mid-term impact on our cash flow, access to capital and cost of 

borrowing. One of the bigger impacts would be the curtailment of our investments 

in new technologies in all of our businesses, including hybrid vehicle battery technology. 

The U.S. industry has a long and proud heritage; it has played a significant role 

in the development of this country’s strong economic position in the world. Speaking 

for our company, and, I am sure for all auto parts suppliers, we respectfully urge 

the Members of this Committee, and the Congress as a whole, to provide the financial support the automakers need at this critical time. Each is on their own path 

193 

to improve their performance and the fuel efficiency of the vehicles they produce. 

But their progress has been hampered by the current economic crisis which has 

tightened access to consumer credit and further eroded vehicle sales. 

To avoid drastic economic ramifications to the automotive industry supply chain, 

including hundreds of small and medium-sized businesses throughout the country, 

we hope the Congress will take positive action to assist this vital U.S. industry. 

Thank you for your attention. 

194 

PREPARED STATEMENT OF MARK ZANDI 

CHIEF ECONOMIST AND CO-FOUNDER, 

MOODY’S ECONOMY.COM

DECEMBER 4, 2008 

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PREPARED STATEMENT OF ALLAN I. MENDELOWITZ 

MEMBER OF THE BOARD OF DIRECTORS, 

FEDERAL HOUSING FINANCE BOARD

DECEMBER 4, 2008 

Summary 

The downturn in the fortunes of the Big Three automakers has led policy makers 

to revisit the 1979 Chrysler Loan Guarantee Act. The Act is widely viewed as a successful government intervention in a private company to achieve a public policy objective. In practice, the Act caused Chrysler to be reorganized outside of bankruptcy 

with the Federal Government providing the equivalent of ‘‘debtor in possession’’ 

(commonly referred to as DIP) financing. 

The public debate about the Federal Government’s potential role in a rescue package for the Big Three has focused around two principle alternatives: (a) government 

loans to bridge the companies through necessary reorganizations and the economic 

downturn, and (b) reorganizing the companies under Chapter 11 of the bankruptcy 

laws. The purported choice between government loans and bankruptcy is, in fact, 

not a choice at all. A restructuring in bankruptcy would require tens of billions of 

dollars in short-term DIP financing to support operations. In today’s financial markets, DIP financing is difficult to get—and at the levels of financing the Big Three 

will need—is probably impossible. Therefore, for bankruptcy to be a viable restructuring option, the Federal Government would need to play the role of DIP financier. 

Although often cited as a public policy success, the mechanics of the Chrysler 

Loan Guarantee Act are generally misunderstood. Rather than a single implementation of the loan guarantee program, there were, in fact, two distinctive Chrysler 

transactions: The first, which I refer to as Chrysler 1, gave Chrysler $800 million 

in loan guarantees in return for a modest restructuring of Chrysler’s balance sheet 

and operations and granting the government a priority secured interest in all company assets. The second transaction, which I refer to as Chrysler 2, provided an additional $400 million of loan guarantees. In return for this second tranche of support, the Federal Government required the substantial restructuring of the company 

to which the success of the loan guarantee program is linked. The required restructuring was made possible only because of the leverage over all interested parties 

that the government gained by taking a priority security interest in all Chrysler assets as part of Chrysler 1. 

In addition to the financing structure, there were other key principals that made 

the Chrysler Loan Guarantee Act a success. However, one of the most important lessons learned from the Chrysler rescue is that if the decision is to grant funding outside of a bankruptcy reorganization, the Federal Government must take a priority 

security interest in the assets of the company prior to extending any loans or loan 

guarantees. Only then will the Federal Government have sufficient leverage to force 

a substantial restructuring to achieve the public policy objectives. 

Statement 

Mr. Chairman and Members of the Committee: 

Thank you for inviting me to submit this statement for the record to supplement 

your hearing on this important matter. My name is Allan I. Mendelowitz, and while 

I currently serve on the Board of Directors of the Federal Housing Finance Board, 

I bring a special insight into the topic of today’s hearing. I spent 1980 as the representative of the Comptroller General of the United States (one of the three voting 

members of the Chrysler Corporation Loan Guarantee Board) and as one of the 

principle government negotiators putting together the terms of the Chrysler loan 

guarantee. In fact, one of my accomplishments during that time is that I was directly and personally responsible for including as a condition of the loan guarantee, 

the warrants which earned the taxpayers more than $300 million. In addition, I 

spend the better part of two decades directing a substantial body of work on the 

automobile industry for the U.S. Congress. 

The downturn in the fortunes of the ‘‘Big Three’’ domestic automakers has led policy makers to revisit the ‘‘Chrysler Corporation Loan Guarantee Act of 1979’’ (Public 

Law 96-185 signed into law by President Carter on January 7, 1980) which is largely viewed as a successful government intervention in a private company to achieve 

a public policy objective. There are some similarities between the 1979–80 Chrysler 

Corporation financial crisis and that of the Big Three today. Like 1979–80, there 

has been recent volatility in oil prices and the economy is in difficult circumstances. 

In addition, arguments made in 1979 in support of the Loan Guarantee Act are very 

similar to arguments made today, for example: (a) Chrysler could not be successfully 

reorganized under the bankruptcy laws because consumers would not buy cars from 

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a bankrupt company, (b) bankruptcy would impose excessively high economic costs, 

including lost jobs etc., in a time of national economic difficulty, and (c) it would 

be cheaper for the Federal Government to bail out Chrysler than to bear the cost 

of its failure—unemployment insurance, lost tax revenue, etc. 

Despite the similarities, there are significant differences today relative to 1979– 

80. At that time, the government was dealing with one sick company in an otherwise healthy domestic industry. In addition, there was a credible business case for 

helping Chrysler. The company required financing for a 6 to 18 month time horizon, 

during which time the launch of the K-car would give the company a realistic shot 

at returning to profitability. Today, all of the Big Three are in financial trouble and 

face the very real prospect of bankruptcy. However, none of the Big Three can propose a short-term turn-around plan. For example, the Chevrolet Volt which may be 

an important vehicle 10 years from now will be launched in two years at such low 

initial volumes and at such a high price, that it will not contribute to the financial 

turnaround of General Motors when it goes on sale. Success today will depend almost entirely on executing major restructurings of the companies. 

The public debate over the federal government’s potential role in a rescue package 

for the Big Three has focused on two principle alternatives: (a) government loans 

to bridge the companies through necessary reorganizations and the economic downturn, and (b) reorganizing the companies under Chapter 11 of the bankruptcy laws. 

These options are presented as alternatives, but both in reality put the federal government in a similar position. The choice between government loans and bankruptcy 

is, in fact, not a choice at all. A restructuring in bankruptcy would require tens of 

billions of dollars in funding to support operations, commonly known as ‘‘debtor in 

procession’’ or DIP financing. In today’s financial markets, any DIP financing is difficult to get—and at the levels of financing needed by the Big Three—is probably 

impossible. Therefore, for bankruptcy to be a viable restructuring option, the Federal Government must be ready to provide DIP financing. 

As a result, if there is a public policy decision that the domestic car industry 

should survive—the Federal Government’s role will likely be the same no matter 

which action is taken. Whether providing loans to restructure the Big Three outside 

of bankruptcy, similar to the Chrysler Loan Guarantee Act, or DIP financing for reorganization under bankruptcy, the Federal Ggovernment will be acting as lender 

of last resort. 

The 1979 Chrysler Loan Guarantee Act is viewed as a successful government 

intervention in a private company to achieve a public policy objective: (a) Chrysler 

avoided bankruptcy, (b) with the introduction of more fuel-efficient cars and the 

minivan concept, Chrysler recovered, and (c) the Federal Government was well protected and well compensated for the loan guarantee. However, the mechanics of the 

loan guarantee program are generally misunderstood. Rather than a single Chrysler 

loan guarantee transaction, there were in fact, two distinctive Chrysler transactions: 

Chrysler 1 and Chrysler 2. 

Chrysler 1 was put together in the spring of 1980 when Chrysler was granted the 

first $800 million in loan guarantees. This was a partial ‘‘first step.’’ However, there 

was one absolutely key provision. In return for the initial guarantees, the Federal 

Government took a priority security interest in every asset of the company including 

property, plant, equipment, inventory, work in progress, and even patents and 

trademarks. In fact, existing lenders with offset rights to compensating balances 

were required to cede those offset rights to the federal government. In the event of 

liquidation, the Federal Government held sufficient collateral to be made whole— 

and other creditors were likely to receive nothing. However, the company itself underwent a modest restructuring at most. For example, lenders did not forgive principle and continued to receive substantial interest payments. 

Chrysler 2 came about in the fall of 1980. At that point, Chrysler had burned 

through the first $800 million of federally guaranteed funding and came back for 

an additional $400 million in new guarantees. However, the original basis for granting the first $800 million was no longer credible to support this request. There had 

to be a new basis for extending additional guaranteed loans. As a result, in Chrysler 

2, the government effected a reorganization of the company and its balance sheet 

in a way to justify extending additional funds. It was only in Chrysler 2 that the 

lenders gave significant debt forgiveness, i.e., $1.2 billion in loans were forgiven in 

exchange for payment of about 15 cents on the dollar. Workers gave significant 

wage concessions, as well as changes in work rules and benefits. When Chrysler 2 

was finished, the company looked more like it would have looked had it gone 

through a bankruptcy reorganization. 

The structuring of the loan guarantee tranches was a critical operational aspect 

of why the program succeeded. However, the ability to restructure the company in 

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the Chrysler 2 transaction was a direct result of the key underlying principles that 

made the Chrysler Loan Guarantee Act a success. The key principles include: 

The Loan Guarantee Act had a clear public policy objective. In a market with a 

severe shortage of 4-cylinder fuel-efficient cars, the program set out to preserve the 

annual production capacity for three-quarters of a million of such vehicles. In addition, the program avoided the bankruptcy of Chrysler that would have resulted in 

the loss of hundreds of thousands of manufacturing and ancillary service jobs (at 

Chrysler, its suppliers, its dealers, etc.) in a time of domestic economic weakness. 

Chrysler used the federally guaranteed funds to maintain development and launch 

production of a modern 4-cylinder fuel efficient car (the ‘‘K-cars’’) that was in high 

demand. 

Powerful independent board required to approve disbursement of funds. The 

Chrysler Corporation Loan Guarantee Board had three voting members: the Secretary of the Treasury, the Chairman of the Board of Governors of the Federal Reserve, and the Comptroller General of the United States. The makeup of the board 

insured that all decisions had a clear, credible, and transparent justification included in the transcripts of board meetings and in board reporting the U.S. Congress. There were no ad hoc or opaque decisions made by the Chrysler Corporation 

Loan Guarantee Board. 

The Federal Government had a reasonable assurance of repayment. The guarantees could only be provided if the Chrysler Corporation Loan Guarantee Board determined that there was a reasonable assurance of repayment. This determination 

was based on credible operating and financing plans, and the Federal Government 

taking a priority security interest in every asset of the company (valued at more 

than $2.5 billion). 

Well-defined time frame and scope. Chrysler was offered up to $1.5 billion of federal government loan guarantees for a maximum of 10 years subject to stringent 

conditions. In addition, no permanent government agency or permanent corporate 

entitlement was created. 

Government resources were used sparingly with no free riders. Built into the statute was the requirement that there be $2 dollars of contributions from interested 

parties for every $1 dollar of federally guaranteed loans. In addition, everyone who 

stood to gain from Chrysler’s turnaround was required to contribute to the program: 

(a) existing lenders to Chrysler provided debt forgiveness, (b) Chrysler employees 

agreed to wage and benefit reductions, (c) states and localities where the company 

had plants contributed with additional loans, (d) Chrysler was forced to sell off all 

assets not central to the core automotive business including Chrysler Defense (that 

was a shareholder contribution) and, (e) executive salaries and perks were cut (Lee 

Iacocca worked for $1 a year and much to his chagrin, his Gulfstream executive jet 

had to be sold). 

Bad incentives and precedents were avoided. The stringent terms of the Chrysler 

loan guarantee were so onerous that no business—based on this precedent—would 

consider this program a desirable alternative to anything else. The program was 

truly a last resort. 

The Federal Government received the upside of success. In return for the loan 

guarantees, the Federal Government received expense reimbursement, guarantee 

fees, and warrants. When the Chrysler Corporation eventually recovered and paidoff the guaranteed loans in 1984 (6 years early) the government sold the granted 

warrants for a profit of over $300 million. 

If the public policy decision is made—no matter what its form—to attempt to rescue the U.S. auto industry, the government is going to be involved as a lender either: (a) outside of bankruptcy like the Chrysler Loan Guarantee Act, or (b) as debtor in procession lender as part of a bankruptcy reorganization. Furthermore, no government assistance can succeed without substantial restructuring of the companies. 

If the government grants the requested billions in loans without a bankruptcy filing, 

the single most important condition precedent must be that the Federal Government 

takes a priority lien on all assets of the companies prior to the distribution of funds. 

This will give the government the necessary leverage to insure the proper restructuring of the companies. Given the claims by at least two of the companies that they 

need assistance before the end of the year, this condition is all the more important 

to assure that the money is used to support the public policy aim of restructuring 

the companies so that they return to profitability and become again competitive 

players in the automobile market. 

206 

1For example, a number of auto parts suppliers in Chapter 11 with collectively bargained 

pension plans have emerged from reorganization without terminating their pension plans. 2 Employers end a plan through a process called ‘‘plan termination.’’ If a plan has insufficient 

assets to meet the plan’s accrued benefit promises through the purchase of annuities and if the 

sponsoring employer believes it is financially distressed it may apply for what is known as a 

distress termination. To do so, however, the employer must prove to a bankruptcy court or to 

PBGC that the employer cannot remain in business unless the plan is terminated. If the application is granted, PBGC will take over the plan as trustee and pay plan benefits, up to the legal 

limits, using plan assets and PBGC guarantee funds. 

RESPONSE TO WRITTEN QUESTIONS OF SENATORS BROWN 

AND TESTER FROM GENE L. DODARO 

Q.1. Information for the record in response to questions regarding 

the state of the automakers’ pensions and their potential impact on 

the Pension Benefit Guaranty Corporation (PBGC). 

A.1. I have previously noted that the PBGC Director stated, in a 

November 28, 2008, Wall Street Journal interview, that the funding of the automakers’ pensions is ‘‘OK’’; that is, the plans are likely not to require any contributions in 2009, and in some cases 2010, 

to meet the Employee Retirement Income Security Act of 1974 

(ERISA) minimum funding standards. Additionally, the Director 

has noted that, in the event of an immediate reorganization, the 

plans may continue rather than being terminated. 1 In a November 

24, 2008, New York Times interview, the Director stated that ‘‘we 

would maintain that it [GM] can afford to keep its plan intact,’’ and 

that ‘‘based on past history, we think that argument has a reasonable chance of success.’’ 

For the future, however, the automaker pension plans pose considerable financial uncertainty to the PBGC. Current, detailed information that reflects the true financial health of the automakers’ 

pension plans has not been made public. However, PBGC is very 

concerned about the future health of the automaker pension plans 

in light of the current problems facing U.S. financial markets and 

the current economic downturn. For example, automaker plans, 

like many others in the U.S., could experience significant losses in 

asset value that would impact plan financial health. The agency 

has also expressed concern that automaker ‘‘attrition’’ programs, 

which seek to restructure or reduce their workforces by offering 

severance and early retirement packages to current employees, 

could also undermine the state of the automakers’ plans by creating large obligations on the pension plans that have not been 

funded. For example, in a recent letter to General Motors, PBGC 

noted that the obligations on recently-negotiated attrition programs 

alone have a present value of $5 billion. 

If the automakers’ plans were to result in a distress termination, 2 PBGC’s accumulated deficit could increase dramatically 

from its current level of about $11 billion. The plans sponsored by 

the automakers represent a significant portion of the assets, liabilities, and participants in the defined benefit system. Although it is 

impossible to know what the exact claims to PBGC would be until 

it were to take over a plan, based on estimates of their current 

funded status, termination of the auto companies’ plans could double the PBGC deficit from its September 30, 2008, level. Further, 

from an administrative standpoint, PBGC would be presented with 

an unprecedented number of assets to manage as well as benefit 

liabilities to administer. As I noted during questioning, we estimate 

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3GAO, Private Pensions: Recent Experiences of Large Defined Benefit Plans Illustrate Weaknesses in Funding Rules. GAO-05-294. Washington, DC: May 31, 2005. 

that the automakers’ plans include roughly 1.3 million participants, 

which would double the total number of PBGC’s current or future 

beneficiaries. 

PBGC’s prior experience with the termination of plans of financially troubled sponsors is not encouraging. In some of its larger 

terminations the financial condition of the plans was significantly 

worse than had been reported in their ERISA filings in the years 

shortly before plan termination. GAO has reported on the weakness in the funding rules in the past, 3 and indeed the Pension Protection Act of 2006 (PPA) was intended to address these weaknesses and strengthen plan funding. However, it is not clear that 

the PPA contains the provisions that will in the end protect the 

PBGC from assuming rapidly deteriorating pension plans in the 

auto industry. The possible impact this could have on the PBGC 

should be a consideration in assessing federal financial assistance 

to the automakers.