S. HRG. 111–103 

OVERSIGHT OF TARP ASSISTANCE TO THE 

AUTOMOBILE INDUSTRY 

FIELD HEARING 

CONGRESSIONAL OVERSIGHT PANEL 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

HEARING HELD IN DETROIT, MICHIGAN, JULY 27, 2009 

Printed for the use of the Congressional Oversight Panel 

( 

Available on the Internet: 

http://www.gpoaccess.gov/congress/house/administration/index.html 


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OVERSIGHT OF TARP ASSISTANCE TO THE AUTOMOBILE INDUSTRY 


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U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

52–669 2009

S. HRG. 111–103 

OVERSIGHT OF TARP ASSISTANCE TO THE 

AUTOMOBILE INDUSTRY 

FIELD HEARING 

CONGRESSIONAL OVERSIGHT PANEL 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

HEARING HELD IN DETROIT, MICHIGAN, JULY 27, 2009 

Printed for the use of the Congressional Oversight Panel 

( 

Available on the Internet: 

http://www.gpoaccess.gov/congress/house/administration/index.html 


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(II) 

CONGRESSIONAL OVERSIGHT PANEL 

PANEL MEMBERS

ELIZABETH WARREN, Chair 

REPRESENTATIVE JEB HENSARLING

PAUL ATKINS

RICHARD H. NEIMAN

DAMON SILVERS


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(III) 

C O N T E N T S 

Page 

Statement of: 

Statement of Jay Noren, President, Wayne State University, Detroit, 

Michigan ........................................................................................................ 1 

Statement of Hon. Carolyn C. Kilpatrick, U.S. Representative from Michigan .................................................................................................................. 2 

Statement of Hon. John Conyers, U.S. Representative from Michigan ....... 2 

Opening statement of Elizabeth Warren, Chair, Congressional Oversight 

Panel .............................................................................................................. 1 

Statement of Hon. Jeb Hensarling, Member, Congressional Oversight 

Panel, U.S. Representative from Texas ...................................................... 12 

Statement of Ron Bloom, Senior Advisor, U.S. Department of the Treasury .................................................................................................................. 14 

Statement of Jan Bertsch, Senior Vice President and Treasurer, Chrysler 41 

Statement of Walter Borst, Treasurer, General Motors Company ............... 50 

Statement of Dr. Sean McAlinden, Executive Vice President and Chief 

Economist, Center for Automotive Research .............................................. 58 

Statement of Richard Mourdock, Indiana State Treasurer .......................... 83 

Statement of Barry Adler, Charles Seligson Professor of Law, New York 

University School of Law ............................................................................. 97 

Statement of Stephen Lubben, Daniel J. Moore Professor of Law, Seton 

Hall University School of Law ..................................................................... 109 

Responses to questions for the record ............................................................. 130 


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FIELD HEARING ON OVERSIGHT OF TARP 

ASSISTANCE TO THE AUTOMOBILE INDUSTRY 

MONDAY, JULY 27, 2009 

U.S. CONGRESS, CONGRESSIONAL OVERSIGHT PANEL, Detroit, Michigan. 

The Panel met, pursuant to notice, at 10:01 a.m., in the Spencer 

M. Partrich Auditorium, Wayne State University Law School, Elizabeth Warren, Chairman of the Panel, presiding. 

Present: Elizabeth Warren and Jeb Hensarling. 

Index: Elizabeth Warren and Jeb Hensarling. 

OPENING STATEMENT OF ELIZABETH WARREN, CHAIR, 

CONGRESSIONAL OVERSIGHT PANEL 

Chair WARREN. This is Elizabeth Warren. I am calling to order 

the July 27th, 2009 field hearing on TARP assistance in the auto 

industry. 

I would like to begin by thanking Wayne State University for 

their hospitality in making these facilities available to us and making it possible for us to have this hearing in Detroit. 

I would like to begin by recognizing President Jay Noren and 

asking him for a few opening remarks. Mr. President? 

STATEMENT OF DR. JAY NOREN, PRESIDENT, WAYNE STATE 

UNIVERSITY, DETROIT, MICHIGAN 

Dr. NOREN. Well, thank you very much. We are most pleased to 

host the Congressional Oversight Panel, Chair Elizabeth Warren, 

who is the Leo Gottlieb Professor at Harvard Law School, and Congressman Jeb Hensarling, who is from Texas and actually from 

Texas A&M, a place where I spent some time. It is a real pleasure. 

It is a real privilege to host the panel. 

Of course, we all know in Michigan, as much as anywhere, how 

critically important the automobile industry is and where it goes 

in the future, and because of that, this is a most appropriate place 

to host this among, I know, many of your hearings around the 

country to explore the process and the results of aid to the auto industry and beyond from TARP. 

Wayne State’s role, particularly in collaboration with our new 

consortium formed about three years ago with the University of 

Michigan and Michigan State as the University Research Corridor, 

is particularly important to the future of the auto industry and to 

Michigan’s economy. We, the three research institutions here, are 

principal producers of managers and engineers in the auto industry 

and many other of the workforce, as well as many of the innovaVerDate Nov 24 2008 01:45 Oct 30, 2009 Jkt 052669 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 E:\HR\OC\A669.XXX A669

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tions ahead of us in the auto industry in terms of alternative energy and hybrid vehicles and a number of other things in our engineering schools. So we are a partner with the auto industry. We 

are a partner with Michigan’s economy, and therefore, we are a 

partner with this oversight panel and its objectives. 

So we are very anxious to spend the day listening and we are 

very anxious for the outcome of your reviews around the country 

and what we expect will be a real boost to the economy and what 

you find out and what you recommend. So thank you very much 

for being here. 

Chair WARREN. Thank you, President Noren. 

I also want to thank Congresswoman Kilpatrick and Senator 

Levin and their staffs for their assistance with today’s hearing. I 

understand Congresswoman Kilpatrick is with us and we would 

like to thank her especially and recognize her for some opening remarks. 

STATEMENT OF HON. CAROLYN C. KILPATRICK, U.S. 

REPRESENTATIVE FROM MICHIGAN 

Ms. KILPATRICK. Madam Co-Chair, Madam Warren, my colleague, Congressman, how are you this morning? 

I just want to thank Mr. McGreevy for your fine work and work 

with my staff and my district director, Duron Marshall—would you 

please stand for a moment—as they coordinated efforts to have this 

event here. I think this is the first that you have had. 

This panel was created by legislation of the Congress, adopted as 

a part of our TARP package, and I think you are doing a fine job. 

This is my district. This is a perfect place to be this morning. 

Here in Michigan, we are the epicenter of the manufacturing that 

is kind of eroding itself in America. We are happy that you are 

here. 

The Congressman is an active participant in Congress, and I 

know that as we rebuild America and rebuild our Chrysler Corporation, our General Motors Corporation, and the thousands and 

hundreds of thousands of jobs that will be affected, your job will 

be one of most significance. 

Thank you for coming to Michigan’s 13th Congressional District. 

My staff is available and willing and ready to work with you. 

Thank you very much; We give you all our respect and love. Thank 

you. 

Chair WARREN. Thank you, Congresswoman Kilpatrick. 

I also want to recognize Congressman Conyers who has also been 

very active in economic issues and we appreciate the support that 

he has given us on the oversight panel and in inviting us here to 

Detroit. Congressman Conyers, can I call on you for a few remarks? 

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

FROM MICHIGAN 

Mr. CONYERS. Overcoming my usual reluctance to come before a 

committee other than mine, I am happy to be here and to welcome 

you all for several reasons. 

This is the university that taught me everything I did not know 

before I got here, and I am very happy to see the President here 

who is doing a great job. 


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I want my colleague in the Congress to know that we are privileged to use this part of the law school quite frequently for our own 

hearings and town hall meetings and activities. So we are glad you 

are all here. 

This is a difficult period of time that we are going through and 

in the automobile industry particularly. Now, the big question is 

how we can make this automobile bailout—and I know that is 

probably not a good term of art in a congressional hearing, but how 

can we help these companies to a maximum degree and yet not 

disempower hundreds and hundreds of automobile dealers? Some 

700–800 Chrysler dealers gone out of business. General Motors, I 

think it is in the 1,700 range. And the question is, how did that 

happen and is there anything we can do about it? 

The House has already tried to do something about it only last 

week. One of the chairmen in the Senate committee—I just found 

out that he has asked for a review of this as well. So to me this 

is a very, very important part of our business. Minority auto dealers kind of have been even more disadvantaged by this. 

I should particularly thank Ron Bloom for being here. Lord 

knows how many hearings he has been in. He has been before us. 

We have had three hearings in Judiciary already on this matter. 

But I hope that we will be thinking together about whether the 

auto task force diminished the rights of secured creditors and investors while giving preferential treatment to the United Automobile Workers. There has been a lot of talk about that in Washington. I do not think it is accurate, but I want to get it out there 

in advance. 

Then we have had the issue of whether there is—I do not think 

it will be raised, but whether the administration, whether the 

President is trying to start a government takeover of the private 

sector. I do not think that we should spend a lot of time on that 

today. Just remember it was the two leaders of the two automobile 

manufacturers that came to us to ask us for their help. 

So I am happy to be back here at my school. I am happy to have 

everybody here with me. 

We might want to consider an honorary degree for my colleague 

in the Congress, depending on his deportment and behavior today. 

But I welcome you here and I thank you very, very much. 

[The written statement of Representative John D. Dingell follows:] 


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Chair WARREN. Thank you very much, Congressman. 

STATEMENT OF ELIZABETH WARREN, CHAIR, 

CONGRESSIONAL OVERSIGHT PANEL 

Chair WARREN. Last October, Congress established our panel as 

part of the Emergency Economic Stabilization Act (EESA) to oversee the expenditure of funds from the Troubled Asset Relief Program, commonly referred to as TARP. It is our duty to investigate 

and issue monthly oversight reports that analyze and evaluate the 

Treasury Department’s administration of this program and its efforts to stabilize our economy. 

Congress also authorized this panel to hold hearings. Over the 

past eight months, we have traveled to locations as diverse as Nevada, Maryland, Wisconsin, New York, and Colorado in order to 

learn how the financial crisis is affecting people across the country. 

We believe that this is the best way to develop yet another perspective on the impact of the financial crisis. 

Today, we are here in Detroit, Michigan to examine the Treasury’s use of TARP funds to support the automotive industry. As 

home to the three largest automakers in North America, Detroit offers a unique opportunity for our panel to better understand the 

benefits and the challenges posed by the Government’s intervention 

in the auto sector. 

A symbol of American strength and ingenuity, few industries are 

as deeply embedded in our national identity. For generations, the 

health of the auto industry has been a mirror for the health of our 

Nation. As you know all too well, this reflection has dimmed over 

the past few years, as both the auto industry and our country have 

faced the worst economic downturn since the Great Depression. 

Treasury has stated that the failure of the American auto sector 

poses a systemic risk to our economy. Such a failure would threaten hundreds of thousands of jobs, ranging from the auto industry 

itself to suppliers, dealers, and small businesses that depend on the 

industry for their livelihoods. 

On December 19th, 2008, Treasury offered domestic automobile 

companies eligibility for government assistance under TARP. 

Treasury’s decision to invest in the auto industry through the Automobile Industry Financing Program provided General Motors and 

Chrysler with approximately $80 billion in financial assistance on 

the condition that they provide viable business plans demonstrating how this assistance would allow them to restructure and 

to return to profitability. 

For our September oversight report, we will focus on Treasury’s 

use of funds to support the American automotive industry as authorized by the EESA. It is our hope that today’s hearing will enhance that report. 

We hope to explore the impact of TARP funds and to better understand the specific role that Treasury has played. We also want 

to examine the longer-term implications of Treasury’s involvement 

here. 

For today’s hearing, we have invited the head of the President’s 

Automotive Task Force, officials from GM and Chrysler, a creditor 

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ruptcy process. We thank you all for joining us today and we look 

forward to your testimony. 

Before I turn to Congressman Hensarling for his opening statement, I want to note the absence of Damon Silvers. This is the first 

hearing of the Congressional Oversight Panel that he has missed. 

Mr. Silvers has recused himself on all matters relating to the auto 

industry before the panel. All of us who serve on the panel serve 

on a part-time basis as Special Government Employees, and in his 

day job, Mr. Silvers is Associate General Counsel to the AFL–CIO. 

The AFL–CIO has taken a position advocating for TARP funding 

for the health care plans of AFL–CIO affiliate union members and 

retirees at GM and Chrysler. For that reason, Mr. Silvers did not 

feel it was appropriate for him to be involved in our oversight of 

Treasury’s assistance to the auto industry. We miss his good counsel, but we understand that he is working to protect the integrity 

of the process. 

I also should note the absence of yet another of our panel members and that is Richard Neiman, Superintendent of Banking for 

the State of New York. Mr. Neiman spent several hours in an airport in New York last night, only to learn at the end of the evening 

that his plane had been canceled and he was not able to come to 

Detroit and could not get on a plane early enough this morning in 

order to make the hearing. So I am afraid weather has conspired 

against him. We shall miss him as well. 

I now yield to Congressman Hensarling for any remarks he 

would like to make. 

[The prepared statements of Chair Warren and Mr. Neiman follow:] 


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

TEXAS 

Mr. HENSARLING. Thank you, Madam Chair. 

First, let me also add my voice of thanks and gratitude for 

Wayne State to host us today. I had originally advocated that we 

hold this hearing in the Nation’s capital, but having been here just 

a little bit of time, I can certainly say that the hospitality of Wayne 

State far exceeds that of my colleagues and other Members of Congress. So we are happy to be here, Mr. President. Happy to be here. 

I do actually want to thank my colleagues for being here today, 

and although we come from different parties and different philosophies, Congresswoman Kilpatrick and Chairman Conyers are very, 

very able advocates for their constituents. They are very distinguished and respected leaders within the United States House. It 

is an honor to have them here with us today. 

Unfortunately, I sense that Chairman Conyers is going to be in 

charge of the committee that decides whether or not I receive that 

honorary degree, I suspect I will not have to go to Michael’s and 

buy the frame later this afternoon. 

I look forward to hearing from the various panel members today. 

I think there are a number of serious questions that we have to 

ask. It is important that we understand exactly how TARP funds 

have been used in the unprecedented restructuring of our U.S. 

automakers, Chrysler and GM, and the specific roles played by the 

administration and others in the negotiations. 

As many know, the TARP program has never been quite as advertised. What was supposed to be a toxic asset purchase program 

somehow overnight morphed into a capital purchase program 

under the previous administration. What was a program that was 

ostensibly designed for financial firms is clearly now being used to 

rescue auto manufacturers. This raises a number of serious questions and for many Americans a program that was originally intended to stabilize markets during a time of economic crisis with 

taxpayer protection paramount, disappointingly now appears to be 

nothing more than a $700 billion revolving bailout fund used to 

promote the administration’s political, social, and economic goals. 

Clearly, one of the more questionable uses of taxpayers’ money 

under TARP has been the administration’s handling of the bankruptcies of GM and Chrysler which now has involved the commitment of at least $80 billion of taxpayer money. In the case of 

Chrysler, bondholders with the most senior claims saw their claims 

reduced substantially while junior creditors like the UAW Retiree 

Benefits Trust were given far more preferential treatment. UAW, 

as we know now, effectively owns Chrysler with its trust fund ending up with a 55 percent stake. The UAW claims are clearly an integral part of the bankruptcy negotiations and will remain an integral part of Chrysler in the future. 

So it is most unfortunate that, as I look at the witness list today, 

there is no representative of the UAW scheduled to testify to help 

shed light on how this ownership stake came to be. Somewhat in 

their defense, I am informed that the invitation from our Congressional Oversight Panel went out just last week, although it was in 

discussion for many weeks. 


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Having said that, I am still disappointed. As a Member of Congress, I know that Mr. Gettelfinger, who heads the UAW, appeared 

on numerous occasions in front of numerous committees, including 

my own, asking for taxpayer assistance. Clearly, he was able to rearrange his schedule to come ask for the TARP money, but now 

that he has received it, it appears that neither he nor his representatives can be found to help account for these funds. 

Another troublesome aspect of the Chrysler restructuring deal is 

the alleged pressuring by Treasury officials of senior secured bondholders to abandon their fiduciary responsibilities to investors, 

which included teachers, school endowments, and major pension 

and retirement plans of working Americans, to accept less than 

what they would typically be entitled under bankruptcy law. 

Even more disturbing is that there seemed to be a clear contrast 

between the reluctance of several non-TARP recipient creditors to 

accept less than what many viewed as their historic fair share and 

the acquiescence of TARP recipient credits to consent to Treasury’s 

proposed deal which gave them 29 cents on the dollar. 

In the case of GM, the UAW was again given preferential treatment over bondholders with similar claims. Their bondholders exchanged $27 billion in unsecured debt for what will likely remain 

a 10 percent common equity interest while the UAW exchanged 

$20 billion in claims for a 17.5 percent common equity interest, 

plus billions in preferred shares. 

I fear that this rather unorthodox reordering of rights is not only 

unfair, but may have chilling and far-reaching consequences on our 

capital and bond markets. Investors, fearful of entering into contracts that may later be abrogated, will surely price this risk into 

the premiums they require. Ironically, TARP was put in place to 

help make credit flow again, and instead, it may have exactly the 

opposite effect by creating disincentives to participate in markets. 

At a time when our Nation’s unemployment rate has hit a 26-year 

high, this is unacceptable. 

As TARP programs continue to create market distortions and discourage private sector support, they enhance what is proving to be 

an enduring role of Government in business. The United States 

Government and the taxpayers now own almost 61 percent of GM. 

Now, I am glad that Mr. Bloom from the President’s Auto Task 

Force has agreed to join us today. The Congressional Oversight 

Panel has responsibility to find out how and when the administration plans to unwind its ownership of GM and return the money 

to the hands of the taxpayer where it belongs. 

I remain fearful, though, that the decisions Treasury has made 

will become part of our national heritage and, unfortunately, may 

enshrine us as a bailout Nation, help politicize our economy, and 

hinder our economic recovery. 

I am confident, though, that the panel will carry out its oversight 

duty to thoroughly investigate the dealings of all parties involved 

in the Chrysler and GM bankruptcies, and I look forward to hearing from the witnesses. 

Chair WARREN. Thank you, Congressman Hensarling. 

We have seven witnesses testifying before us today, and we hope 

this will give us a full opportunity to get answers to all of our questions. We reached out to a number of individuals and organizations 


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who could not be with us today, including the UAW, J.P. Morgan 

Chase, and the lead attorneys for the dissatisfied creditors. We look 

forward to hearing from the witnesses who are with us today. 

I would like to call our first witness, Ron Bloom, if you could join 

us. Mr. Bloom is Senior Advisor to the Secretary of the Treasury 

and the head of the President’s Auto Task Force. Mr. Bloom, if you 

could, I will ask you to hold your remarks to five minutes, but your 

entire written statement will become part of the record. Mr. Bloom, 

whenever you are ready. 

STATEMENT OF RON BLOOM, SENIOR ADVISOR, U.S. 

DEPARTMENT OF THE TREASURY 

Mr. BLOOM. Thank you. Good morning, Chairperson Warren, 

Representative Hensarling. Thank you for the opportunity to testify before you today. 

On behalf of the Obama administration and its Auto Task Force, 

I am here to report on the restructurings of General Motors and 

Chrysler. 

As you know, the new GM and the new Chrysler have recently 

emerged from bankruptcy and are now operating as independent 

companies. While this process has been very difficult, it has resulted in two great American companies being given a new lease 

on life and has kept hundreds of thousands of Americans working. 

During the bankruptcy proceedings, every affected stakeholder had 

a full opportunity to have his or her claim heard and every creditor 

will almost certainly receive more than they would have had the 

Government not stepped in. 

I want to make clear from the outset that this is a situation that 

neither the President nor his administration invited. Only a few 

months ago, both of these companies came to the Government in 

a state of complete insolvency, facing almost certain liquidation 

without further Government support. Despite this, President 

Obama decided that he could only justify providing additional taxpayer dollars if the companies fundamentally restructured their 

businesses, which meant real and painful sacrifices from all their 

stakeholders, from workers and retirees to dealers, suppliers, and 

communities. 

In addition, the President gave his Auto Task Force the clear directive to take a commercial approach to these restructurings and 

refrain from intervening in the day-to-day decisions of the companies. He did this because the long-term viability of these companies 

and their ability to repay the Government’s investment would be 

seriously undermined if the Government became involved in individual business decisions. 

In only a few months, both companies have achieved a degree of 

restructuring that many thought impossible. After proceeding 

through open bankruptcy processes, they have now emerged 

stronger and more capable of competing as global companies. The 

companies are now being run by their management teams under 

the direction of new independent, world-class boards of directors. 

As is appropriate given these developments, the task force will be 

shifting its focus largely to monitoring the taxpayers’ investment as 

we move forward. 


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Whenever a company as large and interconnected as GM or 

Chrysler is fundamentally restructured, the costs in economic and 

human terms are substantial. However, completely avoiding these 

costs would have required an unacceptably large commitment of 

taxpayer resources. Therefore, for both companies, this meant substantial sacrifices for all stakeholders, sizable reductions in their 

workforces, plant footprints, and dealer networks, substantial reductions in the claims of secured and unsecured creditors, significant reductions in compensation and benefits for active employees 

and health care benefits for retirees, leaving behind a variety of 

unsecured claims, including on product liability and workers compensation, a decision the companies made on a commercial basis. 

I also want to emphasize the importance that our team has 

placed on transparency and accountability. The task force has conducted broad outreach over the past several months to affected 

stakeholders, industry experts, and other constituencies that have 

requested such meetings to ensure that we have been as inclusive 

as possible. And because the investments made by both the prior 

and current administrations to support the auto companies have 

come from the TARP, the task force and its staff activities have 

been subject to the full range of disclosure and reporting requirements under the EESA statute. 

In addition to reporting to this committee, this includes oversight 

by the GAO, EESA’s financial stability oversight board, the Special 

Inspector General for TARP, or SIG TARP, as well as required reporting to multiple House and Senate committees. 

Also, to date, I have testified before the Senate Banking Committee and the House Judiciary Committee. We have had dozens 

of meetings with Members of Congress and their staff, as well as 

almost constant telephonic communication with them. The Auto 

Task Force will continue to be as responsive as possible to the requests of these entities to ensure thorough transparency and accountability for our actions. 

Finally, the administration has articulated principles that will 

govern its approach to managing ownership interests in the automotive companies and protect taxpayer dollars. 

First, the Government has no desire to own equity in companies 

any longer than necessary, and it will seek to dispose of its ownership interest as soon as practicable. 

Second, the Government will protect the taxpayers’ investment 

by managing its ownership stake in a hands-off commercial manner. 

And finally, as a common shareholder, the Government will only 

vote on core governance issues, including the selection of a company’s board of directors and major corporate events or transactions. 

Together these principles will help maximize the return taxpayers receive on their funds. 

In a better world, the choice to intervene would not have had to 

occur, but amidst the worst economic crisis in three-quarters of a 

century, the administration’s actions avoided a devastating liquidation and put a stop to the long practice of kicking hard problems 

down the road. While difficult for all stakeholders involved, these 

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dinary second chance and a very real opportunity to succeed and 

prosper in the years ahead. 

Thank you and I look forward to your questions. [The prepared 

statement of Mr. Bloom follows:] 


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Chair WARREN. Thank you, Mr. Bloom. We appreciate your being 

here today. 

You started your remarks by noting that sacrifices have been required of all the stakeholders in this effort to reorganize the automobile industry. And I would like to start my questions along the 

same line. 

As I understand it, in order to receive taxpayer assistance, the 

two automobile companies have had to come up with a new business plan. They have had to replace at least some senior management. They have forced creditors to take losses, and they have 

largely wiped out their shareholders. 

As I also understand it, in order to receive TARP funds, none of 

those same requirements have been made of the financial institutions, even though the amount of money at stake is about two and 

a half times more. 

So I wonder if we could begin this process with some explanation 

of why these restrictions were demanded of the auto industry and 

not of the banking industry. 

Mr. BLOOM. Well, Madam Chairman, I really cannot speak about 

the determinations that were made relative to the banking institutions. My responsibility has been to work with the President’s Auto 

Task Force. I think the situations facing the banks are quite different. But honestly, our sole focus over the past 4 or 5 months has 

been on the auto companies, and so I am happy to try to give you 

as much understanding as I can about how we approached that 

matter. But in terms of comparing it to what was done with the 

banks, that is really not something I am in the position to do. 

Chair WARREN. So no sense of how the two industries either are 

different from each other or the role of insisting on some reorganization in order to protect taxpayer investments? 

Mr. BLOOM. I have had my hands full trying to wrestle with two 

very large, troubled auto companies, and that takes up 21 hours of 

the day, and the rest I reserve to myself. 

Chair WARREN. Well, in that case, I will ask you more about 

what you have said about your efforts with the auto industry. 

I want to understand two phrases that seem to be somewhat in 

tension with each other. I hear you and others discuss many times 

the need for a ‘‘change in culture’’ in the auto industry, and at the 

same time, I hear you and heard you in your testimony today describing your role as ‘‘hands-off.’’ So I am curious how it is, if you 

see ‘‘change in culture’’ as a central ingredient for reviving the industry and protecting the taxpayer investment—how you see that 

as consistent with a ‘‘hands-off’’ approach to managing the Government’s investment. 

Mr. BLOOM. Well, that is a fair question. Let me try to answer 

it. 

I think we tried to do three separate things as we approached 

our work. 

The first was we tried to facilitate and effectuate a financial restructuring, a reordering of the balance sheet to help the company 

relieve itself of liabilities that its current profit potential were simply unable to bear. 

The second thing we did is, working with the management, we 

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panies were able to make profit at a lower level of sales and make 

more profit at higher levels of sales than they historically had. And 

that was an insistence that the President has made that I spoke 

about, that was a condition to advancing the additional Government funds. 

In terms of the third leg of the stool, the cultural change, which 

I absolutely agree with you is central to effectuating a turnaround, 

I think what we did there largely was to bring in, in the case of 

Chrysler, an entirely new and, in the case of GM, a significantly 

new board of directors of people of extraordinary accomplishment 

in the private sector; people who have had experience effectuating 

turnarounds and we have tasked them with the responsibility of 

overseeing the management so that this culture change, which you 

referred to and which we would agree is very important, is in fact 

effectuated. 

I would also note that in the case of Chrysler, the entire management team is new, and in the case of General Motors, many of the 

senior managers are no longer with the company and the management team is certainly a lot smaller than it was. And we are very 

hopeful that the new management team at Chrysler will be committed to the culture change that you spoke of, and we are confident it will. We are very hopeful at General Motors as well, but 

we have a lot of faith that the new board of directors that has been 

put in place will be very vigilant in pursuing that objective. 

Chair WARREN. Thank you, Mr. Bloom. My time is up. 

Congressman Hensarling. 

Mr. HENSARLING. Thank you, Madam Chair. 

Mr. Bloom, I could barely see you there. 

Mr. BLOOM. Yes, this is better. We can look at each other. 

Mr. HENSARLING. Mr. Bloom, the first question I have, the first 

tranche of assistance to the automakers came from the previous administration, but knowing how often this administration has broken with the policies of the previous administration, what is the 

legal authority that you cite for the continued infusions of TARP 

money that took place prior to the Chapter 11 reorganizations? 

Mr. BLOOM. I do not think this administration breaks with the 

prior administration just to do it. I think it does it where it believes 

that change is appropriate. And on this particular matter, we think 

the finding that the prior administration, made that under the 

statute these companies are eligible, is a finding that this administration concurs with and made as well. 

Mr. HENSARLING. Refresh my recollection. That specific finding— 

is that a finding by whom? Is this something—— 

Mr. BLOOM. By the Secretary—I am sorry. 

Mr. HENSARLING [continuing]. The Justice Department? So it is 

an interpretation by the Secretary of—— 

Mr. BLOOM. By the Secretary of the Treasury in consultation 

with—— 

Mr. HENSARLING. Okay. That is the legal authority you all rely 

upon. 

Mr. BLOOM. Well, under the statute, yes. 

Mr. HENSARLING. Given that the taxpayer has become an involuntary investor in Chrysler and GM, is it the intent of the Government and your Auto Task Force to ensure that they receive the 


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same disclosure of any public company, that they as shareholders 

would receive all proper disclosures? 

Mr. BLOOM. Neither of these companies today are public companies in the traditional use of the word, meaning their stock is traded on a recognized exchange. 

Mr. HENSARLING. But will the taxpayers—— 

Mr. BLOOM. No. I am going to answer your question. 

On the other hand, we have insisted—and the companies have 

both agreed—that they will be making periodic reports to shareholders, if you will, but to the Government these will be publicly 

available on a quarterly basis. They will be filing as voluntary filers under the SEC, not immediately but shortly. But immediately 

and quarterly, they will be making regular reports, yes. 

I am sorry. Just to clarify to be clear, as you know, the old General Motors is still a public company, but I was speaking about the 

new GM. 

Mr. HENSARLING. Correct, correct. 

For a lot of observers, clearly again, TARP crossed a threshold 

when funds were invested into what many would view as a nonfinancial firm. The New York Times recently wrote, I believe just 

a few days ago, on the 25th—and the New York Times is not 

known for being a bastion of conservative thought—quote, ‘‘Why, 

after all, should the automakers receive the equivalent of a technicolor dream coat giving them favorite son status when other industries like airlines and retailers also have suffered from the national 

recession.’’ Unquote. 

I come from Dallas, Texas. Two of the Nation’s leading airlines, 

American Airlines and Southwest Airlines, are headquartered in 

our greater Dallas-Forth Worth Metroplex. So it does beg a question. I know of very few firms, industries, sectors that are not hurting in this economy. So once you got out of the financial realm into 

the automakers, would the administration come to the rescue of 

American Airlines and Southwest Airlines if they fell upon economic hard times? 

Mr. BLOOM. I cannot answer a hypothetical about what might 

happen. I can answer only that the administration and the prior 

administration believe that the centrality of the automobile industry to the broader economy justified this intervention. What would 

happen down the road is, I think, something that would have to be 

evaluated when, as, and if it happened. 

Mr. HENSARLING. What would be that criteria? Or in your position at the Auto Task Force, you would not necessarily be privy to 

that information. 

Mr. BLOOM. Again, my responsibility is for autos. So I guess it 

is possible someone would ask my opinion about airlines, but I do 

not anticipate it. 

Mr. HENSARLING. As part of the restructuring of Chrysler—I believe I have my facts right—I believe that Fiat has the opportunity 

to increase their equity stake. I believe it is from 20 to 35 percent 

for, among other things, producing a domestic car that can achieve 

40 miles per gallon. I think I have my facts right. 

And if so, Mr. Bloom, what does that have to do with financial 

stability? Why does that not instead speak to the President’s global 

warming initiatives, which is an interesting debate to have? But I 


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am curious, what does it have to do with financial stability in our 

markets? 

Mr. BLOOM. Just a very minor correction. You are essentially correct. Fiat has 20. They can move to 35. There are three different 

metrics. The one you cite is one of them. It would get them an additional 5 percent. But you are essentially right. 

And let me answer your question. The judgment was made that 

producing a high-mileage car would be helpful to the company’s 

long-term viability. And Fiat—one of the things they, if you will, 

bring to the party is very advanced technology particularly in the 

area of small cars. So what we were trying to do is build an incentive for Fiat to bring—or Chrysler to avail itself of that technology 

as quickly as possible—the judgment being that in order for Chrysler to be successful in the long term, a fully balanced product portfolio, including high-mileage cars, was critical to its long-term success. So the reason was based on a judgment about what Chrysler 

needed to be long-term successful company and trying to align 

their interests with Fiat’s. 

Mr. HENSARLING. Thank you. I see I am way past my time limit. 

Chair WARREN. Yes, you are. I had lost track. I was interested 

in the question. 

Mr. Bloom, you pointed out that an essential tool for change in 

the culture is not only the new management team, but the new 

board of directors. And I just want to ask a few questions about 

the role of the members. 

For the directors appointed by the Government, are there any restrictions on the role that these directors will play? Do they play 

a role just like any other director? 

I raise this because of the special relationship that we must 

probe between the Government and the ongoing management of 

the company. 

Mr. BLOOM. Let me try to be responsive, and if I am missing 

something, maybe you can help me. But let me say that our expectation is that these people will act as directors must act, which is 

to say fiduciaries for the shareholders, unrestricted in their ability 

to do that. There is no checking with Government. There is no lookback. There is no special reporting. They are there to do the job of 

every other director in any company that a director serves on. 

Chair WARREN. All right. That is what it was that I just wanted 

to clarify. If the question was unartful, the answer was, nonetheless, responsive. 

But that means then it takes me to another part of the corporate 

governance structure, and that is the notion that ultimately boards 

of directors are responsive to shareholders. And, as I understand 

it, both VEBA and the Government intend to be hands-off here. 

Does that mean, to the extent there is shareholder influence in 

the operation of this business, that it will be essentially representing about 10 percent of the equity of General Motors in its 

influence over the major decisions to be taken? 

Mr. BLOOM. Let me take the GM case and see if I can be responsive. 

As you correctly suggest, the bondholders will have 10 percent, 

although they do have warrants to purchase an additional 15, could 

grow to 25, but still a small number. The VEBA has 17.5, could 


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grow to 20 with a very, very highly priced option as well. The U.S. 

Government, 60.8, and the Canadian Government, the balance. 

It is our intention, as the Government, that we will vote those 

shares on the reelection of the board of directors. So if for whatever 

reason there is an issue with the board, the Government would be 

able to exercise its influence there. But the shareholder right, if 

you will, is quite narrowly circumscribed only to the election of the 

directors, and that will be the full extent of it. 

So I think while that is not 100 percent traditional in terms of 

how one might think of a large shareholder, the decision that was 

made was that while—on the one hand, there is obviously an expectation that there is a huge amount of taxpayer resources at 

stake here and they need to be protected. On the other hand, we 

are very eager to dispose of these shares as soon as is practicable 

and to provide these companies with access to private capital markets. And so balancing all those things, the judgments were made 

to exercise our governance rights as we are. 

Chair WARREN. So if I am understanding this, then you are telling me that having appointed a certain number of directors, that 

the Government in effect will now recede from the field until the 

next time that the directors are up for election, and then it will 

make, in effect, the binary decision, yes/no, on these directors or replacing them with directors that the Government is more comfortable with. 

Mr. BLOOM. Yes. 

Chair WARREN. Is that the process? 

Mr. BLOOM. I think that is a fair description of it, yes. 

Chair WARREN. Good. I think that is good. 

Instead of opening up another line of questions, I will just go to 

you, Congressman Hensarling. 

Mr. HENSARLING. Mr. Bloom, I am still trying to make sense, I 

guess economic sense more than bankruptcy law sense—our chair 

certainly has far greater expertise as a professor in the area than 

I do. But on a before-and-after basis, again, how is it possible that 

the UAW VEBA unsecured creditors receive a greater distribution 

of proceeds than Chrysler senior secured creditors or the GM bondholders? Regardless of whether it was legal, I think it is certainly 

unprecedented, and I continue to be curious about the matter. 

Mr. BLOOM. Okay. As you acknowledge, it is perfectly legal. The 

courts have scrutinized this extensively, and no one has found any 

problem with it. 

In terms of precedential quality, let me refer you to the bankruptcies of the steel companies in the turn of the prior decade, 

which is something I happen to have been quite involved in. In 

that case as well, there was a huge difference in the recovery that 

the VEBAs were able to receive versus the creditors. Likewise, I 

would point you in Chrysler to the recovery received by the suppliers and the recovery received by the warranty holders. 

And it all stems from the same basic fact, which is that the new 

buyer of these assets made a commercial decision that to enter into 

contracts with its suppliers, to assume the warranty claims of past 

warranty holders, in those two cases, it made a commercial judgment that in order to be a successful business enterprise, to not 

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nies the most logical buyers of the next vehicle, would be an illogical commercial judgment. 

Likewise, the suppliers—it is difficult to make cars if you do not 

have steering wheels—decided that providing essentially ordinary 

course payment to its supply base through the entirety of the bankruptcy proceeding and therefore leaving them essentially 

unimpaired was a wise commercial decision, which the Government 

agreed with. 

Likewise with the UAW, the company engaged in a very difficult, 

arm’s-length bargain with its labor union, and as part of that bargain, the union decided that its active workers would take reductions in their pay and benefits. There were a variety of other 

changes made in work rules and other areas, but through that 

hard-fought bargain, the UAW also said that we want new Chrysler to have a VEBA to take care of the people who used to work 

for old Chrysler. And new Chrysler made a commercial decision 

that without a skilled workforce, it would be very difficult for the 

company to operate. And so they got the UAW to take as small of 

an amount, as they could, in that process. And that was the commercial judgment that the company made, which—— 

Mr. HENSARLING. Mr. Bloom, when you talk about new Chrysler, 

new GM, I mean, we are still talking the Federal Government and 

the UAW substantially. Correct? 

Mr. BLOOM. I am sorry. The last part of your sentence? 

Mr. HENSARLING. When you are talking about new GM and new 

Chrysler, the management made this decision. 

Mr. BLOOM. Yes. 

Mr. HENSARLING. Two observations. Number one, they are representing the Federal Government and they are representing the 

UAW. So to some extent, the old becomes the new, number one. 

And number two, I am not convinced that somebody using their 

own money would have made this same deal as opposed to using 

the taxpayer money. 

Mr. BLOOM. I am not sure I understand. You mean they were 

representing the UAW. They were adverse to the UAW in the proceeding. I mean, there was an arm’s-length bargain between the 

management and the UAW. So I do not think they were representing—— 

Mr. HENSARLING. And that is how they ended up with 55 percent. 

Mr. BLOOM. That is how they represented, number one. 

Number two, in terms of whether a private sector individual 

would do it, that is a matter of speculation. But again, I would recommend you to the steel bankruptcies where private sector individuals did come in and put their own private sector money at risk. 

In fact, the relative amount that the VEBAs received in the steel 

bankruptcies was more like 40 and 50 times what the unsecured 

creditors received. So I do not find it at all out of line. But I have 

been doing a lot of bankruptcies over a lot of years, and I think 

most of the participants of the bankruptcy did not find it out of 

line, but perhaps others would. 

Mr. HENSARLING. Thank you. 

Chair WARREN. Thank you. 


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Could we turn for just a minute to GMAC? How has GMAC performed as a reliable source of credit for GM and Chrysler dealers 

and consumers so far? 

Mr. BLOOM. Well, obviously, the entire sector is troubled, and obviously, people in general are not buying as many cars. But I think 

we are satisfied that GMAC has done as good a job as it could 

under the circumstances. There was, obviously, this very large and 

complex transfer of the Chrysler dealers to GMAC, which we believe was handled largely—you know, there is a hiccup here and 

there, but I think was largely well. Certainly there are individual 

dealers and individual consumers who have complaints about the 

company, which would be true of any financial institution. But I 

think we feel, by and large, that GMAC, while facing its own challenges, is doing a good job of providing credit to both consumers 

and dealers. 

Chair WARREN. Do you know? Is GMAC still the preferred financing option for most purchasers? Has its percentage shifted 

during 2009? 

Mr. BLOOM. There certainly were periods—not relative to GMAC. 

There were periods with Chrysler financial where there was some 

movement away from it, but I am not aware—and I can get back 

to you with more detail or maybe we can direct those questions directly to GM. But to my knowledge, the percentage of consumer 

purchases that GMAC is doing both before and after is not very different. 

The only area where you might see a decline in GMAC was in 

the leasing business. It has gone out of the leasing business. And 

there is a percentage of buyers of cars who are sort of lease-specific, and those guys therefore, obviously, are not getting their financing from GMAC. 

But other than that, I think the straight purchases, to my knowledge, are roughly the same, but I can certainly get you more detail 

on that. 

Chair WARREN. Insofar as you know, the rates are still competitive that GM is asking for. I am just trying to get a sense of—— 

Mr. BLOOM. Yes, versus the private markets. We are not aware 

of any rate discrepancy versus the banks or others who might be 

providing auto credit. 

Chair WARREN. Do you have any concerns about the interconnectedness between GMAC and the two auto companies in the 

sense of a sort of double exposure here of one industry that is trying to make and sell cars, another that is having to rely on the 

credit of households that are facing their own difficulties with rising rates of unemployment and other financial stress? 

I just want to focus for a minute on whether it is. Having approached it from one angle, and that is, is GMAC adequately supportive of the two car companies, it is really from the other direction. Does it bring added risk to the table for the long-term success 

of the overall enterprise? 

Mr. BLOOM. I mean, there is no question that GMAC’s future is 

importantly dependent on the existence of a healthy car industry, 

but likewise, the dilemma is the car industry’s future is dependent 

on their being a reliable and healthy GMAC. So whether we like 

it or not, the two are integrally committed. 


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Chair WARREN. Can I actually press on that, though, just a bit, 

Mr. Bloom? Because I really do want to understand this. Is it that 

the auto industry relies on the availability of credit in general and 

consumers who can afford to buy cars and ultimately then to pay 

off their loans? Or is it that it relies specifically on GMAC? And 

if it is the latter, can you just fill that in a bit on why that would 

be so? 

Mr. BLOOM. No, that is a fair question. Certainly the first part 

of your question is correct. Roughly 80 to 90 percent of car purchases are financed. So that is undeniably true. 

GMAC just has very, very large market share. I mean, obviously, 

remember not too many years ago GMAC was a wholly subsidiary 

of General Motors, and then it was spun off to be a minority and 

then, obviously, in the course of these additional capital injections, 

General Motors’ interest has declined. It will continue to decline. 

But nevertheless, GMAC has a very high percentage of the overall market, if you will, for purchasers of GM cars. And so the dilemma would be, while it is theoretically possible that all those 

consumers could find their way to alternative financing sources, I 

think in any reasonable period of time, that would not have happened. All the other car companies—Ford, as well as the transplants—also have their own, and they have their own fully captive 

finance companies. 

So certainly there are big banks who are in the business of providing consumers with financing to buy cars and providing dealers. 

Credit unions do it. But collectively all of them do not equal what 

GMAC provides to GM. So I think the decision was that if you took 

that away all at once, you would have an enormously disruptive 

impact on the company’s ability to sell cars and a dealer’s ability 

to buy cars, which is obviously critical. 

Chair WARREN. If I might just follow up with one more question, 

even though I am beyond my time, but it is the appropriate moment to ask, if I can. 

Then let me ask the question just at one more turn of this analysis, and that is, is GMAC then really an integrated part of the two 

auto industries? You rightly point out for many, many decades, it 

was merely the financing operations so that the industry could sell 

on credit. And when it became very profitable, it was spun off into 

its own separate entity. And I am just really asking functionally is 

it now truly part of the two companies that we are trying to revive 

here, an internal part of them? 

Mr. BLOOM. Well, I would argue it is less a part of them than 

it used to be. 

Chair WARREN. In what sense economically? I understand the 

point legally. 

Mr. BLOOM. Economically in the ownership. 

Chair WARREN. I understand the legal distinction, but I am asking the economic—— 

Mr. BLOOM. No, because the shareholders get the economic upside and now there is a 100 percent—I mean, there was always an 

arm’s-length dealing between the companies and the people who 

loaned money. The finance companies insisted on that. But now 

there is also the economic incentive of a completely different shareholder group. 


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Chair WARREN. And is that good or bad? That is the evaluation 

I am asking you for. You are running the whole show here. 

Mr. BLOOM. Right. Well, we are not running the show. 

But I think that remains to be written. Our belief is that separate entities, obviously, connected by the nexus they have, but separate companies can be successful. I mean, the car companies have 

a lot of suppliers who are integral to their future and their life who 

are not owned by the car companies. They are key suppliers who 

provide them steering wheels and all kinds of things they do not 

own. So we do not feel that it is essential that GMAC be owned, 

but obviously, the two companies are connected. No question about 

that. 

Chair WARREN. Thank you, Mr. Bloom. 

I thank you for your indulgence. Congressman Hensarling. 

Mr. HENSARLING. Mr. Bloom, on the way in from the airport last 

evening, the first auto facility that I saw on my way to the hotel 

I stayed at was a Ford facility. You brought them up in your earlier answer. Chrysler and GM sought TARP funds. They received 

TARP funds. Ford has not. Ford has, I assume, a very significant 

debt service that they have to handle. 

How is it wise economic policy to have a subsidized GM and a 

subsidized Chrysler compete with a non-subsidized Ford, and if another catastrophe occurs and Ford’s financial fortunes turn south, 

is the administration going to come in and rescue them with TARP 

funds? 

Mr. BLOOM. Well, obviously, it does pose a dilemma. The administration did make clear to all three of the companies in the course 

of this process that if they came forward, their requests for assistance would be evaluated. Two companies came forward and requested it. Ford did not come forward and request it. 

I think Ford is going to have to determine what its best future 

is and whether or not they feel they can compete. I think at least 

reading the public media, that Ford believes that the decision to 

provide assistance to GM and Chrysler was a good one. I think 

they have been supportive of it. So I take it that they know how 

to represent their own interests, and so this does not seem to be 

something that they think should not have been done. 

As to what the future may hold, again, I do not have a crystal 

ball, and what the facts and circumstances are at the time will determine, I think, how a request from Ford would be evaluated. So, 

again, I cannot speculate on that. Obviously, right now, Ford believes—they have stated it publicly, so I am only simply restating 

their public statements—that they believe they can make it 

through without any Government assistance, and we obviously—— 

Mr. HENSARLING. One could argue—and I do not pretend to be 

an expert in the automobile industry, but one could argue, could 

they not, that the Federal Government has subsidized two failing 

business models and is thus harming a competitor that has a successful business model? Arguably, had Chrysler and GM been allowed to go through, let us say, a more natural Chapter 11 process, 

perhaps Ford would gain even more market share. And I am wondering if the Federal Government might actually contribute to the 

economic demise of Ford. 


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Mr. BLOOM. Well, it is obviously possible that if these companies 

went into uncontrolled bankruptcies and the likely liquidation that 

would have followed, Ford would have done better on that versus 

what has happened. Again, I cannot speculate about what might 

have been. 

As I said, I do know that Ford felt like—has stated publicly 

that—the assistance given was a good idea. I think they were deeply concerned about the integrity of the supply base and sending 

many, many suppliers into bankruptcy, which the liquidation of 

GM and Chrysler most assuredly would have done, in addition 

would have caused bankruptcies that would have affected the 

transplants as well. Again, it is possible that a different future 

could have been written differently. 

There is no question that GM and Chrysler were failing companies. I think that is absolutely true, and the Government offered 

the smallest amount of assistance that it could consistent with giving these companies a second chance, believing that the overall impact on the economy of an uncontrolled bankruptcy and a liquidation which would have followed was far, far worse for the overall 

economy. That is a judgment that was made. 

Mr. HENSARLING. Mr. Bloom, let me ask you another question on 

how we arrived here. Did you or do you have knowledge of any 

member of the Auto Task Force encouraging a TARP recipient or 

other creditor to support Chrysler and GM’s section 363 sales? 

Mr. BLOOM. If the question is whether an approach was made to 

a TARP recipient suggested that because they are TARP recipients, 

they ought to do one thing or the other, the answer is absolutely 

not. 

Mr. HENSARLING. So you are speaking on behalf of yourself, and 

are you also speaking on behalf of the administration when you assert that? 

Mr. BLOOM. Yes. This is a matter that I was asked about in deposition, and so in preparation for my deposition, I did extensive 

questioning of all the people who were involved in this matter on 

behalf of—— 

Mr. HENSARLING. And that includes Mr. Rattner who has now 

departed? 

Mr. BLOOM. It absolutely includes Mr. Rattner. 

Mr. HENSARLING. I see my time is up. 

Chair WARREN. I would like to ask some questions about exit, 

Mr. Bloom. Milestones, so that we can see that we are making 

progress toward exit. Let me start there rather than with the exit 

itself. 

When can we expect to see some timelines and actually just the 

articulation of what the milestones are and when we expect to hit 

those milestones as we go forward in this reorganization process? 

Mr. BLOOM. Well, two things. On General Motors, I think we 

have publicly said and our expectation is, subject to an enormous 

change in our view of what the markets are like and where the 

company is, that GM will be able to undertake an initial public offering, an IPO, sometime in 2010. So at that point, the stock will 

then again trade on an exchange. I would think as part of that 

IPO, it is certainly possible the Government will be selling some of 

their shares into that IPO. It is possible there will be primary 


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shares too, but that will be determined at the time. So there you 

will see and be able to sort of get a first look at the new GM in 

the public markets. 

In terms of the articulation of a specific timeline following that, 

at this time the decision has been made to not articulate a specific 

timeline, either a back end or milestones. And the reason was, 

again, these are all balancing acts. We have articulated the principle of ‘‘as soon as is practicable.’’ The judgment was made that 

to put out a more specific timeline would create an overhang in the 

market that would be deleterious to receiving the best price. So the 

idea will be that working with the company, market opportunities 

will be taken, consistent with the principle I articulated of ‘‘as soon 

as practicable.’’ But to state a certain number of months or how 

much in any given month, the feeling was this would create an 

overhang that would actually make it more difficult for the company’s stock to trade well and, obviously, therefore for the American taxpayers to get value for their investment. 

Chair WARREN. Actually I got a little lost in the last part of the 

description. Between now and the IPO, will there be any milestones or markers so that we know we are on target to get our 

money back to head toward that IPO? 

Mr. BLOOM. No. The answer is at this point there is no intention 

to put out specific milestones either now or in the future. Now, 

again, that might change. But the current judgment is that the 

best way to get out as quickly as possible is not to commit to a defined schedule. So, for instance, if the markets open up more in 

2010 than we hope, we would obviously try to sell more in 2010 

than what we might otherwise. But it is going to be based on the 

situation as it evolves. 

Chair WARREN. Well, I understand your point about wanting to 

take advantage of the markets if the markets open up more than 

you had otherwise anticipated. But does that mean that it is not 

possible to identify, for example, some kind of operational markers 

or signs we will see if the company is reviving? 

Mr. BLOOM. Oh, I am sorry. 

Chair WARREN. These are the indications that good things are 

happening. Or will it simply be a black box until the moment we 

announce an IPO? 

Mr. BLOOM. Well, as I responded earlier to the Congressman, the 

company will be reporting. So there will be a visibility quickly on 

a quarterly basis as to how the company is doing. So the traditional sort of financial metrics of visibility will be available I think 

relatively soon. So we are not going to wait for the IPO to give people a peak as to how the company is doing. The company understands, because there are taxpayer dollars at stake, that giving the 

American people a periodic quarterly report card is proper and appropriate and they will be doing that. 

Chair WARREN. I am sorry. Before you go to the next point, I just 

want to be clear. You will be giving the same report card that any 

other company would be giving under the circumstances, any publicly traded company in America? 

Mr. BLOOM. I want to clarify that. In the absolute near future, 

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port. And obviously, after there is an IPO, of, there will be SECstyle reporting. 

Chair WARREN. And you expect it not to be full SEC-style reporting. Can you just give us an idea of in what ways it will be more 

constricted than an ordinary SEC report? 

Mr. BLOOM. I think that there are a whole variety of accounting 

issues that probably the company is best able to speak about, 

which prevent the company from immediately being able to be fully 

compliant. But it is the intention to be fully compliant as quickly 

as is possible and to provide as much information as the company 

can responsibly provide on a quarterly basis. 

Chair WARREN. So if I understand you, it may be that the first 

quarterly report would not be a full SEC-style report, but by the 

second or third, it might—— 

Mr. BLOOM. Again, I do not want to give you a false impression. 

I cannot today tell you whether it will be the second or the third, 

but clearly we have articulated, and the company has agreed, that 

as quickly as possible we expect them to be SEC-compliant. 

Chair WARREN. Will it be possible to give us some idea of what 

kinds of metrics are to be in the reports? I understand that you say 

that it will not be a full SEC-style report, but what items will be 

covered so that we know what to anticipate? 

Mr. BLOOM. Yes. Without giving you an exhaustive list, I think 

you can expect to see traditional measures of revenue and profitability that a normal investor would want to know about. 

Chair WARREN. If I can, let me ask the question then if we roll 

the clock out a bit farther. I think I am past time. Do you mind 

if I ask one more question? Thank you, Jeb. 

After the IPO and the Government has, hopefully, receded from 

the field here, how will we know if the taxpayers’ investment was 

a success? What are the appropriate measures of ultimate success 

for this extraordinary investment? 

Mr. BLOOM. Well, let me just be sure I did not mislead you. We 

would not expect to sell the entire stake in the IPO. So I just want 

to clarify that point. 

But nevertheless, you—— 

Chair WARREN. But I presume—— 

Mr. BLOOM. No, no. 

Chair WARREN [continuing]. Ultimately we hope to sell the entire 

stake. 

Mr. BLOOM. Not we hope to. We will. 

Chair WARREN. So I am saying in addition to the fact that it will 

be a successful day when our share is gone and out of Government 

hands. I am really asking a different question. For this extraordinary investment, how will we measure success? 

Mr. BLOOM. Well, I think success will be measured in the way 

that one as a taxpayer would expect it to be measured, and that 

is to say the taxpayers put a lot of money up and they want their 

money back. So the greater percentage of the money that we invested that we get back, the greater success. That is clearly the 

primary measure. This was taxpayer money, and it needs to be gotten back: in the case of the debt, paid back; in the case of the stock, 

gotten back by virtue of the sale. And obviously also over time, 

whether these companies have addressed the long-term problems 


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that we identified, which is to say, you know, a declining market 

share, a poor profitability profile, not growing in terms of their 

ability to provide good, stable jobs, so keeping the promises they 

make to their stakeholders. So I think all those things which you 

would always judge a company on we would expect to, but first and 

foremost, the taxpayers want their money back. 

Chair WARREN. Thank you, Mr. Bloom. 

Congressman. 

Mr. HENSARLING. Mr. Bloom, you mentioned the term ‘‘stakeholder’’ in your answer there, and I believe in your testimony you 

spoke about how every stakeholder in the GM and Chrysler reorganizations were hurt. I want to have our panel here—from a few of 

them now—these are letters, correspondence, statements that I received in my office, some dating back a month or 2 ago, or maybe 

2 or 3 months ago from GM bondholders. 

This one comes from Jim Graves, former GM employee, currently 

an independent software developer in Florida. Quote. ‘‘I have 

worked for General Motors and Ford Motor Company and am currently an independent software developer. I am speaking out on behalf of my mother, an 80-year-old retired GM employee and small 

bondholder. Both my mother and I have over $100,000 in GM 

bonds. My mother uses the interest from the bonds for retirement 

income, and I plan to do the same when I retire. We are here to 

urge the Obama administration to listen to our concerns and treat 

us fairly in the GM restructuring. Bondholders, especially small 

bondholders, are being ignored in negotiations and singled out to 

bear the lion’s share of the cost of restructuring in GM.’’ 

Chris Crow, an electrician and home inspector in Denver. Quote. 

‘‘I am a retired electrician from Denver, Colorado. I am not rich 

and I am not a Wall Street bank. These bonds finance my son’s college tuition and my retirement. I am actually very concerned about 

not getting a check on May 15th from my bonds because I need this 

money to pay my property taxes. When the administration refuses 

to meet with the bondholders or chooses to wipe them out, they are 

wiping me out and lots of others like me. We are Main Street not 

Wall Street. Who is looking out for our interests? Mr. President, 

please protect us.’’ 

And I have got probably 20 more on my BlackBerry that I could 

read from there. 

I guess the question is, Mr. Bloom, why would not one reasonably conclude that if you are a hard-working American and your 

retirement got invested in GM bonds, but you did not have a special relationship with the UAW, you fared worse than the UAW? 

Mr. BLOOM. Well, first thing, let me say that I have received a 

number of those letters as well. And there is, obviously, no easy 

way to speak to anybody who had a promise broken by General 

Motors. Lots and lots of people had promises broken. The company 

was insolvent. That is fundamental to the facts. 

Mr. HENSARLING. But some promises got broken more than other 

promises. 

Mr. BLOOM. No. I think all the promises were dealt with on a 

commercial basis, which is to say that the company—and obviously 

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quired of taxpayer dollars that had to be provided in order to reorganize General Motors. And the bondholders, obviously, did better 

than they would have had the Government not stepped in but did 

worse than they would have had the company not become insolvent. And that is true for every single stakeholder. 

And our judgment was—and obviously, people can question it— 

that all of these stakeholders were treated in a commercial way, 

not a nice story. A terrible story. And there are many, many more 

like that, but the alternative was either we liquidate the company—and I think the devastation would have been multiples of 

that—or all promises get met, in which case the taxpayer investment would have been multiples of—— 

Mr. HENSARLING. And Mr. Bloom, why do you conclude that liquidation was the only alternative? 

Mr. BLOOM. To what was done? 

Mr. HENSARLING. Yes, the leveraging of TARP funds in this particular Chapter 11. Why was a Chapter 11 reorganization without 

the use of TARP funds not possible? 

Mr. BLOOM. Our analysis was there would have been no debtorin-possession financing, and so if the company had had to go into 

bankruptcy without debtor-in-possession financing, the case would 

have been quickly converted to a Chapter 7—— 

Mr. HENSARLING. So it was the administration’s analysis that 

that would not have taken place. 

Mr. BLOOM. It was our analysis that there was no DIP financing 

available of the size required to reorganize and support General 

Motors. 

Mr. HENSARLING. Let me speak about another group of creditors, 

bondholders. Thomas Lauria, who is the global practice head of the 

Financial Restructuring and Insolvency Group at White & Case 

LLP, represented a group of senior secured creditors, including the 

Perella Weinberg Xerion Fund, during the Chrysler proceedings. 

You are probably familiar with this matter. On May 3rd, the New 

York Times reported, quote, ‘‘In an interview with the Detroit radio 

host, Frank Beckmann, Mr. Lauria said that Perella Weinberg was 

directly threatened by the White House and, in essence, compelled 

to withdraw its opposition to the deal under threat that the full 

force of the White House press corps would destroy its reputation 

if it continued to fight.’’ 

In a follow-up interview with ABC News, Jake Tapper, he identified Mr. Steve Rattner, the head of the Auto Task Force, as having 

told a Perella Weinberg official that the White House would embarrass the firm. 

Mr. Rattner is not here today. You are. Have you spoken to Mr. 

Rattner about this matter? And if so, do you know if Mr. Rattner 

represented to you that he denies the ABC story? 

Mr. BLOOM. I have spoken to Mr. Rattner about the matter, as 

I said earlier. This was a subject on which I was deposed. I spoke 

to him extensively about it. He categorically denies Mr. Lauria’s allegation. 

Mr. HENSARLING. Might someone else in the White House have 

had similar conversations? Who else did you speak to besides Mr. 

Rattner? 


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Mr. BLOOM. I spoke to all the people in the administration who 

were directly involved in the matter. I did not speak to every employee in the White House. Mr. Lauria’s allegation is that Mr. 

Rattner said it. And Mr. Lauria is wrong. He is free to make allegations, but he happens, in this case, to be wrong. 

Mr. HENSARLING. I see I am out of time. 

Chair WARREN. Thank you very much. Thank you, Mr. Bloom. I 

appreciate your being here. The witness is excused. 

Mr. BLOOM. Thank you. 

Chair WARREN. If we could call the second panel please. 

The second panel is Jan Bertsch, Vice President and Treasurer 

of Chrysler; Walter Borst, Treasurer of General Motors; and Dr. 

Sean McAlinden, Executive Vice President for Research and Chief 

Economist for the Center for Automotive Research in Ann Arbor. 

Welcome to all three of you. I will ask you, as we did with Mr. 

Bloom—we would be grateful if you could hold your oral remarks 

to five minutes. Your entire statement will become part of the 

record. 

If I could start with you, Ms. Bertsch. 

STATEMENT OF JAN BERTSCH, SENIOR VICE PRESIDENT AND 

TREASURER, CHRYSLER 

Ms. BERTSCH. Thank you. Members of the panel, thank you for 

the opportunity to discuss the financial assistance provided to the 

domestic automotive industry. 

Chair WARREN. You may want to pull that a little bit closer, Ms. 

Bertsch. 

Ms. BERTSCH. Thank you. 

And specifically to Chrysler LLC and Chrysler Group LLC under 

the automotive industry finance program component of the TARP. 

My name is Jan Bertsch. I am Senior Vice President-Treasurer 

for Chrysler Group LLC, a new company that purchased the principal operating assets of Chrysler LLC on June 10th, 2009, in a 

sale that was authorized by the United States Bankruptcy Court 

of the Southern District of New York. 

I would like to place my comments in context by describing a series of events that culminated in the United States Department of 

the Treasury providing a secured loan to the Chrysler Group LLC 

of approximately $7 billion in connection with the closing of that 

sale. 

In the fall of 2008, the economic downturn and global credit crisis hit the auto industry with full force. On December 2nd, 2008, 

Chrysler LLC, now known as Old Carco LLC, submitted a request 

to Congress for a $7 billion working capital bridge loan. 

On January 2nd, 2009, Old Carco received a $4 billion bridge 

loan from the United States Department of the Treasury, with a 

requirement that the company submit a restructuring plan to 

achieve its long-term viability, international competitiveness, and 

energy efficiency. 

Old Carco submitted its restructuring plan on February 17th, 

2009 based on achieving viability on a standalone basis, but noting 

that it had signed a nonbinding letter of intent for a strategic alliance with Fiat that would greatly improve its long-term viability. 


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The alternative to either a standalone plan or a strategic alliance 

was liquidation, which would result in tens of thousands of jobs 

lost at our company and its dealers across the country and would 

jeopardize the entire domestic auto industry due to the dependence 

of OEMs on common suppliers. 

On March 30th, 2009, the President’s Auto Task Force concluded 

that Old Carco needed a partner such as Fiat to succeed in the 

global automotive industry. Over the next 30 days, Old Carco 

worked to avoid bankruptcy by securing stakeholder concessions 

and reaching agreement on the terms of a strategic alliance that 

would enable the company to preserve U.S. jobs, develop more fuelefficient vehicles, and expand its sales in international markets. 

Unfortunately, some of Old Carco’s secured lenders did not agree 

to provide the required concessions, and Old Carco filed for bankruptcy on April 30th, 2009. 

Fortunately, concessions were achieved with other key stakeholders that enabled Old Carco, Fiat, and Chrysler Group LLC, a 

newly formed subsidiary of Fiat, to enter into a master transaction 

agreement on April 30th, 2009. The agreement called for Old Carco 

to transfer substantially all of its operating assets to Chrysler 

Group, for Chrysler Group to assume certain liabilities, and pay 

Old Carco $2 billion in cash, and for Fiat to contribute to Chrysler 

Group access to competitive fuel-efficient vehicle platforms, certain 

technology, distribution capabilities in key growth markets, and 

substantial cost-saving opportunities. With court approval, the 

transaction closed on June 10th, 2009. 

Throughout this process, members of the task force and personnel from U.S. Treasury played a key role in facilitating negotiations between all parties, primarily Old Carco, Fiat, the UAW, the 

CAW, and the VEBA, Cerberus and Daimler AG as owners and 

second lienholders, and the first lien lenders. It is my view that 

U.S. Treasury and the task force’s limited and targeted expenditure 

of taxpayer dollars in connection with Old Carco and Chrysler 

Group avoided a significant and potentially more costly disruption 

to the U.S. automotive industry and the U.S. economy. This limited 

and targeted approach is reflected also in the U.S. Treasury programs that benefit automotive suppliers, the receivables factoring 

program, and consumers, the warranty protection program. 

The U.S. Government is now a shareholder, or member in limited 

liability jargon, in Chrysler Group LLC. The LLC operating agreement provides the members with certain rights, including the right 

to designate individuals to serve on a nine-member board of directors. Fiat designates three directors, one of whom must be independent. Canada designates one independent director. VEBA designates one director, and the U.S. Treasury designates three directors, at least two of whom must be independent, who then designate a fourth independent director. 

Major decisions require a majority vote of the board, including at 

least one Fiat director. Further, Chrysler Group is subject to extensive financial information reporting obligations to its members, 

which will allow the U.S. Treasury to monitor the development, implementation, and modification of the company’s business plan—— 

Chair WARREN. Ms. Bertsch, if I could just stop you there. 

Ms. BERTSCH. Yes. 


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Chair WARREN. We will have your written testimony. 

Ms. BERTSCH. Okay. 

Chair WARREN. So that we will be able to get to the questions, 

which is what we mostly do here, I am going to ask, if you do not 

mind, if we could go to our next person. 

Ms. BERTSCH. Okay. Thank you for the invitation to appear before you today, and I look forward to your questions. 

[The prepared statement of Ms. Bertsch follows:] 


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Chair WARREN. And we appreciate your being here. 

Mr. Borst. 

STATEMENT OF WALTER BORST, TREASURER, GENERAL 

MOTORS COMPANY 

Mr. BORST. Good morning, Chairwoman Warren and Representative Hensarling. I am Walter Borst, Treasurer of General Motors 

Company, and I would like to thank you for the opportunity to testify about how GM is reinventing our company and how a new GM 

will repay our Nation’s investment. 

Emerging from bankruptcy, we are a new company with less 

debt, a stronger balance sheet, with the right-sized manufacturing, 

product, and dealer network to match today’s market realities. GM 

can now direct its full energy and resources to where it should be: 

on customers, cars, and culture. 

We are grateful for our Nation’s support. Without it, we would 

not have this second chance. Equally important are the many who 

have been called on to sacrifice in order to create a new GM. We 

recognize the unprecedented level of Government support and the 

pain caused by the bankruptcy process. For this reason, both the 

Obama and Bush administrations made it quite clear that they 

were reluctant investors. We were equally reluctant recipients. I 

can assure you, as GM corporate Treasurer, that we pursued every 

possible alternative to raise funding and liquidity for General Motors and every possible alternative to restructure the General Motors balance sheet out of court. However, a Government-funded 

Chapter 11 bankruptcy was the last best option to avoid the devastating economic consequences to our country if GM collapsed. 

Although GM was out of time and money, to protect the taxpayers’ interests, we had to deliver a plan to ensure we would 

never find ourselves in this position again. The direction we received from the President’s Automotive Task Force was clear and 

to the point, to receive Government funding and remain viable, GM 

had to complete a dramatic, fast restructuring across all parts of 

our business. We agreed. 

Over the last several months, we worked closely with the Automotive Task Force to revise our operating plan and identify and 

agree to the broad targets and overall components needed to create 

a viable GM. The Automotive Task Force did not tell us how to run 

our business or dictate the specific details of our plan. Rather, they 

exercised the due diligence, as any purchaser of a business would. 

They questioned us and challenged us to ensure we had a robust 

and viable plan for GM. 

Created from the old GM’s strongest operations in an asset sale 

approved by the U.S. Bankruptcy Court, the new GM will focus on 

four core brands in the U.S.—Chevrolet, Cadillac, Buick, and 

GMC—with fewer nameplates and more competitive level of marketing support for each brand, we can concentrate all of our talent 

and resources on vehicles that do not merely compete, but lead 

their respective segments. 

The new GM will effectively close the competitive gap in active 

worker labor costs compared with transplant manufacturers. 

The new GM will more efficiently utilize U.S. capacity while increasing the percentage of U.S. sales manufactured domestically. 


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The new GM will feature lower structural costs, enabling our 

North American region to break even on an adjusted EBIT basis 

at a U.S. total industry volume of approximately 10 million vehicles. 

The new GM will also achieve lower structural costs by further 

reducing 2009 salaried employment in North America from its 

year-end total of 35,000 to approximately 27,000, cutting executive 

ranks by 35 percent. 

The new GM will provide a higher level of customer service 

through a more focused U.S. network of approximately 3,600 dealers. 

The new GM will continue and increase GM’s investment and 

leadership in fuel economy and advanced propulsion technologies. 

For example, GM will launch the Chevy Volt extended range electric vehicle in 2010 and will assemble advanced batteries in the 

United States. 

As a new company, we expect the regular interaction with the 

Automotive Task Force will now shift to a world-class board of directors under the leadership of Ed Whitacre. Mr. Whitacre and the 

board are committed to setting a standard of excellence for corporate governance, and we expect them to hold us fully accountable 

to deliver results. We want to be the best, most transparent private 

company and will regularly report our results, issue 8–K’s and provide information to the Government and the public to measure our 

progress. 

In closing, as Fritz Henderson, our President and CEO, has indicated, business as usual at GM is over. The last 100 days or so 

have shown everyone, including ourselves, that a company not 

known for quick action can, in fact, move very fast. We want to 

take the intensity, the decisiveness, and the speed of the last few 

weeks and transfer it to the day-to-day operation of the new company. This will be the new norm at General Motors. 

We must be accountable to perform and deliver winning results. 

Again, from this point on, our efforts are dedicated to customers, 

cars, culture, and paying back the taxpayers, both the loans and 

in creating value for shareholders. 

Through the taxpayers’ support and sacrifice of many, GM will 

be great once again. We owe it to them to move forward deliberately. We owe it to them to succeed. 

Thank you very much, and I look forward to answering your 

questions. 

[The prepared statement of Mr. Borst follows:] 


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Chair WARREN. Thank you, Mr. Borst. 

Dr. McAlinden. 

STATEMENT OF DR. SEAN McALINDEN, EXECUTIVE VICE 

PRESIDENT AND CHIEF ECONOMIST, CENTER FOR AUTOMOTIVE RESEARCH 

Dr. MCALINDEN. Good morning, Dr. Warren and distinguished 

panel. My name is Sean McAlinden. I am the Executive Vice President for Research and Chief Economist at the Center for Automotive Research, known as CAR, a nonprofit research organization 

located in Ann Arbor, Michigan, and I welcome the opportunity to 

speak with you today on the subject of the U.S. Treasury Department’s automobile industry financing program. 

I should point out that our actual submitted testimony was not 

printed this morning with just my oral remarks, but I have provided it to the panel and it is located on our Web site, cargroup.org. 

The automotive industry has long been, and continues to be, one 

of the most important sectors in the U.S. economy, employing 

585,000 motor vehicle and parts manufacturing employees directly 

as of May 2009. 

In addition, the auto industry has one of the largest economic 

multipliers, if not the largest, of any industry or sector in the U.S. 

economy and is sufficiently large that its growth or contraction can 

directly cause measurable changes in gross domestic product. 

Twice in the last nine months, CAR has estimated the potential 

impact of significant contractions in automotive employment and 

production as a result of the economic crisis in the United States. 

In November, CAR published a research memorandum that estimated that 2.5 million to 3 million jobs would be lost in a major 

contraction of the Detroit three automakers. 

Of course, as you know, by May 2009, many of those jobs at the 

automakers were, indeed, gone and the suppliers. About 145,000 

direct U.S. motor vehicle and parts jobs were lost between November 2008 and May 2009. And obviously, many more jobs on top of 

those were lost in other sectors of the economy that directly supply 

the auto industry. 

In May, just this past May, CAR examined the impact on the 

U.S. economy of successful versus unsuccessful automaker bankruptcies here in Detroit, and even under the best case scenario, in 

the case of a planned, orderly, and well-executed bankruptcy, we 

estimate that 63,000 jobs will be lost by the end of this year and 

that total will rise to 179,000 by the end of 2010 under planned restructuring. 

However, we have appeared to have avoided the worst case scenario, which was an unsuccessful bankruptcy process resulting in 

liquidation, as described by my colleagues here, fellow panelists. 

This would have resulted by the end of this year, we estimate, in 

a loss of 1.3 million U.S. jobs. This total, as the rest of the industry 

would adapt to the crisis and recover, would have fallen to roughly 

447,000 by the end of 2010. 

CAR’s estimates of State job loss found that impacts were geographically concentrated. About half the employment impact in the 

best case scenario, for example, occurred in just five States: Michigan, Tennessee, Ohio, Missouri, and Indiana. And these States, alVerDate Nov 24 2008 01:45 Oct 30, 2009 Jkt 052669 PO 00000 Frm 00064 Fmt 6633 Sfmt 6602 E:\HR\OC\A669.XXX A669

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ready hit hard by recession, would have suffered even more disastrous outcomes had the bankruptcies not gone so quickly and 

smoothly. 

Also, we believe, and many other economists believe, that a 

struggling U.S. economy might not have withstood the psychological impact of a complete collapse of GM and Chrysler, that the 

sudden and total loss of GM and Chrysler could have caused an 

economy-wide loss of confidence or even a panic at an inopportune 

time this fall in the Nation’s path to economic recovery. It certainly 

would have resulted in a crisis in U.S. manufacturing similar to 

the effect on the financial sector caused by the collapse of the Lehman Brothers investment bank. In fact, we call it an industrial 

Lehman Brothers outcome. 

CAR estimates that the Government intervention resulting in 

successful bankruptcies at GM and Chrysler avoided a $114 billion 

loss in additional personal income, Government transfer payment 

increases, foregone Social Security and personal income tax receipts in just the first 2 years and more in succeeding years beyond 

that $114 billion. A simple cost-benefit analysis shows the 2-year 

public costs far outweigh the current public investment in these 

companies, even if the companies never repay the loans which, of 

course, I believe they will. 

I can find no grounds, and my office can find no grounds, for criticism for the actions taken by the members of President Obama’s 

Automotive Task Force, only grounds for the highest praise. Government, in the case of Chrysler and General Motors, was not the 

lender of last resort. It was the only resort. No other financing was 

available and no process other than bankruptcy could have led to 

such dramatic reductions in fixed costs that had crippled these 

companies for so long. Since March, the planning and actions of the 

Automotive Task Force and also the Chrysler and GM management 

teams can be labeled only as masterful and unprecedented by any 

fair industry observer. 

The considerable concessions made by all parties were those that 

would have had the greatest impact on lowering levels of fixed 

costs, a major cause of the companies’ economic woes. In the case 

of GM, fixed costs are expected to drop in the next three to four 

years by $3,000 to $5,000 per vehicle, a remarkable achievement 

in a very short amount of time. 

And it is also worth noting, since this has come up, that while 

the relative sacrifices of debt holders in the UAW VEBA trust we 

think are comparable, in the 67 to 79 percent range, that the UAW 

made a far greater contribution in absolute dollar terms to the debt 

reduction in Chrysler and General Motors. At Chrysler, the UAW’s 

$12.8 billion cut is three and a half times the size of the secured 

debt holders’ contribution, and at General Motors, the UAW’s $43.8 

billion sacrifice since 2005 is nearly twice that of the unsecured 

bondholders. 

Chair WARREN. Dr. McAlinden, I am going to have to stop you 

there just so that we can make sure we stay on track here, although I appreciate this. And I understand we do have a copy now 

of your remarks, and they will become part of the written record. 

[The prepared statement of Dr. McAlinden follows:] 


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Chair WARREN. Thank you very much. 

I actually want to start not with the questions I prepared but 

where this conversation has gone and with the question raised by 

Congressman Hensarling. Perhaps I could start with you on this, 

Mr. Borst. 

If there had not been Government funding here, could you have 

reorganized in Chapter 11? 

Mr. BORST. We do not believe so, ma’am. We did take a look to 

see if there would be other sources of debtor-in-possession financing, and there was nothing available in the Private sector that was 

anything close to what we would have needed to reorganize in 

Chapter 11. 

Chair WARREN. You are saying the money just simply was not 

there or was not there at the price you wanted to pay? 

Mr. BORST. It was not there, period. And surely nowhere close to 

the size that was required. We did talk to some large institutions 

in this regard where this is their business, but given the size of our 

company and our needs, it was unavailable at any price. 

Chair WARREN. And you looked hard. 

Mr. BORST. We looked very hard. We not only looked hard for 

that, but we looked hard to avoid Chapter 11 in the first place by 

trying to find additional financing outside of the bankruptcy, 

looked at asset sales outside of the bankruptcy, looked at various 

partnership opportunities outside the bankruptcy. So we were very 

active in that regard, both before and in anticipation of the filing, 

but to no avail. 

Chair WARREN. Ms. Bertsch, could I ask the same question about 

Chrysler, please? 

Ms. BERTSCH. I would say we were much in the same situation. 

We could see the deterioration in the industry. We started out in 

2008 with a SAAR of over 15.5 million units. By the second half 

of 2008, that had dramatically dropped. 

At that time, we went out looking for other sources of funding 

for both our dealers and our consumers, and we went and talked 

to some of the strongest banks. At that time, it was very difficult 

to secure any sort of financing for that. That, obviously, led to a 

great deterioration in our revenue, which resulted in us utilizing 

our cash resources to continue to operate the business. It was very 

clear to us and to the outside independent bankruptcy consultants 

who we hired to work with us that there was no funding available 

and that liquidation was the only other alternative. 

Chair WARREN. Thank you. 

Dr. McAlinden, could I ask you to comment on this please? 

Dr. MCALINDEN. I think until recently with the current reorganization of Leer, it might be the first large automotive firm to receive some sort of outside DIP money, I think on the order of $500 

million to $600 million. I would have to guess with some grounds 

of credibility that the only reason they received—they are the only 

firm in the last 6 months to see the light of this kind of money was 

because banks like J.P. Morgan saw that GM was reemerging successfully, their largest customer. So in a way, we already have a 

positive spinoff. The fact that GM has reemerged with Government 

assistance has allowed Leer to reorganize with private DIP. 


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Chair WARREN. If I could ask you, this is part of what you were 

covering in your testimony, and I would, if I could, just ask for a 

very short summary. I believe you were aiming toward a comparison of what would happen if there were no funding available, and 

therefore in the estimation of the treasurers of the company and 

your own estimation, a likely liquidation, versus a reorganization. 

I think you made a comparison on jobs where I believe your comparison showed that there would have been about 10 times more 

jobs lost. Is that right? About 10 to 20 more times. I was trying 

to write down the numbers as you went through. 

Dr. MCALINDEN. I think by the end of this year, we will see 

about another 63,000 in jobs lost in the U.S. economy because of 

these reorganizations as opposed to a 1.3 million job loss. So, obviously, that is 20 to 1. 

Chair WARREN. About a 20 to 1. I had thought there was a range 

here. So I wanted to go into next year. 

And then you talked about the dollar loss difference. I think you identified about $115 billion loss if there had been—— 

Dr. MCALINDEN. $38 billion in the case of an unsuccessful bankruptcy, which we unfortunately call the Corvette-Wrangler scenario, and 90 percent loss of production at GM and Chrysler in employment. It would have been a loss of about $38 billion in personal 

taxes and increases in transfer payments in the next 2 years and 

an $81 billion loss of personal income in the United States. 

Chair WARREN. Compared with an investment. 

Dr. MCALINDEN. Correct. And a much, much smaller amount 

under the successful reorganizations. 

Chair WARREN. Any other comparisons that we can just do quickly? I am about to run out of time here. 

Dr. MCALINDEN. Not really. 

Chair WARREN. So these are the key ones. 

Dr. MCALINDEN. These are very key. 

Chair WARREN. All right. Thank you very much. I appreciate it. 

Congressman Hensarling. 

Mr. HENSARLING. Well, first, let me issue my welcome to all the 

panel members. I will say to Mr. Borst and Ms. Bertsch that as 

happy as I am to see you, I might have even been happier to see 

the chairman or the CEO. At least you all bothered to send representatives, but I know, again, when your companies were seeking 

funding from the taxpayers, we saw them frequently. Now that it 

is time to account for the money, we do not seem to see them here 

today. 

I will accept at face value your opinions that liquidation was the 

only option for the companies. I have no reason to challenge your 

particular opinion or expertise. 

But today in the American economy, a majority of people work 

for small business. Roughly three out of four new jobs in America 

are created by small business. Every single day, there is some barbecue stand that goes out of business, some florist that goes out of 

business, some die cast machine shop that goes out of business. 

But we do not know their names and they cannot afford lobbyists 

in Washington, D.C. 

So when I hear the number of jobs you talk about, I become concerned again that although the program has gotten off to somewhat 


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of a lukewarm response—I think the administration announced it 

in March, but I think it was only five days ago that I believe they 

actually rolled out the first funding. I think they are putting in $15 

billion to buy loans from the SBA ostensibly to assist small business. Yet again, Chrysler and GM are looking at $80 billion. 

So I guess, Dr. McAlinden, maybe the first question is for you. 

Now, I know your expertise is not in the general economy, but in 

the auto industry. But can a case not be made that on a macro economic level, we might have been better off investing $80 billion in 

small business? 

Dr. MCALINDEN. Well, as you can see, I am sort of a neo-Keynesian. 

Mr. HENSARLING. I am not. 

Dr. MCALINDEN. I know. I could tell. 

Many small businesses, I believe, would have gone, tens of thousands, out of business if these companies to my right had collapsed, 

including RV franchises, repair shops, retail establishments of all 

kinds and they already have. I think the record is clear all around 

Wayne State, if you look right out the window. 

What can I say? These companies had the largest job multiplier 

of any industry in the United States. It once was as high as eight 

and a half jobs for every job at the big three. It is now lowered to 

six. 

Mr. HENSARLING. I am sorry. That multiplier—is that from your 

research or where does that citation come from? 

Dr. MCALINDEN. We have performed, both at the University of 

Michigan and our independent office, almost all of the economic 

contribution studies or economic impact studies of the auto industry in the U.S. economy that have been published since 1992. 

Mr. HENSARLING. I understand and appreciate the answer. 

I would also say to Mr. Borst and Ms. Bertsch, again, you may 

be right, but we recently, as a Member of Congress, heard from 

CIT that if they did not receive taxpayer funds that they would 

have to go into liquidation. Apparently they got the answer no, 

they would not receive taxpayer funds, and lo and behold, private 

funds show up through the market. So, again, your analysis may 

be correct. Maybe it is not correct. I do not know. 

The next question I have—clearly for a lot of folks who sit where 

I sit, I am curious about the decision process on cutting loose the 

individual dealers. What process did each of your companies go 

through? To what extent was the administration involved in decisions to terminate those dealership relationships? As you might 

well imagine, we are hearing from lots of those folks. Ms. Bertsch, 

how about you first? 

Ms. BERTSCH. Our company went through a very consistent analysis of each one of our roughly 3,200 dealers. What we had found 

was that the sales have deteriorated so much in the company based 

on the lack of financing available and the concern amongst our consumers on just customer confidence, that sales were down. 

As a result of that, it was very clear that the profitability and 

the healthiness of all of our dealer body was suffering. It was very 

clear that in an environment where we believe and hope that the 

industry will improve—but we do not believe that it will improve 

as quickly as it deteriorated—that it would not be possible for our 


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dealers to have the profitability they needed to invest in their businesses and to treat our customers the way that they needed to be 

treated. 

So the company went through a consistent analysis of each of the 

dealers, looked at their performance metrics—we have a very significant amount of metrics that we look at on a regular basis with 

our dealers—and determined that the roughly 800 dealers would 

not be appropriate to contain in the new company. 

That decision was made at Chrysler. It was not a decision made 

by the Government, and we felt that that was the right way to proceed. 

While we will admit that bankruptcy is not necessarily fair or 

good for anyone, we felt that by not taking these measures, it 

would even be more dramatic and would ultimately put us into 

bankruptcy and ultimate liquidation. 

Mr. HENSARLING. Mr. Borst. 

Mr. BORST. Yes. At General Motors, we also used what we believe to be very objective criteria to make those evaluations. We 

looked at the company’s sales. We looked at consumer satisfaction 

indexes. We looked at capitalization of the companies. We looked 

at the profitability of the companies and came to the decisions that 

we came to. 

We took those decisions on our own. Individual decisions were 

made by us. They were not influenced by others. 

Mr. HENSARLING. I am sorry. I am way over my time. Maybe this 

should be known and I do not know it. But you spoke about the 

objective criteria employed by GM. 

Mr. BORST. Yes. 

Mr. HENSARLING. Has that objective criteria been shared with 

the Automotive Task Force? Has it been shared with Members of 

Congress, and if not, are you willing to share it? 

Mr. BORST. I believe it has been shared, and if it has not, we are 

surely prepared to share it. 

Mr. HENSARLING. Thank you. 

And the same to you, Ms. Bertsch. 

Ms. BERTSCH. I agree. I believe the concepts have been discussed, 

but we are certainly willing to share that information. 

Mr. HENSARLING. Okay. Thank you. 

Chair WARREN. Thank you. 

I want to ask about your relationship with the Treasury Department that gets us to this moment and ask the question whether 

or not Treasury has made its expectations and objectives clear 

going forward, what it is they have asked of you. Perhaps I could 

start with you, Ms. Bertsch. 

Ms. BERTSCH. Yes, certainly. We have quite a few expectations 

that are outlined very clearly in our credit agreements with the 

Government. So we have certain compliance certificate requirements. We have financial reporting requirements that are due on 

a regular basis. That may mean monthly, quarterly, semiannually, 

or annually depending on what that requirement is. 

In addition, we have a plan to, and will, report on a monthly 

basis a series of financial and other metrics with all of our shareholders, with our board, including the Government. And that would 

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formance, income statements, balance sheets, as well as the other 

requirements that we are obligated to do based on our agreements. 

We have agreed with the Government on what those are going 

forward and will share that information not only with the U.S. 

Treasury but also the Canadian Government, the VEBA, all of our 

shareholders. 

Chair WARREN. So these will be publicly available—these reports? 

Ms. BERTSCH. Well, this will be available to our board and to all 

of our—you know, people that invested in our company. I am not 

certain on the public nature of that actually going forward. 

Chair WARREN. But it will be available to the Treasury Department. 

Ms. BERTSCH. Yes, it will be. 

Chair WARREN. Mr. Borst. 

Mr. BORST. Yes. The Treasury has made it very clear what they 

expect of us, similar to what was just mentioned, for the new 

Chrysler. We will have regular reporting responsibilities to the 

U.S. Treasury on things like cash flow, liquidity, and annual plans. 

We also, as I mentioned in my opening remarks, plan to be a 

very transparent, private company until such time that we can get 

off an IPO. As Mr. Bloom testified, it is the expectation of us that 

we try to take the company public in 2010. The debt that we have 

received from the U.S. Government, as well as from the Government of Canada, has a repayment date of six years. We would hope 

to repay it faster. 

So we have reporting requirements. Publicly we will also be providing information initially on a managerial basis, and as we complete our, what is called, fresh start accounting, on more of a GAAP 

basis. 

Chair WARREN. I want to ask one other question about the relationship with Treasury. Congressman Hensarling has asked specifically about any advice or interference from Treasury in the question of selection of the dealerships that will be closed or that will 

remain open. I want to ask about anything else related to day-today operations. 

Has Treasury in any way offered its advice, good counsel, warnings, or otherwise made suggestions about the day-to-day operations of your companies? Ms. Bertsch? 

Ms. BERTSCH. No. The day-to-day running of our business is left 

up to our company, albeit brand new now and with a new ninemember board that is actually meeting today for the first time for 

an extended board meeting this week. But the running of the business is up to Chrysler Group LLC, and we are being extremely 

transparent with our reporting with them on an ongoing basis, as 

I previously mentioned. 

Chair WARREN. And so your relationship is largely anchored 

around the axis of the kind of reporting one ordinarily does with 

a creditor of great magnitude. 

Ms. BERTSCH. Exactly the same as what I would expect for any 

secured lender of our company. 

Chair WARREN. Mr. Borst. 

Mr. BORST. In our case, as part of the 363 sale process, we had 

extensive due diligence from the Automotive Task Force. They 


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asked a lot of questions, gave advice in terms of things that they 

think that we should consider. Asked a lot of questions again. And 

ultimately the decisions were ours in terms of exactly what the 

plans would be. We got no guidance that I am aware of in terms 

of any specific actions that we should undertake. 

But I would compare the process that we had in the 363 sale 

process to the acquirer of any company in terms of the type of 

questioning that we got. They had an assignment, to make sure 

that if taxpayer dollars were going to be appropriated and used for 

these companies in a particular—in my case, for General Motors, 

that we have a plan that would allow General Motors to be viable 

coming out of the bankruptcy. And that is where their focus has 

been. 

Chair WARREN. So you would say neither more nor less intrusive 

than one would ordinarily see for an investor of this—— 

Mr. BORST. I have seen more intrusiveness in other instances 

where I have been involved with sales. 

Chair WARREN. Thank you. 

Congressman. 

Mr. HENSARLING. I would like to continue to flesh out this line 

of questioning from Professor Warren. I still do not have a good 

sense on the frequency of communication between the Auto Task 

Force and your companies, who is communicating with whom about 

what. So in specific, who is the point of contact for Mr. Bloom at 

each of your companies? Or is there a point of contact? Does he 

speak to you? Does he speak to the CEO? Does he speak to—— 

Ms. BERTSCH. From the Chrysler perspective, Mr. Rattner or Mr. 

Bloom have had ongoing dialogue with our prior CEO from Old 

Carco vantage point, or our current CEO, Mr. Marchionne. 

In my office, which is the Treasury function, we have consistent 

and frequent dialogue with the staff of Mr. Bloom, which I have 

their names, if you are interested. But we have consistent dialogue 

from that vantage point. 

We as well had a recent visit from Mr. Rattner and Mr. Bloom 

meeting the entire management team at Chrysler in a recent review, which I would really look at as very consistent again with 

prior experiences that I have had with significant lenders—— 

Mr. HENSARLING. But just out of curiosity, how frequent is the 

communication? Daily, weekly, hourly? 

Ms. BERTSCH. Well, I think it largely depends on what event we 

are talking about. For example, when we were setting up the supplier factoring receivables program, we had a minimum of one, 

maybe multiple calls per day, until we got that up and running 

very quickly. That impacted GM and Chrysler, and we were on 

joint calls and setting those up. 

Mr. HENSARLING. Mr. Borst, your answer to the question to who 

is the point of contact, how often is the communication. 

Mr. BORST. Yes, sure. The communication is frequent, and during 

the period leading up to the bankruptcy, it was definitely daily. 

The interactions were with all of the task force and would have 

started with our CEO, Fritz Henderson. His contact, I think, was 

principally with Mr. Rattner. Mr. Bloom and the rest of the task 

force really split up the different things that we needed to get done. 

So within their team, which I thought was a very wise move, they 


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took principal responsibility for certain topics. So I had the pleasure of interacting with Mr. Bloom, for example, on a couple of those 

topics. 

Mr. HENSARLING. We know as part of the Chrysler reorganization the Fiat incentive to produce the domestic-made car achieving 

40 miles per gallon. Has the Automotive Task Force otherwise suggested automobiles for your companies to produce. Mr. Borst? 

Mr. BORST. Not that I am aware of. 

Mr. HENSARLING. Not to your knowledge. 

Mr. BORST. Not to my knowledge. 

Mr. HENSARLING. But there could have been conversations with 

the CEO that you may not have been privy to. 

Mr. BORST. I am surely not privy to everything. 

Mr. HENSARLING. Ms. Bertsch? 

Ms. BERTSCH. The same with Chrysler. Certainly not at all to my 

knowledge, which is one of the reasons that our interest in an affiliation with a company such as Fiat was very positive so that we 

could continue to produce and look into further more fuel-efficient 

smaller vehicles. 

Mr. HENSARLING. Clearly we know that there is more to our Government than the executive branch. There is the legislative branch 

as well. It was not long ago—I believe the article appeared in the 

Wall Street Journal, but I do not have the citation in front of me. 

The headline is ‘‘GM Plant in Norton Safe from Closing for Now. 

Barney Frank Appeals to GM CEO, Gains 14-Month Reprieve,’’ referring to Chairman Barney Frank, who I have the privilege of 

serving with on the House Financial Services Committee. I assume 

it is an accurate article since there is a press release from Chairman Frank. The articles says, ‘‘The General Motors parts distribution plant received a 14-month reprieve from GM officials, thanks 

to U.S. Congressman Barney Frank who appealed to GM’s CEO, 

Fritz Henderson, this week on behalf of Norton workers.’’ The rest 

of the article claims it was one of the three Norton plants to be 

shut down. 

So, again, I have not spoken to Chairman Frank about this. Apparently the article has a release from him. So at this point, I 

would assume it to be accurate. 

You have described your interaction with the administration. 

How often are you hearing from Members of Congress and would 

the CEO of GM take my call? 

Mr. BORST. I am sure the CEO of GM will take your call. He has 

been very communicative not only with people of your stature, but 

others. 

In that particular instance that you reference, I am not familiar 

with the details. However, we have had many, many calls and 

many e-mails and others from a variety of constituencies because 

this has been a very painful process for many. 

Mr. HENSARLING. So when you say ‘‘constituencies,’’ am I to assume then there have been many calls from Members of Congress? 

Mr. BORST. Again, I personally have not gotten any calls from 

Members of Congress, but I am sure there has been to other parts 

of the company. But my point is that we are getting calls from pensioners and dealers and a variety of constituencies. 


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Mr. HENSARLING. Right now, I am just interested in—and I see 

I am beyond my time yet again. But, Ms. Bertsch, are you aware 

of calls from other Members of Congress to your company? Or in 

your specific position, you would not necessarily be aware of those 

calls or that influence coming to bear on decision-making at your 

company? 

Ms. BERTSCH. Well, I have not received any, and I am not aware 

of specific instances. I mean, I do truly believe that there has 

been—people have been very vocal throughout this whole event for 

the last 6 months on whether or not they were supportive or not 

supportive—— 

Mr. HENSARLING. No. I was just asking specifically about Members of Congress. 

Ms. BERTSCH. I cannot give you an instance, no. 

Mr. HENSARLING. Thank you. I am way over my time. 

Chair WARREN. So can you give me an idea, Mr. Borst, about 

your estimate of capital needs in the near and medium term and 

how you plan to deal with them? 

Mr. BORST. Could you define how you are using the word ‘‘capital’’ because that means different things for different people? 

Chair WARREN. I am just asking about additional financing. You 

have, obviously, received a huge infusion of cash. But I just want 

to know what the near and medium term—I realize no one knows 

the long term at this point. But do you have capital needs and 

plans for how you are going to meet those away from the Government? 

Mr. BORST. Yes. As we put together our plans in terms of DIP 

financing and the exit financing that we requested, we believe that 

will really take us to the low point or our peak cash needs which 

we estimated at the time would be in the early part of 2010. So 

the funds that we have received should get us through that period 

of time, and we would not necessarily expect a need for significant 

financing beyond that, if we are able to meet our plans and if the 

economy recovers the way we had projected and we are able to participate in that recovery as we believe the auto industry and General Motors will. 

So we have not built in significant additional funding needs. We 

do have applications in for section 136 funding, for example. We 

would expect that with us being a viable company now, that those 

will be looked at. We do have regular rollover of maturities in our 

foreign jurisdictions. We would anticipate, now being out of bankruptcy, that we would be able to roll over those lines. But with the 

capital markets the way they have been, we did not rely on a lot 

of additional external financing. 

Chair WARREN. Right. 

Mr. BORST. That said, we would like to get back to that kind of 

business as soon as possible, and preferably, we would like to be 

positively cash-flowing as soon as possible so that that would not 

even be required. 

Chair WARREN. And Ms. Bertsch. 

Ms. BERTSCH. Similar to General Motors, we had outlined in our 

363 filing with the Government what we thought our expectation 

was going to be for capital needs for the near mid-term. And we 

are satisfied at this point that we will be able to service all of our 


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debt, as outlined in our agreements with our lenders. Except for 

the same section 136, which is the Department of Energy funding 

that they have available to automotive companies and suppliers for 

improvement of their engineering and power trains and fuel efficiency, we likewise have an application in and have had an application in to the Government for the past year and expect that we will 

be borrowing under that, as outlined in our plan. 

Chair WARREN. So other than as you have noted, you are really 

saying you have taken care of your short-term and mid-term capital needs, not just in your exit financing provided by the Government, but you feel pretty well lined up on that. 

That leads me to the last question I want to ask, and that is, I 

understand that to make the decision about an IPO has a lot to do 

with other market conditions and that you will make those decisions based on what you see at the time. But I want to ask the 

question internally to the company as you are going forward. What 

do you see as needing to happen within the company before you are 

in a position for a successful IPO? Mr. Borst. 

Mr. BORST. Well, I think the following. First of all, I think we 

need to execute on our plan because there are currently just 

plans—and we are well on our way, but we need to execute on 

those plans. I believe the external community will in particular be 

looking at our revenue line and, coming out of the bankruptcy now 

as things stabilize, how the industry will perform and how we will 

perform within the industry. So that will be a key criterion to 

watch. 

Then it will be a function of whether we are meeting our financial metrics, as we go forward. Surely, it is easier to do an IPO if 

you are positively cash-flowing than if you are not. Surely, it will 

be easier to do an IPO if we are exceeding the targets that we had 

set out than if we are not. 

And internally, we have taken significant steps to restructure the 

company. We have significantly downsized the company. We have 

taken significant bureaucracy out of the company as we have reorganized. We have flattened the company. We are increasing the 

speed of the decision-making, and those will be critical elements, 

I believe, as we go on the road for an IPO next year that we will 

want to convey to potential new investors in the company beyond 

the shareholders that we currently have. 

Chair WARREN. Ms. Bertsch, anything you want to add to that? 

Ms. BERTSCH. No. Very similar. 

Chair WARREN. Actually, I know I am over, but let me ask. Dr. 

McAlinden, anything you want to add to that? 

Dr. MCALINDEN. No. I think their plans look very good on paper. 

It does depend on the economy. It does depend on consumers in the 

market forgiving them for passing through the bankruptcy process. 

I hope this time around we have all kinds of scenarios in the planning, not just optimism. It is a second chance that we are very 

grateful for here in Detroit. 

Chair WARREN. Thank you. 

Congressman. 

Mr. HENSARLING. If the new plans for the new GM and the new 

Chrysler are, indeed, successful, when might the taxpayer be made 

whole? Ms. Bertsch, you first. 


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Ms. BERTSCH. Our debt to the U.S. Treasury is due in several different tranches. One would be in 2011, again in 2016, and 2017. 

Our goal would definitely be, if possible, to pay that back early. 

Part of the reason is the interest cost to the company is not immaterial, and so based on the interest rates that we are paying, I 

think that it would be one of our definite goals to pay that back 

early. But we see no issue in paying it back on time, certainly. 

Mr. BORST. And for GM, as I mentioned earlier, we have a sixyear term on the loan that we have. We are going to work very 

hard to repay that early. Our plans, if we deliver on them, will 

allow us to do that. But additionally, we have significant equity investment from the U.S. Government. 

Mr. HENSARLING. Yes. 

Mr. BORST. And the key there is to get the IPO off next year. It 

is our goal to create a liquid market in the stock and then work 

together with the Government to allow it to sell down the balance 

of its interest. It is a very large stake. So I would not want to mislead you that it might take some time, but that will be a function 

of how well we perform and how well the capital markets perform. 

Mr. HENSARLING. Well, and again, I know there are many variables in the equation, as you pointed out with the capital markets. 

We do not necessarily know how consumers are going to respond 

to your new products, but again, you do have a plan. Do we even 

have a range of when the taxpayers might be made whole if your 

assumptions are correct and if your plan works? 

Mr. BORST. Yes. At General Motors, we have not included that 

specifically in our plan because that is, obviously, a function of 

what the Government would like to do as well. 

Mr. HENSARLING. Ms. Bertsch, did you have anything to add to 

that? 

Ms. BERTSCH. No. I think it is largely dependent, too, on what 

the industry does. We have included a—I am hesitant to say somewhat conservative, but our ramp-up of industry volume, as outlined 

in our 363 filing, was not very aggressive. So we are hoping that 

we will be able to meet that. 

Mr. HENSARLING. Let me go back to an earlier line of questioning 

where you were speaking of somewhat the frequency of communication between your companies and the administration. I guess both 

parties, the Automotive Task Force, your companies, seem to go to 

great length to say that the Federal Government is not involved in 

the day-to-day management of the companies. 

So I guess the question is, what do you seek or for which questions, for which issues, do you see the approval of the administration, if it is not ‘‘day-to-day management’’? 

Ms. BERTSCH. I would not really define it as seeking approval. 

Most of our conversation with the Government—— 

Mr. HENSARLING. Where do you feel a need to counsel with 

them? 

Ms. BERTSCH. Because they are a stakeholder in the company, 

they are also represented on our board. We will be having regular 

dialogue with them related to how we are progressing along on our 

business plan. So once we get our new business plan in place for 

the new company, we will be sharing that with the Treasury—— 


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Mr. HENSARLING. I am trying to figure out are there specific 

issues which you feel a need to receive either the input or the approval of the administration. I would assume, for example, you do 

not need their counsel or input on whether or not you offer white 

sidewalls on some new Jeep product, but at some level, I would assume, you feel a need to receive at least their input, if not approval. I am trying to get some specificity on what those issues are. 

Ms. BERTSCH. And I would say most of those would relate to a 

typical relationship with your board of directors. So, for example, 

as we are going through and defining what level of approvals we 

would need from our board versus from our CEO in the company, 

those are the kinds of things that we would go and seek approval 

from the Treasury, as they relate to board members. And then 

there is, of course, all the other things that normal automotive 

companies may be interested in talking about with the Government 

related to standard energy practices and things like that. But from 

running the company, it will be largely through our board of directors. 

Mr. HENSARLING. Do you wish to add to that, Mr. Borst? 

Mr. BORST. Yes. In GM’s case, I guess I like the analogy to the 

board of directors. I think that is probably an apt one. In our case, 

during this whole period, we needed to get approval for additional 

funds for certain expenditures, and so we would need to go back 

to the U.S. Treasury to get those funds. As part of those discussions, as you might have with a board, they queried us what we 

were going to be using those funds for. 

We also had specific topics that we need to address. GMAC was 

mentioned earlier in the hearing. That is an entity that the U.S. 

Treasury has also had interaction with during this period of time. 

We gave them, for example, information about what our needs 

were there and enlisted their support to help in that instance. We 

have our largest supplier, Delphi, that is in bankruptcy. We have 

enlisted their support as part of the funding to also help us get 

that entity out of bankruptcy, which is important to our future viability, those types of things. 

Mr. HENSARLING. Thank you. 

Chair WARREN. Thank you all very much. We appreciate your 

being here. This panel is excused. Thank you. 

We now call our third panel. The witnesses on our third and 

final panel will address the issues raised in the bankruptcy cases 

of General Motors and Chrysler. They include Richard Mourdock, 

the Indiana State Treasurer; Professor Stephen Lubben of Seton 

Hall University School of Law; and Professor Barry Adler from 

New York University School of Law. Welcome. 

As before, I will ask each of you to hold your oral remarks to five 

minutes or less. Your written statement will, of course, be made 

part of the permanent record. 

Mr. Mourdock, could we start with you, please? 

STATEMENT OF RICHARD MOURDOCK, INDIANA STATE 

TREASURER 

Mr. MOURDOCK. Well, first of all, thank you for the invitation to 

give you testimony today. Last Wednesday, I gave testimony to the 

Judiciary Subcommittee on Administrative and Commercial Law. 


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As I said at that time, I never imagined I would be in a position 

to give testimony to a congressional committee. As I said at that 

time, I have great reverence for the process and, again, wish to express that and would start out by saying I have been very appreciative and admire the sense of fairness and balance in the questions that you all have offered. 

I should also start out by saying what I am not, which is I am 

not an attorney. If I may sound like one at times through this brief 

bit of testimony, it will only be because I have been exposed to so 

many attorneys in the last 6 to 8 weeks. 

I became involved with this issue when, as the trustee for two 

funds in Indiana and ultimately as a representative for a third 

fund, we purchased—invested some $17 million of Indiana retirees’ 

money into the secured debt of Chrysler Corporation. As everyone 

in this room now knows, subsequent to that—that took place in 

July of 2008, and about 6 weeks later, when Lehman Brothers 

went down and the subsequent shock wave went through the economy, all of this cycle that we are dealing with today began. 

As a trustee with fiduciary responsibilities that I take very seriously, I was shocked to see, as all of you are aware, the secured 

creditors in the Chrysler case were, in an unprecedented manner, 

relegated not to the traditional position of being first in line but to 

being something subsequent to that. 

We subsequently discussed at length in our office how we should 

proceed. We thought, quite frankly, we might be part of a class action suit of other pension funds, but ultimately found through this 

process that we were, effectively, the only group that was willing 

to come forward and take this case to the bankruptcy court and ask 

that the 29 cents on a dollar that we were being offered be reviewed to look for some better return. 

I should also add at this point the real summation of our lawsuit, 

and I will be very, very brief with it. 

But point number one was that Article I, Section 8 of the United 

States Constitution says it is the congressional mandate to set a 

uniform bankruptcy code. That has been done since 1789, but in 

this case the executive, by doing away with the traditional rights 

of secured creditors in this area, we think totally threw that bit of 

congressional balance out the window. So we see a balance issue. 

Secondly, we have what we call the sub rosa argument. For all 

the attorneys in the room, obviously, that does not need to be explained any further other than here to say simply that we see that 

the United States Government was on both sides of this deal simultaneously, setting values, setting all terms of what the sale would 

be, only to be the only bidder in the auction for the assets. That 

is totally unprincipled and we think absolutely un-American. 

To the point that gathers us here today, however, we argued in 

our lawsuit that the Troubled Asset Recovery Program monies 

were and are being used illegally to fund the car companies. Again, 

I am not an attorney, but I can state it very simply. 

In late September and in October of 2008, the Congress debated 

the Troubled Asset Recovery Program. At that time, Secretary of 

the Treasury Paulson testified to congressional committees saying 

this is not a bailout for the automobile companies. In the 169 pages 

of TARP, the word ‘‘automobile’’ appears twice as an adjective beVerDate Nov 24 2008 01:45 Oct 30, 2009 Jkt 052669 PO 00000 Frm 00090 Fmt 6633 Sfmt 6602 E:\HR\OC\A669.XXX A669

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fore ‘‘batteries,’’ ‘‘automobile batteries.’’ It was intended solely to 

aid the ailing financial industry. That is clear in its intent. 

Subsequently, 2 months later, Congress tried to pass an automobile bailout bill and it failed, but it begs the obvious question. 

If the same Congress that had voted on TARP 2 months before had 

taken the testimony that it was not an automobile bailout, if they 

thought it was, why did they come back in December and try to 

pass a separate automobile bailout bill? It is because clearly they 

knew that was not their intent in October and thus they tried in 

December and it failed. 

The Bush administration—and I happen to be a Republican, by 

the way—then acted illegally in a desperate search for funds. Mr. 

Paulson then suddenly seemed to change his mind despite his own 

testimony and tried to write an opinion to say, well, this is justified. So the money was pulled out. Subsequently, obviously, the 

Obama administration has continued to do that. 

The entire process, we believe, has been flawed. From the valuation of the assets that took us from something, we believe, far better than 29 cents down to 29 cents, it is just wrought with error. 

We see valuations that were done in what we believe was an unethical fashion where the consultant who was setting the values 

was offered a $10 million bonus if in fact the valuation were accepted at that low level. There were 41 product lines of Chrysler. 

Only two of them were given value, which we think was just absolutely unheard of. Just months before, the company had been valued at some $29 billion. 

And one last thing I will say just very briefly. The comment was 

made here today that the courts have all ruled on the points of law. 

When our case reached the United States Supreme Court, in the 

order that let the sale go forward, it says—and I quote—‘‘The denial of a stay is not a decision on the underlying legal merits.’’ 

These laws have not been reviewed and we hope to live to see that 

day come. 

Thank you. 

[The prepared statement of Mr. Mourdock follows:] 


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Chair WARREN. Thank you, Mr. Mourdock. 

Professor Adler. 

STATEMENT OF BARRY ADLER, CHARLES SELIGSON 

PROFESSOR OF LAW, NEW YORK UNIVERSITY SCHOOL OF LAW 

Mr. ADLER. Thank you, Chair Warren, Congressman Hensarling. 

I appreciate the opportunity to testify here today. 

I want to start by saying I am not opposed in principle to the 

rescue of the auto industry. I have no expertise on whether that 

was a good idea or not. Although as a taxpayer, I wonder about the 

Government funding the UAW retirement funds when other retirees who were also suffering but received no such funding. Again, 

I have no expertise on that, and I am not here to testify about that 

either. 

What I do want to comment on what I have studied is the way 

the bankruptcy process was, in my view, distorted in order to accomplish the rescue of the auto industry and the funding of the 

UAW funds. Therein, from my perspective, given my expertise, 

whatever that is, lies the problem. 

At the risk of oversimplification, I think a plausible characterization of what happened in both the GM and the Chrysler bankruptcies is the Government bought the companies and transferred 

them to the UAW. That is controversial I know, but I think that 

is a plausible characterization. 

That would have been fine from the perspective of the creditors 

so long as the price was fair, so long as what the Government paid 

for the assets that it then transferred to the UAW was the correct 

value of the assets thus leaving the creditors the fair value of their 

assets as the proceeds of the sale. 

The problem was there is no assurance, given the way the bankruptcies were conducted, that the price was the right price, the fair 

price for the assets. In particular, the sales process approved by the 

courts in both cases limited the bidders who could bid and limited 

the characteristics of the bidders who could bid in such a way that 

a liquidation or breakup bid for the company was not to be permitted. Thus, if Chrysler, in particular, were worth more than $2 

billion in liquidation, as might have been the case, that bid would 

not have been obtained and the creditors, as just represented, 

might have been left with less than their just deserts. 

Given that there was not a robust and contested auction for the 

assets, one might have recharacterized the transactions as what is 

referred to sometimes as a sub rosa reorganization plan, in other 

words, just a reorganization plan without the formality of the 

Chapter 11 process. But denying the formality of the Chapter 11 

process, combined with a failure of a robust and contested auction, 

left creditors without the procedural protections that Congress 

granted in the Chapter 11 process. 

And this is a reason that the creditors in each case, the secured 

creditors in Chrysler and the unsecured creditors in GM, had reason to complain in my view. Did they receive less than they deserved? I do not know. I am not a market maker. I do not have 

the ability to say what the true value of those assets were, but the 

process was flawed. And thus, the creditors might have been disadvantaged in a way that the law would not permit. 


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And this is problematic, particularly in an environment where 

raising capital is a problem for companies, where we want to encourage economic development. If creditors’ rights are not respected, that economic development will be thwarted in a way that 

I think is not in the country’s interest. 

What I would do, again turning back to the bankruptcy process, 

to prevent what I see as a mistake in the procedures that were approved, would be to pass or adopt new legislation that would restrict the procedures that are used in the sale of a going concern 

of a large company so that Government influence or not, the mistake, as I see it here, could not be repeated. 

Beyond that, I will leave it and I would be happy to answer questions, of course. 

[The prepared statement of Mr. Adler follows:] 


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Chair WARREN. Thank you, Professor Adler. 

Professor Lubben. 

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

Mr. LUBBEN. Thank you, Chair Warren, Congressman. 

I am here, I guess, to present an alternate view on the bankruptcy law part of this. 

The reality is, in the last decade or so, Chapter 11 has become 

a highly sale-driven process. The 363 sales are the whole game in 

Chapter 11, at least in big Chapter 11 cases. This is a result of secured lenders who have control over all the company’s cash. If they 

have control over all the company’s cash, they can dictate what 

happens to the company, and quite frequently in recent cases, they 

have dictated a quick sale so that the cases involve a sale followed 

by just basically distribution of the proceeds. Recent examples of 

this, outside the cases we are talking about today, include Vlasic 

Foods, TWA in its last Chapter 11 case, the First Polaroid bankruptcy, Bethlehem Steel. I have got a whole big, long exhibit attached to my written testimony about all the cases that involved 

363 sales. 

So given that context, I really do not think that the GM or 

Chrysler Chapter 11 cases were all that unusual. The basic structure of the case, in fact, seems to be quite ordinary. 

Now, it is true, as Professor Adler has indicated, that there are 

limits on what you can do in a 363 sale. This is the so-called rule 

against sub rosa plans. This is, I guess, an example of us lawyers 

using Latin for clarity here. It does not seem to add a lot. Basically 

what we mean is a covert plan of reorganization. But in this case, 

we were selling the assets. The proceeds of the sale goes to the 

debtor and the debtor distributes those assets at some future time. 

I do not see how that is a sub rosa plan. 

In addition, the press has generally speculated, and I think fairly 

accurately, about who is going to get what in these Chapter 11 

cases. That is true. But it still does not make it a sub rosa plan. 

That is just an application of the absolute priority rule. 

Now, it is true, as we have been talking about on all these panels 

today, the UAW is getting better treatment than other similarly 

situated unsecured creditors. Of course, a lot of that depends on 

how you define ‘‘similarly situated.’’ 

In addition, I think it is important to point out that that better 

treatment is not coming from the debtor, and that is where it 

would be a bankruptcy problem. The better treatment is coming 

from the Government through these purchasing entities. Now, we 

can debate whether or not it is a good idea for the Government to 

be bailing out the UAW, but it is not really a bankruptcy issue 

given the structure that we have got here. 

There is also really little beyond rhetoric to support the idea that 

any of these cases impair investor rights. I mean, GM had $27 billion in secured debt, an estimated liquidation value of $9.7 billion. 

If you do the math, right there you can see that absent this structure, the bondholders in General Motors would have been entirely 

out of the money if there had been a liquidation in General Motors. 


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The same idea in Chrysler. I think it is entirely rational that the Chrysler secured lenders decided that taking a risk-free $2 billion 

was a better option. I mean, typically commentators often talk 

about liquidation as though it was a cost-free endeavor, but it 

would have cost millions, probably hundreds of millions of dollars 

to liquidate Chrysler. 

Unless the secured lenders were real sure that they were going to get more than $2 billion plus the liquidation costs, if they had 

taken over this case, they had every reason to just sit back and let 

the Government hand them $2 billion in cash. 

Quite frankly, by contract, these lenders had agreed to let Chase 

be their lead lender and their voice in these negotiations. My personal belief is that if Chase felt they were being strong-armed—it 

has been alleged that they were strong-armed, but Jamie Dimon is 

not somebody who is known to be quiet about his opinions—I think 

he would have let us know if Chase had been strong-armed in 

these negotiations. 

That brings us, I think, to the last important point I want to 

make is that it is important to remember that the lenders in 

Chrysler agreed to majority rule by contracts. When they bought 

into the loan, they agreed that they were going to sort of sink or 

swim together. The terms of that loan agreement said ‘‘we decide 

whether to credit bid by a vote’’ and ‘‘we decide how we are going 

to proceed in a bankruptcy case by a vote.’’ The contract does not 

allow individual lenders to go off on their own. So to the extent 

that we have individual lenders now complaining about that, you 

know, it is not really a TARP problem. It is not really a bankruptcy 

problem. It is not really even a Federal Government problem. It is 

a problem of the contract that they agreed to, and maybe they wish 

they had not agreed to it. But I think the bankruptcy court was 

absolutely right to enforce those terms. 

And finally, on the issue of the bidding procedures, I think this 

is one area where Professor Adler and I are somewhat in agreement. I do think that the bidding procedures represent some degree 

of overreaching. That said, in a case like this where there is no alternate bidder—and quite frankly, there is plenty of case law to 

support the idea that an alternate bidder could come in and make 

a nonconforming bid. They do not need a bankruptcy professor like 

me to tell them about that case law. So they would have shown up 

if there was an alternate bidder. Bidding procedures only matter 

in a case where you have contested bids. If there is no contested 

bidder, bidding procedures are largely irrelevant. So essentially 

while I agree it was a bit of overreaching, it is probably harmless 

error in this particular case. 

[The prepared statement of Mr. Lubben follows:] 


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Chair WARREN. Thank you, Professor Lubben. 

I have a series of questions I want to ask about the bankruptcy 

part of this, but actually feel compelled to ask since Mr. Silvers 

cannot be with us here. You have spoken about the UAW. It is my 

understanding that the party-in-interest here is the VEBA and not 

the UAW. I just want to be sure and make sure I have not misunderstood since it is a distinction he often draws that is quite important to the parties involved. 

Mr. ADLER. The VEBA was established at the behest of the UAW 

to benefit their retired workers. 

Chair WARREN. Because of their obligations to their retired workers. I just want to be clear. What we are really talking about here 

on the other side are the retiree health plans and pension benefits. 

Is that right? 

Mr. ADLER. Yes. I think I was the one that used the UAW. I was 

speaking generally of the UAW’s interest, but it is the VEBA—— 

Chair WARREN. But it is the VEBA’s legal interest on behalf of 

the retirees. I just wanted to be clear on that. 

So if I can, I will start with you, Professor Adler. I share your 

concern about the substitution of a 363 sale for the protections of 

an 1129 confirmation. The question that interests me here, why not 

go to an 1129(a)? Are there any facts that suggest that there was 

something that the parties were worried about with an 1129? Had 

they gone to ordinary plan conformation proceedings? 

Mr. ADLER. I do not know the answer to that because the Government-orchestrated plan was for a sale from the beginning, as I 

understand it, and the judge approved the sale. There will be a 

Chapter 11 process with respect to the proceeds of the sale in each 

case, and that may have an 1129 component. And it may be a conversion to a Chapter 7—which is a liquidation—I don’t know. So 

yes, I do not know why there was no Chapter 11 process prior to 

the sale. 

Chair WARREN. Well, then perhaps I should have asked it the 

other way. If both of us are going to be critical about the substitution of 363 for 1129, what advantages were there in using a 363 

approach as opposed to an 1129? 

Mr. ADLER. Well, as Professor Lubben points out, there has been 

a large number of cases in which the companies’ assets are put into 

their new use very quickly through a sale. And I do not object to 

that process personally. So the answer, I am sure, the Government 

would give and that the debtor itself in each case would give is 

that we needed to quickly get these assets under their new management. And that is an advantage and would be an advantage, 

which is why I focused my criticism on the nature of the sale, on 

the restrictions, which Professor Lubben calls harmless, but if they 

are harmless, why were they there? 

Chair WARREN. I see. But the point you are really making is this 

is how we could do this process much faster than otherwise would 

have been possible. So the notion was to get some real speed in this 

process. 

I also take it—I just want to be sure, since you have mentioned 

this—this is not unique to the auto industry. 

Mr. ADLER. Not at all. The trend since the late ’90s—in fact, I 

worked with authors who have done studies on this in particular, 


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empirical studies—has been to sell firms as a going concern or in 

liquidation rather than keep the assets in place during reorganization, which in the past could have taken literally years. But again, 

my criticism is not with the sale. It is with the restrictions on the 

sale. 

Again, speaking of Chrysler in particular, I do not know what 

the economics of it were, but it certainly seems plausible that the 

Government, which was determined to have this company reorganized, was concerned that a bidder was going to come along and 

bid for the assets in liquidation and not want to take on the liabilities to the VEBA because their plan was not to continue to make 

autos under the old structure, rather to use the plants in some 

other capacity or the Jeep brand in some other capacity, and the 

Government—— 

Chair WARREN. Do you have any Government comments? I am 

just wondering. Is there any evidence to support that speculation? 

Mr. ADLER. As I say, it is just a speculation. The question is why 

did the debtor put the restrictions in place. It seems an odd thing 

to do, to restrict your bidders. Generally people selling something 

want the process to be open as possible. Give me as much cash as 

you possibly can. I do not care what you do with the assets once 

you buy them. Clearly, someone cared what was going to be done 

with the assets once they were purchased, and that is the problem. 

Chair WARREN. Would you like me to go on with Professor 

Lubben on this line? Professor Lubben. 

Mr. LUBBEN. Yes. I think Professor Adler and I are in agreement 

on the 363 point as it applies broadly. My point is just one that 

GM and Chrysler were not particularly unique in the use of 363 

to execute a quick sale. It has become fairly common and it has 

been for at least 10 years. So I am just trying to dispel the notion 

that somehow what was done in GM or Chrysler was some sort of 

perversion of the bankruptcy process. Congress may well want to 

look at, as you say, sort of the way in which Chapter 11 has become overtaken by 363 generally. 

I think the answer is the speed, though. That is why people like 

to use 363. That is why secured lenders like to use 363, that you 

can get the good assets out of bankruptcy and on their way without 

having to wait for the negotiation of a plan and the voting on a 

plan and so forth. Basically it is a move to avoid what happened 

to companies like Eastern Airlines and Pan Am back in the 1980s. 

Chair WARREN. Thank you very much. 

Congressman Hensarling. 

Mr. HENSARLING. Professor Adler, I think I heard you say in 

your testimony—I want you to elaborate a little bit more—maybe 

I am paraphrasing here—that the Government bought the companies and gave them to the UAW, a fairly provocative—— 

Mr. ADLER. I said that was a plausible characterization. 

Mr. HENSARLING. A plausible characterization. Well, could you 

elaborate on that please? 

Mr. ADLER. Yes. Mr. Bloom testified earlier that there was an 

arm’s-length transaction between the purchaser of the companies 

and the UAW in which the purchaser agreed to take on significant 

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ment that included sacrifices by the UAW itself. And here I mean 

the UAW, Chair Warren. That is also a plausible characterization, 

which is why I was careful to say that the alternative is only a 

plausible characterization. 

My concern over that particular characterization, that is, Mr. 

Bloom’s characterization or his statement that this was an arm’slength transaction between the UAW and the purchaser of assets, 

is a skepticism I have on my part. Again, this is not based on an 

expertise. My expertise is on the bankruptcy process. But it is a 

skepticism on my part that a new car company walking into this 

area where the economy is in disrepair, where there are many unemployed workers, including many unemployed autoworkers 

throughout the industry, would have had to pay that much to get 

new employees to work in its company. So if it is true that the billions of dollars of funding of the VEBA were necessary to the continued employment of workers necessary to build cars, then I think 

it would be correct to say that there was no transfer between the 

Government and the UAW or the VEBA. 

If, however, my skepticism is well founded and a new automaker 

would not have had to make these enormous payments in order to 

get employees to build their cars, then what you have is a transfer 

to the VEBAs. That is to the United Auto Workers. And it is in this 

sense that I say what happened is the Government bought the 

companies because they provided the funding to buy the companies 

and then did not take, arguably, the full value of the companies 

that they just bought. What they, instead, did is made a transfer 

to the VEBAs, which was a benefit to the retired workers. And 

again, maybe that was appropriate. I do not know. 

Mr. HENSARLING. But in your experience and expertise, how common is it then for the debtor to put such conditions on bids? In 

other words, I want my highest price but only if you essentially 

take care of the UAW’s VEBA in such a fashion. How common is 

this phenomenon? 

Mr. ADLER. Uncommon, as far as I know, although I have not 

studied it. And that is the next point I was going to make. The 

other thing that supports the characterization of a transfer to the 

UAW were the restrictions themselves. It seemed as if the Government was very interested in benefitting the United Auto Workers 

through the VEBAs and requiring any bidder to make sure that 

whoever purchased the assets pays from those assets these claims 

of the VEBA. I do not think it is very common. As I said, I have 

not studied this empirically. As an academic, I hesitate to say it 

is uncommon, but I am willing to bet that it is. 

Mr. HENSARLING. Mr. Mourdock, let me ask you a question representing the State of Indiana. Did I understand that it is more 

specifically the State’s pension fund for State employees that is 

truly the impacted legal entity in the Chrysler case? Is this correct? 

Mr. MOURDOCK. Yes, sir. There are three separate funds. There 

is the Indiana Teachers Retirement Fund. There is the Indiana 

State Police Pension Fund, and then the last one is not a pension 

fund per se, but it is an infrastructure fund, our Major Moves Construction Fund. 

Mr. HENSARLING. I am sorry. The latter was? 


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Mr. MOURDOCK. It is an infrastructure fund, Major Moves Construction Fund. 

I have to say each time I hear ‘‘to the benefit of the retirees,’’ I 

always want to scream, whose retirees? 

Mr. HENSARLING. I suppose that is my question then. I suppose 

nobody sees any winners in such an economic calamity as we have 

seen with these two American icon companies going through Chapter 11. But relatively speaking, I suppose there are relative winners and losers. So I assume it is your position that the teachers 

of Indiana have lost. The policemen and policewomen of Indiana 

have lost, and relative to them, the UAW VEBA has won. Is that 

a fair assessment of your position? 

Mr. MOURDOCK. That is absolutely fair. 

Mr. HENSARLING. I see I am out of time for this line of questioning. 

Chair WARREN. So if I can just make sure I am following the narrower point that you want to make here, Professor Adler. That is, 

for the post-petition financer to make sure that assets go, let us 

just say, to labor or to suppliers who are going to be supplying benefits to the company going forward, that is both not unusual and 

not unlawful under the bankruptcy laws. Is that right? 

Mr. ADLER. Yes, that is right. However, for it to make sense for 

a post-petition financer to make sure that certain payments are 

made—I am sorry. Let me start that again. For it to make sense 

for a post-petition financer to make sure that payments are made, 

it has to be that those payments are justified by the need of the 

purchaser to continue the operation of the company. So it may 

be—— 

Chair WARREN. I am sorry. What part of bankruptcy law are you 

referring to now? 

Mr. ADLER. The assumption of—well, this is going to be complicated. 

Chair WARREN. Post-petition financing. Is it not? 

Mr. ADLER. Yes. I am sorry. What I thought you were referring 

to was the case in which a post-petition financer wants to see that 

certain executory contracts are assumed. If you are not referring to 

that, I am misunderstanding. 

Chair WARREN. I am simply asking the question if post-petition 

dollars are being used and everyone, all of the creditors have received whatever would have been their allocation of division of assets of the estate—but now we are talking about the distribution 

of post-petition assets from a post-petition financer. If those go, as 

they often do I think—this is the point. Labor and suppliers are the 

two typical places where they may, although they had a role as 

creditors and they may be paid 100 cents on the dollar, as creditors 

of the pre-petition entity so long as they are being paid with postpetition financing dollars, I take it, first, that is entirely consistent 

with bankruptcy law. 

Mr. ADLER. Yes, that is right, which is again why I point to the 

restriction on the sale as the key problem. 

Chair WARREN. That is right, as your concern. 

Mr. ADLER. My concern, yes. 

Chair WARREN. And also that it is not uncommon, I think you 

were saying from your own studies. 


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Mr. ADLER. No. What is not uncommon from my own studies is 

the sale of the assets. 

Chair WARREN. The sale itself is not uncommon. I suppose it was 

Professor Lubben who was talking about that it is not uncommon 

to use post-petition financing dollars in this way. 

Mr. LUBBEN. Yes. I mean, I will concede that it is somewhat unusual to see the union as the one who is the beneficiary, but I suspect that that is more—tells us who is usually providing the postpetition financing. I mean, it is quite typical for banks to specify 

exactly how their post-petition financing will be used post-bankruptcy like, for example, ‘‘thou shall not use this financing to challenge pre-petition liens,’’ for example. So these kind of conditions 

are quite typical. 

It is somewhat unusual to have a post-petition lender who wants 

to benefit a union, but again, I think that is because the Chases 

and the Citibanks of the world are not really often looking out for 

the unions. 

I think the other point I would make too is that while we were 

kind of obsessed—and I think everybody is a little obsessed with 

the unions in these cases. One point you kind of glanced by here 

was the trade creditors, for example. The trade creditors got a 

much higher recovery than the unions did in these cases. I mean, 

they got paid in full, and the unions actually had concessions. 

Chair WARREN. So let me be just I am following here. So the people who made out best in this bankruptcy, at least as compared 

with where they might have been in a liquidation, were actually 

the trade creditors. 

Mr. LUBBEN. Right because they got paid under a critical vendor 

order, at least the trade creditors who were needed for the new entities going forward. If you were unfortunate enough to be a trade 

creditor exclusively for, say, Pontiac, I guess you would not feel as 

though you got out of this process too well. 

Chair WARREN. And in your experience, the payment, for example, of critical vendors or trade creditors through the use of postpetition financing—does that happen with some frequency? 

Mr. LUBBEN. Well, again, I hesitate to make an empirical study 

out of my own experience and practice, but I would say that in 100 

percent of the cases I did while I was in practice, which was in the 

late ’90s when this process started, I always had a critical trade 

vendor order. 

Mr. ADLER. That is right, and it is controversial. The Seventh 

Circuit issued an opinion in the KMart case suggesting that it 

should not happen, and I do not mean to be singling out the union 

here. I think all of this is inappropriate. 

Chair WARREN. Well, let us stop. Is the Seventh Circuit opinion 

not talking about paying critical vendors out of estate funds rather 

than out of post-petition financing funds? 

Mr. ADLER. Yes, but then I go back to the sale restriction. That 

is, what is happening here is where the conversation is going 

astray is that I keep converting the case as if it is a reorganization 

and using the estate’s funds because the sale was flawed in my 

view. But you are quite right. If we treat the sale as legitimate, 

what the purchaser does with the assets is entirely up to the purchaser, and there is no problem there at all. 


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Chair WARREN. Thank you, Professor Adler. 

Congressman. 

Mr. HENSARLING. Mr. Mourdock, had the Obama administration’s Automotive Task Force chosen to treat the retired teachers 

and retired policemen and policewomen of Indiana equally to the 

retired autoworkers of the UAW, have you done a calculation on 

what that would mean to the bottom line of these retired teachers 

and policemen in your State? 

Mr. MOURDOCK. No, sir, I have not because we have never heard 

such an offer put before us to see us treated in any way different 

than any of the other secured creditors who were going to be 

thrown 29 cents. 

Mr. HENSARLING. So at this point in the process, what do you 

consider your remedies to be? 

Mr. MOURDOCK. Well, because the Supreme Court, in issuing a 

petition, basically ruled and let the sale go forward, we understand 

we have 90 days. That was in early June. We understand we have 

90 days to go back to the Court and ask for clarifications, and we 

are certainly considering doing that. As a fiduciary who believes 

very strongly those three points of law that I mentioned to you do 

deserve review by the high Court, I will not let any stone remain 

unturned to see that we cannot see this process work, that we 

might not get remuneration for our retirees. 

Mr. HENSARLING. Well, I am certainly enjoying and learning 

much from the discussion among our three law professors, including the distinguished chair here. 

Not being an academic, I do want to try to go back to a point 

that has probably been covered, but I need to make sure I understand it. Is it not unusual to pay post-petition dollars for past pension obligations? I understand it may not be unusual going forward, but is it not unusual in your experience, Professor Lubben 

and Professor Adler, to have such post-petition dollars go for previous pension obligations? 

Mr. ADLER. Sadly, it is not unprecedented. I do not know whether it is common. As I mentioned earlier, though I can’t be sure. I’m 

willing to speculate that it is not ordinary course for bidding procedures to require that bidders assume particular liabilities as a condition of bidding. But as Professor Lubben points out, it happens 

from time to time at least in which post-petition financers insist 

that their pre-petition claims get paid out of order. 

The way this is justified, if it is justified at all, is that the terms 

of the new loan are so attractive that it is beneficial to the estate, 

including the other creditors, to pay the post-petition lenders’ old 

claims in full. This is controversial and inappropriate. It clouds the 

issue. But to say that it is unusual would be an overstatement. It 

is inappropriate in my view. 

Mr. HENSARLING. Professor Lubben, do you have comments? 

Mr. LUBBEN. Yes. I think on the specific issue too of labor, I 

think while as a formal matter of the absolute priority rule, they 

are not supposed to get paid, the reality is that if you want to keep 

operating the business going forward, you cannot have people picketing in front of the business and disrupting the operations. So it 

is quite frequent that you see pre-petition claims getting paid postVerDate Nov 24 2008 01:45 Oct 30, 2009 Jkt 052669 PO 00000 Frm 00129 Fmt 6633 Sfmt 6602 E:\HR\OC\A669.XXX A669

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petition to buy peace essentially going forward. And I assume that 

is what happened in this case. 

Mr. ADLER. But again, if the best use of these assets were in liquidation, this would not have been a concern to a purchaser. So 

this is, again, why I keep focusing on Chrysler in particular and 

the restrictions in Chrysler and the fact that you had a secured 

creditor that would have benefitted if the liquidation value of the 

company exceeded $2 billion. Then the fact that the UAW would 

have been unhappy and might have picketed would have, arguably, 

been irrelevant because the purchaser would not have wanted to 

continue operations anyway. That is the problem with the restrictions on the sale. 

Mr. LUBBEN. I do not want to make this a debating society here, 

but my thought is if liquidation was the better option here, again, 

we would have seen Chase as lead lender wanting to credit bid in 

this situation and take control of the assets and liquidate them. I 

think we can assume because they did not take control of the assets and liquidate them, that the costs of liquidating them would 

have ended up with them getting a recovery substantially less than 

$2 billion. 

Mr. ADLER. And that is possible, but the procedure should not 

have been perverted to guarantee that result. 

Mr. HENSARLING. This is probably for my personal edification 

more than anything else since I think I took one bankruptcy law 

course and it was many, many years ago. But I vaguely remember 

363 had to do with rotting vegetables on a cart, and now I think 

what I am hearing is there have been incredible developments with 

the use of 363. 

As I view TARP, TARP is written in a sense or is certainly practiced today by the administration—I am not sure if there is any 

firm in America that cannot receive TARP funds. If there is, I am 

not aware of it. 

What are the limits on 363 these days? What cannot be done? 

Mr. LUBBEN. Well, I think your notion of 363 sales might be one 

that predates 1978 because that is the rule under the old Bankruptcy Act, is you had to have something that was perishable. 

Mr. HENSARLING. You are showing my age, Professor. 

Mr. LUBBEN. Yes. Since 1978, 363 really has not had any perishability requirements. So other than court-adopted rules like the 

rule on sub rosa plans, 363 by its terms does not really have any 

limitations about when and what you can sell. So there is some 

court gloss on there, but there really are not any limits and secured 

lenders have figured that out and they are using it quite aggressively in part because 363(f), which allows a sale free and clear of 

liens and so forth, is much more powerful than real estate foreclosure law. So it is a much easier way to sell assets. 

Mr. HENSARLING. Thank you. I see I am out of time. 

Chair WARREN. Mr. Mourdock, I understand that at the time you 

purchased your bonds, you paid 43 cents on the dollar for them. 

Mr. MOURDOCK. That is correct. 

Chair WARREN. Which I assume was the current market price? 

Mr. MOURDOCK. Precisely. 


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Chair WARREN. Why was the current market price 43 cents on 

the dollar for a bond? Why was it not closer to 100 cents on the 

dollar for GM bonds? 

Mr. MOURDOCK. No. This was Chrysler. 

Chair WARREN. Chrysler bonds. 

Mr. MOURDOCK. Yes. We did not have any General Motors. 

Well, as you certainly know—and somewhat of a rhetorical question I think—the reason the price was 43 cents was because that 

is where the market put the price based on all that had been happening in the American automotive industry with Chrysler specifically. At the time, gasoline was about $4 a gallon, and they were 

certainly seeing the results of that in their sales and forecasts. 

I have been asked many times as an elected official, why in the 

world would you buy those bonds even at 43 cents? And there are 

two answers. Number one, it was discounted as a secured piece of 

credit, ‘‘secured’’ being a word that at least at that time had meaning. And secondly—and this is not an unimportant fact—we have 

as a policy, as most States do, we want to help businesses that 

have a large footprint in our State. There are over 6,000 employees 

who worked for Chrysler Corporation in Indiana. We hoped to be 

a part of the party of their success. We never imagined in doing 

so that we would end up on this side. 

Let me also add, just as a footnote, and this is certainly in my 

written testimony. But I harbor no ill will whatsoever towards 

Chrysler Corporation or the UAW. What we are concerned about 

and what I think the Congress as the oversight committee should 

be concerned about are all the processes that are being upset here. 

And what we bring forward in our lawsuit Chrysler could not have 

done if they wanted to. It has been solely the actions of the United 

States Government that have put us in this position. 

Chair WARREN. So actually, let me press on your point there. You 

said the reason that you bought these bonds was because you knew 

they were secured but they were priced at 43 cents on the dollar, 

which tells you something about the value of the security. Does it 

not? What does it tell you? 

Mr. MOURDOCK. It certainly does. It tells us that the security 

was seen through a little bit of a squinty eye of the market. However—— 

Chair WARREN. I am sorry. What does that mean? What does it 

tell you about the value of the security relative to the bond? 

Mr. MOURDOCK. There was a higher level of risk there. 

Chair WARREN. Not just higher level of risk. What does it tell 

you about the value of the collateral, at least as the market perceived it? 

Mr. MOURDOCK. Well, it goes with my comment that I just said 

about the risk. I mean, people are discounting it because they see 

some level of uncertainty out there as far as the future performance of the company. 

Chair WARREN. I am trying to ask two different questions here. 

There is a risk that the company may fail. I understand that, and 

that is a risk that unsecured creditors take generally. And then 

there is a risk about the value of the collateral, that is, that the 

collateral will not cover the amount of the outstanding liability. So 

when the bonds are trading at 43 cents on the dollar, I presume 


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it is not only because there is a risk that the company may fail, 

indeed may liquidate at some point, but that the value of the collateral is substantially less than the face value of the bond. 

Mr. MOURDOCK. Understood. 

Chair WARREN. So you knew when you purchased these that you 

were purchasing them—I just want to be clear—in part as a secured creditor, but in larger part as a general unsecured creditor. 

Mr. MOURDOCK. When that debt was purchased—and we do this 

through a private firm, but the firm did the analysis based on the 

collateral, based on the performance, all that was out there, and 

they basically looked at it as a very conservative investment based 

solely on where Jeep was within the total portfolio of Chrysler. 

Chair WARREN. But a price of 43 cents on the dollar tells you 

that the market at least strongly perceived and you purchased believing you were purchasing a partially secured and largely unsecured obligation of Chrysler. 

Mr. MOURDOCK. With the historical understanding it was still secured as a secured creditor. 

Chair WARREN. Well, secured to the extent perhaps of 43 cents 

on the dollar. Plus whatever its future upside earning was has to 

be included in that 43 cents. So secured at something less than, 

considerably less than that. Is that right? 

So the difficulty here is not that you were not paid 100 cents on 

the dollar. It is simply the disagreement over the valuation of the 

collateral? 

Mr. MOURDOCK. Correct. 

Chair WARREN. So your objection is that—I just want to make 

sure I understand—the valuation produced by Capstone—is that 

right—was inaccurate? 

Mr. MOURDOCK. Capstone was the consultant, I believe, for 

Chrysler. 

Chair WARREN. Is that right? 

Mr. MOURDOCK. I believe that is correct, yes. 

Chair WARREN. So you think that the valuation is wrong. 

Mr. MOURDOCK. Yes, I do. 

And I think there have been a number of things that have come 

forward even since then that raise more questions. For instance, 

during the bankruptcy testimony in New York, it was said the 

value of the Dodge Viper line might be maybe $5 million when, in 

fact, Chrysler had received an offer just 2 months before for $35 

million. I mean, there are those types of valuations that we think 

were not given due merit in what the total valuation of this company was. 

You know, it has come up several times too. Again, I am not a 

lawyer and I make no apology here. But I do understand the value 

of time. While it has been said throughout the hearing today what 

is—you know, it was pushed, it was pushed, it was pushed. What 

was the issue that was pushing the timing? And it was a date of 

June 15th. It was said repeatedly that if this deal was not done, 

Fiat was going to walk away from the deal. 

Well, throughout that period, I kept raising the question, Fiat is 

not putting a penny of investment in here. They are being given 

hundreds of millions of dollars of assets on day 1. What difference 

does it make, if somebody is going to give me $100 million, if I do 


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not get it on Monday, I will come back on Tuesday or Thursday. 

The day the sale took place, Mr. Marchionne, in fact, made the 

comment we do not know where the date came from. 

Chair WARREN. So if I am understanding this, you are saying you 

would have made a different business judgment at that point in 

time. But as a creditor, that was not your legal right. Is that right? 

Mr. MOURDOCK. Well, that is not a decision as a creditor that I 

could set as far as what the date was going to be for the sale. But 

I am saying, in line with some of the other testimony here, that 

if the process had been opened up for other bidders, there might 

have been other bidders to get us a better valuation, but there was 

no time for other bidders because the Government so pushed this 

process forward to meet an artificial deadline. 

Chair WARREN. Thank you, Mr. Mourdock. 

Congressman Hensarling. 

Mr. HENSARLING. Mr. Mourdock, I assume somewhere in the investment decision-making process of the State of Indiana probably 

would have been the assumption that the pension fund would be 

treated at least equally to other secured creditors and be treated 

preferentially to unsecured creditors. Would that have been part of 

the decision-making process to buy these bonds at 43 cents on the 

dollar? 

Mr. MOURDOCK. Certainly. 

Mr. HENSARLING. I think you also said, Mr. Mourdock, that ‘‘all 

processes are being upset here.’’ So I will just kind of frankly lob 

a softball out to the panel as we end this round of questioning, and 

that is, from your vantage point, as you look at the entirety of the 

processes and decisions that have brought us here—and clearly, a 

lot of new ground is being broken certainly from a policymaking 

perspective and maybe a bankruptcy perspective, maybe not—what 

do you see as the long-term either positive or negative policy consequences for what certainly has been a fairly unprecedented excursion by the Federal Government into these two private companies? We will just go left to right. We will start with you, Professor 

Adler. 

Mr. ADLER. Thank you, Congressman. 

In a nutshell, whether the Government dictated the sale or not, 

it influenced a process through which the sale proceeds of the assets of a bankrupt company were going to go to a favored creditor. 

That may have been legitimate. It may have been illegitimate. The 

process, though, was not legitimate, in my view. That is, the direction of the proceeds to those creditors may have been appropriate 

in the end, consistent with what would have occurred had the process been fair. But we do not know. Instead, what we have is a potential diversion of value in a process that was flawed. 

And as a result, the parties that might have been injured by this, 

the creditors in this case, or some of them, complained. Other went 

along with the sale, I know, and perhaps those creditors were 

speaking in their best interests, but others dissented. Whether the 

dissenters had standing is in dispute, as I believe Mr. Lubben 

pointed out, but for my purposes here that’s beside the point. 

Creditors who dissented, or others who worry about being in their 

position in the future, may be hesitant to lend in the future on 

terms that are favorable to future debtors. And as a result, when 


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you do not have an open sale process, but instead allow the Government or the court to approve a sale in which only certain bidders are permitted and in which the sale proceeds are going to be 

siphoned off in a particular direction, you run the risk that the confidence in credit will be diminished and as a result, the cost of capital to future debtors will be increased. 

Mr. HENSARLING. Thank you. 

Professor Lubben. 

Mr. LUBBEN. I guess I would start with the idea that there has 

been a diversion of value presupposes, I guess, that there was extra 

value there to be diverted and that the full value had not been paid 

in this process. Given the lack of evidence on valuation, other than 

what was presented in the bankruptcy court, it looks like the Government, if anything, paid more than adequate value for these assets. So I do not think we can assume that there has been a diversion of value here to anybody in particular. 

Again, I will agree that there has been kind of a Government 

bailout of the unions, and we can debate whether or not that is a 

good thing or a bad thing. But it is really not relevant to the bankruptcy issues. 

As to what do we take away from all these cases, I ultimately 

think that these cases will be recognized for what they are, as two 

very large bankruptcy cases that happened at a point in time 

where private DIP financing was not available, the Government 

stepped up and provided it. In that sense, they are kind of unique 

and I do not think they will really set a big precedent for anything 

going forward. 

One good thing that could come out of this, though, is I think to 

the extent that the larger public and Congress is being made aware 

of what is going on in Chapter 11 generally, that is a good thing 

because those of us in the bankruptcy community have been talking about it now for 5 or 6 years. But we could all fit in an elevator 

together and have that conversation, and I do not think the conversation has gotten out of the elevator. So now it has and that 

could be a good thing ultimately. 

Mr. HENSARLING. Mr. Mourdock, you get the last word. 

Mr. MOURDOCK. Well, I would agree with you on that point, Mr. 

Lubben. I think it is good to have this discussion. 

I had, as you phrased the question, thought of three quick 

things. 

Number one is with TARP specifically—and you said this a few 

moments ago—it looks like anybody can get money from TARP, 

though that was clearly not Congress’ intent in passing it. Certainly it seems the door is wide open, and I think that is rather 

frightening. 

Secondly—and this was mentioned a moment ago—the credit 

markets are still feeling the effect of this. I could not agree more 

with the Obama administration when they recently said we need 

to see unprecedented new investment in American manufacturing. 

I totally agree. But this type of change in the historical understanding of creditors’ rights is going to cause billions of dollars to 

flow overseas where they are not changing the rules. We are already seeing that. We have changed the rules of investing in our 

office because of the new risk. 


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And last but not least—and again, I said at the outset I have 

great reverence for this process—will we continue to have a true 

system of check and balances? The Congress voted to have an auto 

bailout bill, and it failed. It did not matter the executive acted. The 

leadership of Congress, obviously, agreed with the administration 

in their actions. So totally the actions of Congress were deemed irrelevant. The auto bailout bill failed. If the Congress had passed 

an automobile bailout bill, I doubt that I would be sitting here because then, clearly, most of our argument goes away and I think 

the process would have been handled differently. 

But as a congressional oversight committee, I guess the last word 

I would leave with you is you are being made irrelevant and you 

ought not let that happen. 

Mr. HENSARLING. Thank you. 

Chair WARREN. Thank you. 

With that, this panel is excused. Thank you very much for coming. We appreciate it. 

This hearing will be adjourned. We will hold the record open for 

30 days. If there are any additional questions from the panelists, 

they will be submitted in writing and we will ask you to give your 

responses in writing as well. 

Again, we appreciate the hospitality of Wayne State University. 

We appreciate the participation of two of Michigan’s finest Congressional representatives here. We appreciate your dedication and 

your willingness to come and share your thoughts and your time 

with us. 

With that, this meeting is adjourned. 

[Whereupon, at 1:06 p.m., the hearing was adjourned.] 

[The responses of the witnesses to questions for the record from 

the Congressional Oversight Panel follow:] 


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Responses of Ron Bloom, Senior Advisor, U.S. Department 

of the Treasury, to Questions for the Record from Panelist 

Representative Jeb Hensarling 

1. Will the Administration provide the Panel with the written criteria the Administration uses to determine which entities or types 

of entities are allowed to receive assistance through TARP? 

Each program has guidelines that specify eligibility criteria. 

These criteria are posted on the financial stability website, 

www.financialstability.gov. 

For example, in determining whether an institution is eligible for 

funding under the Automotive Industry Financing Program, Treasury has identified the following factors for consideration, among 

other things: 

1. The importance of the institution to production by, or financing of, the American automotive industry; 

2. Whether a major disruption of the institution’s operations 

would likely have a materially adverse effect on employment 

and thereby product negative effects on overall economic performance; 

3. Whether the institution is sufficiently important to the nation’s financial and economic system that a major disruption of 

its operations would, with a high probability, cause major disruptions to credit markets and significantly increase uncertainty or losses of confidence, thereby materially weakening 

overall economic performance; and 

4. The extent and probability of the institution’s ability to access alternative sources of capital and liquidity, whether from 

the private sector or other sources of U.S. government funds. 

2. How much additional funding and credit support does the Administration expect to ask the American taxpayers to provide each 

of Chrysler and GM (i) by the end of this year and (ii) during each 

following year until all investments have been repaid in full in cash 

and all credit support has been terminated? What will be the source 

of these funds? 

The Administration does not plan to provide any additional funds 

to GM and Chrysler beyond those that have already been committed. GM and Chrysler may draw additional amounts under the 

loan agreements relating to the supplier support program. This 

amount is expected to be up to $500 million in total. 

3. Will the Administration agree to provide the American taxpayers with timely reports describing in sufficient detail the full extent of their investments in Chrysler and GM? 

The Treasury provides details of all investments within two business days pursuant to the transaction reports under section 105 of 

EESA. These reports are posted and available for review by the 

public at http://www.financialstability.gov/latest/ 

reportsanddocs.html. These transaction reports identify the funds 

provided to GM and Chrysler. 

4. Will the Administration provide the Panel with a formal written legal opinion justifying the use of TARP funds (i) to support Old 

Chrysler and Old GM prior to their bankruptcies, (ii) in the Chrysler and GM bankruptcies, including the Section 363 sales, (iii) regarding the transfer of equity interests in New Chrysler and New 


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GM to the UAW/VEBAs, and (iv) regarding the delivery of promissory notes and other credit support by New Chrysler and New GM 

for the benefit of the UAW/VEBAs? 

The Treasury described the authority to use TARP funds to finance the old Chrysler and GM in bankruptcy court filings made 

on its behalf by the Department of Justice, specifically in the Statement of the United States of America Upon The Commencement of 

General Motors Corporation’s Chapter 11 Case filed June 10, 2009, 

a copy of which has been provided to the Congressional Oversight 

Panel. In Judge Gerber’s final sale order in the GM bankruptcy 

case dated July 5, 2009, also provided to the Congressional Oversight Panel, he wrote: 

The U.S. Treasury and Export Development Canada 

(‘‘EDC’’), on behalf of the Governments of Canada and Ontario, have extended credit to, and acquired a security interest in, the assets of the Debtors as set forth in the DIP 

Facility and as authorized by the interim and final orders 

approving the DIP Facility (Docket Nos. 292 and 2529, respectively). Before entering into the DIP Facility and the 

Loan and Security Agreement, dated as of December 31, 

2008 (the ‘‘Existing UST Loan Agreement’’), the Secretary 

of the Treasury, in consultation with the Chairman of the 

Board of Governors of the Federal Reserve System and as 

communicated to the appropriate committees of Congress, 

found that the extension of credit to the Debtors is ‘‘necessary to promote financial market stability,’’ and is a 

valid use of funds pursuant to the statutory authority 

granted to the Secretary of the Treasury under the Emergency Economic Stabilization Act of 2008, 12 U.S.C. 

§§ 5201 et seq. (‘‘EESA’’). The U.S. Treasury’s extension of 

credit to, and resulting security interest in, the Debtors, as 

set forth in the DIP Facility and the Existing UST Loan 

Agreement and as authorized in the interim and final orders approving the DIP Facility, is a valid use of funds 

pursuant to EESA. 

The rationale and determination of the ability to use TARP funds 

applies equally to the financing provided to the new Chrysler. 

There was no new financing provided to New GM. Instead, cash 

flowed from old GM to new GM as part of the asset sale, and new 

GM assumed a portion of the loan that Treasury had made to old 

GM. 

The interests received by other stakeholders of Chrysler and GM 

including the UAW/VEBAs were a result of negotiations between 

all stakeholders as described in detail by myself and Harry Wilson 

in our depositions in the bankruptcy cases, transcripts of which 

have been provided to the Congressional Oversight Panel. 

5. When does the Administration anticipate that Chrysler and 

GM will return to profitability? What are the Administration’s projections for Chrysler and GM over the next five years? When does 

the Administration anticipate that Chrysler and GM will go public? 

The Administration reviewed Chrysler’s and GM’s business 

plans, which were developed by the companies. As part of this review process, the Administration’s financial advisors performed 


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sensitivity analyses by varying the assumptions underlying the 

business plans. These scenarios helped the Administration with its 

decision making process. 

The Administration has not projected dates by which the companies will return to profitability, which is dependent on the overall 

market conditions and economic recovery. 

GM, which will probably go public before Chrysler, is expected to 

go public over the next twelve months, but the final decision will 

be made in both cases by the companies’ boards of directors and 

will be dependent, among other things, on the state of the public 

securities markets. 

6. What is the Administration’s exit strategy regarding Chrysler 

and GM? 

The Administration plans to be a responsible steward of taxpayer 

money, and will periodically evaluate both public and private options to exit these investments. For GM the most likely exit strategy is a gradual sell off of shares following a public offering. For 

Chrysler, the exit strategy may involve either a private sale or a 

gradual sell off of shares following a public offering. 

7. When does the Administration anticipate that Chrysler and 

GM will repay in full in cash all TARP funds advanced by the 

America taxpayers? 

The Administration evaluated various scenarios and believes 

that, under certain assumptions, GM may be able to pay off a high 

percentage of the total funds advanced by the taxpayers. Less optimistic, and in Treasury’s view more likely scenarios involve a reasonable probability of repayment of substantially all of the government funding for new GM and new Chrysler, and much lower recoveries for the initial loans. Such analyses are obviously sensitive 

to the overall market and the economy. 

8. Will the Administration agree to treat the American taxpayers 

as bona fide investors in Chrysler ad GM and provide them with 

at least the same disclosure they would receive under the securities 

laws if Chrysler and GM were public companies and each American 

taxpayer a common shareholder? 

Chrysler and GM plan to file financial reports with the Securities 

and Exchange Commission in the future in accordance with the requirements for other public companies. Prior to that time, they will 

be providing regular public reports on their financial performance. 

9. By making such an unprecedented investment in Chrysler and 

GM the United States government by definition chose not to assist 

other Americans that are in need. Given economic suffering that the 

american taxpayers have endured during the last several months 

please tell us why Chrysler and GM merited such generosity to the 

exclusion of other American taxpayers? 

In other words, why would the Untied States government choose 

to reward two companies that have been mismanaged for many 

years, as evidenced by a protracted deterioration in the financials 

of both companies, at the expense of hard working American taxpayers? 

What information does the Administration possess that proves 

Chrysler and GM are both sound investments for the taxpayer? 

Outright failure of GM and Chrysler would likely have led to uncontrolled liquidations in the automotive industry, with widespread 


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devastating effects. Importantly, the repercussions of such liquidations could have included immediate and long-term damage to the 

U.S. manufacturing/industrial base, a significant increase in unemployment with direct harm to those both directly and indirectly related to the auto sector (e.g., dealerships being shuttered, plant 

closings, supplier failures, service centers closing, etc.), and further 

damaged our financial system, as automobile financing accounts for 

a material portion of our overall financial activity. 

Under the direction of the President, the Administration sought 

to avoid such disruptions to the financial system and the economy 

as a whole by providing the minimum capital necessary to these 

companies to facilitate their restructurings. Prior to advancing new 

funds, the Administration has relied on commercial principles in 

determining the viability of these businesses and in structuring the 

terms of its investments. 

The President’s March 30th, April 30th, and June 1st speeches 

detail the rationale for further investments in the companies. 

10. TARP funds were used by New Chrysler and New GM to purchase assets of the old auto makers, yet a substantial portion of the 

equity in the new entities was transferred to the UAW/VEBAs. As 

such, TARP funds were transferred to the UAW/VEBAs. In addition, New Chrysler and New GM entered into promissory notes and 

other contractual arrangements for the benefit of the UAW/VEBAs. 

Why did the United States government spend billions of dollars 

of taxpayer money to give preference to employees and retirees of the 

UAW to the detriment of other non-UAW employees and retirees who 

pension funds invested in Chrysler and GM indebtedness? 

Why didn’t New Chrysler and New GM transfer some of their equity interests to, or enter into promissory notes and other contractual arrangements for the benefit of, the non-UAW/VEBA creditors 

of Old Chrysler and Old GM? 

The President directed the auto team to take a commercial approach to the restructuring process of these companies. As a result, 

the Administration dealt with the various creditors to GM/Chrysler 

as a commercial actor would. The final division of debt, preferred, 

and equity securities between the various creditors was the result 

of arm’s length negotiations. 

The UAW/VEBA had many billions of dollars of claims and labor 

agreements governing the companies’ active workforces. As part of 

this process the Union agreed to major modifications in their labor 

agreement. Under the new contracts, the VEBA received a stake in 

the reorganized companies without any immediate payment. The 

cooperation and support of the UAW is essential to the ability of 

the reorganized companies to succeed. 

11. Given the judicial holdings in the Chrysler and GM bankruptcies, one might expect future firms to face a higher cost of capital, thus impeding economic development at a time when the country can least afford impediments to growth. Did the Administration 

consider these consequences when it orchestrated a plan that deprived certain creditors of the benefit of their bargains? 

How does the Administration defend the concern that, based on 

the Chrysler and GM precedents, the contractual rights of investors 

may be ignored when dealing with the United States government? 


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The rights of all stakeholders were dealt with in accordance with 

the normal requirements and procedures of the Bankruptcy Code 

and the Bankruptcy Rules. 

The Chrysler senior lenders got $2 billion out of the proceeds of 

the Treasury loan to the new Chrysler, which was deemed to be in 

excess of the value of the collateral securing their loans. In the case 

of GM, the unsecured creditors received 10% of the stock of the 

new GM together with warrants for up to an additional 15% of 

stock. 

The findings by the judges in both the Chrysler and the GM 

cases attest to the fact that the administration and outcomes of 

these cases were well within acceptable practice. Further, as noted 

in my July 27 testimony before the Congressional Oversight Panel, 

the creditors of Chrysler and GM received more than they would 

have received had the Government not stepped in. Treasury does 

not expect that the judicial holdings in these cases will increase 

capital costs or impede economic development. 

Separately, had the Administration not acted, it would have led 

to a spiraling liquidation of GM and Chrysler leading to massive 

job losses and long-term damage to the U.S. manufacturing base. 

12. Please provide a list to the Panel of all auto task force officials 

as well as any additional Administration officials involved in the 

restructuring negotiations of Chrysler and GM. Which officials communicated with the senior, secured bondholders? Mr. Bloom mentioned those officials involved in the negotiations had gone through 

‘‘extensive questioning.’’ Can you again affirm that no one on the list 

you provide encouraged in any manner a TARP creditor to support 

the bankruptcy of either Chrysler or GM? Did any of these TARP 

recipients acquiesce with the knowledge that losses from their 

Chrysler or GM holdings may be directly or indirectly replenished 

with TARP funds? How would the American taxpayers know whether or not Treasury channeled TARP funds through these institutions 

as a backdoor way of financing the auto industry and, indirectly, 

UAW/VEBA claims? 

The Auto Task Force is co-chaired by National Economic Council 

Director Larry Summers and Secretary of the Treasury Tim 

Geithner and is composed of agency heads, including: Secretary of 

Transportation Ray LaHood, Secretary of Commerce Gary Locke, 

Secretary of Labor Hilda Solis, Secretary of Energy Stephen Chu, 

Chair of the President’s Council of Economic Advisers Christina 

Romer, Director of the Office of Management and Budget Peter 

Orzsag, Environmental Protection Agency Administrator Lisa Jackson, and Director of the White House Office of Energy and Climate 

Change Carol Browner. However, only the auto team within the 

Treasury Department was involved in negotiations relating to the 

Chrysler and GM bankruptcies. 

Following is the List of Treasury auto team members that were 

principally involved in communicating with senior secured creditors: 

• Steve Rattner 

• Ron Bloom 

• Harry Wilson 

• Matt Feldman 


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Specifically, the government required the companies to demonstrate that they could generate positive cash flow and be viable 

and profitable over the long term. It was up to the companies and 

their management to develop business plans that would achieve 

those results and to negotiate the concessions necessary to implement those business plans. While auto team members participated 

in some of those discussions, they did so as potential lenders and 

investors. 

At no time in any meetings involving stakeholders were there 

discussions related to TARP funding for such stakeholders. As described in my testimony to the Congressional Oversight Panel, no 

one on this list had any role in dictating what stance other TARP 

recipients should take in dealing with GM and Chrysler. 

13. How frequently does communication occur between any member of the Administration and the directors and executives of Chrysler or GM? What is the nature of such communication? 

The members of the Treasury auto team communicate with a 

limited group of directors and executives at GM and Chrysler as 

necessary to administer the government’s investments and protect 

the taxpayers’ interests. The approach is consistent with what a 

commercial lender and investor would do in order to monitor their 

investments. It should be noted that the Administration has made 

an overall core decision not to engage in the management of these 

businesses, and any communication with the companies is consistent with this principle. 

14. What is the Administration’s vetting process for new directors 

of Chrysler and GM? 

The Treasury auto team used a commercial process to vet directors as would be expected of any well-managed corporation. In the 

end, the auto team is comfortable that it has brought together 

world-class boards that are focused on being responsible stewards 

of taxpayer dollars and creating shareholder value. 

15. Will Chrysler and GM receive favorable government contracts 

or other direct or indirect subsidies the award of which is not based 

upon objective and transparent criteria? 

Chrysler and GM will not receive any special treatment when 

competing for government contracts or any direct or indirect subsidies as a result of the government’s investments in these companies. They will have to win contracts based on their commercial 

strengths like any other auto manufacturer. As a principle, the Administration does not plan to manage these businesses or get involved in day to day management. 

16. Will Chrysler and GM promptly disclose all contractual arrangements with (i) the United States government and (ii) recipients 

of TARP funds, together with a detailed description of the contract, 

its purpose, the transparent and open competitive bidding process 

undertaken and the arm’s length and market directed nature of the 

contract? 

Chrysler and GM will be subject to the same reporting requirements with respect to contractual arrangements as are any other 

similarly situated business entity. The companies are also subject 

to audit, including by SIGTARP and GAO. 

17. Will Chrysler or GM be able to obtain private or public credit 

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cause of the implicit governmental guarantee of such indebtedness 

and contracts? 

As indicated earlier, Chrysler and GM will have to win contracts 

and business solely based on the commercial strength of their offers. There is no actual or implicit government guarantee for their 

debt or contractual obligations. 

18. How will the United States government resolve any conflict of 

interest issues arising from its role as a creditor or equity holder in 

Chrysler and GM and as a supervising authority for Chrysler and 

GM? 

The Administration has already separated its role as investor/ 

lender from that of regulator. The Administration has completely 

different teams working in these capacities, and decisionmaking in 

these areas is very purposefully separated. For matters related to 

the financial interests of taxpayers, the team overseeing the investments and loans will continue to act like any commercial actor in 

terms of protecting taxpayer capital. For regulatory matters, those 

functions will continue as if the GM and Chrysler interventions 

had not taken place. 

19. Will the IRS, SEC and other governmental agencies be able 

to discharge their regulatory and enforcement responsibilities with 

respect to Chrysler and GM without political influence? 

The companies will be subject to the same regulatory and enforcement requirements as are any other similarly situated business entity. 

20. Thomas E. Lauria, the Global Practice Head of the Financial 

Restructuring and Insolvency Group at White & Case LLP, represented a group of senior secured creditors, including the Perella 

Weinberg Xerion Fund (‘‘Perella Weinberg’’), during the Chrysler 

bankruptcy proceedings. 

On May 3, the New York Times reported: ‘‘In an interview with 

a Detroit radio host, Frank Beckmann, Mr. Lauria said that Perella 

Weinberg was directly threatened by the White House and in essence 

compelled to withdraw its opposition to the deal under threat that 

the full force of the White House press corps would destroy its reputation if it continued to fight.’’ In a follow-up interview with ABC 

News’ Jake Tapper, he identified Mr. [Steven] Rattner, the head of 

the auto task force, as having told a Perella Weinberg official that 

the White House would embarrass the firm. At the hearing Mr. 

Bloom stated that Mr. Rattner denied Mr. Lauria’s allegations. Has 

any member of the Administration spoken with Mr. Lauria or representatives of Perella Weinberg regarding this matter? If so, what 

did they say? If not, why not? Do you plan to ask SIGTARP to subpoena Mr. Rattner, Mr. Lauria and representatives of Perella 

Weinberg and ask them to respond under oath? If not, why not? 

As I testified during the July 27 Field Hearing of the Congressional Oversight Panel, I have spoken to Mr. Rattner about this 

matter, and he categorically denies Mr. Lauria’s allegations. I have 

no knowledge of any other contact with Mr. Lauria or with people 

at Perella Weinberg regarding the issues mentioned above. 

SIGTARP will determine the appropriate use of its subpoena power 

or executive bodies to questions presented by the panel. 

21. Regarding the reorganization of the auto parts manufacturer, 

Delphi, on July 17 the New York Times reported: ‘‘Delphi’s new proVerDate Nov 24 2008 01:45 Oct 30, 2009 Jkt 052669 PO 00000 Frm 00142 Fmt 6602 Sfmt 6602 E:\HR\OC\A669.XXX A669

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posal [reached with its lender group] is similar to its agreement 

with Platinum [Equity, a private equity firm], which was announced June 1, the day GM filed for bankruptcy. But hundreds of 

objectors, including the company’s debtor-in-possession lenders, derided that proposal as a ‘sweetheart deal’ that gave the private equity firm control of Delphi for $250 million and a $250 million 

credit line.’’ On June 24 the New York Times reported that ‘‘Delphi 

worked with GM and the Obama Administration to negotiate with 

Platinum. . . .’’ Why would the Administration participate in the 

negotiation of a ‘‘sweetheart deal’’ for the benefit of Platinum Equity? 

The Delphi transactions were negotiated between GM and Delphi. GM determined a failure of Delphi would have led to high 

losses at GM. The auto team was involved in discussions to the extent necessary to avoid potential destruction of equity value of GM, 

which would have led to large losses to the Treasury investment 

and for the U.S. taxpayer. 

22. Did the Administration in any manner pressure or encourage 

Chrysler to accept a deal with Fiat? 

The Administration made the determination that Chrysler’s business plan submitted on February 17th was not viable and that, in 

order for Chrysler to receive taxpayer funds, it needed to find a 

partner with whom it could establish a successful alliance. Chrysler identified Fiat as a potential partner after conducting a lengthy 

search process that began before Treasury made its initial loan to 

Chrysler and in which Treasury had no involvement. Fiat was the 

only potential partner to offer to enter into such an alliance, and 

ultimately the Chrysler Board made the determination that forming an alliance with Fiat was the best course of action for its stakeholders. 

23. Did the Administration in any manner thwart or discourage 

any merger or business combination or arrangement between Chrysler and GM? 

The Administration allowed GM and Chrysler to work toward a 

commercial solution they thought made sense for their businesses. 

Each company made its own determination to pursue a future independent of the other. 

24. Did the Administration in any manner communicate or consult with any director or executive of Chrysler or GM regarding 

their testimony before the Panel or their response to the questions 

presented by the Panel? 

Auto team staff have had discussions with Chrysler and GM 

management about a wide variety of issues, including requests for 

information from oversight bodies, but have never sought to influence responses of Chrysler or GM directors or executive bodies to 

questions presented by the panel. 

Responses of Jan Bertsch, Senior Vice President, Treasurer 

and Chief Information Officer, Chrysler Group LLC to 

Questions for the Record from Panelist Representative 

Jeb Hensarling 

1. By making the unprecedented investment in Chrysler and GM, 

the United States government by definition chose not to assist other 


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Americans that are in need. Given the economic suffering that the 

American taxpayers have endured during the last several months, 

please tell us why your company merited such generosity to the exclusion of other taxpayers? 

In other words, why would the United States government choose 

to reward two companies that have been mismanaged for many 

years, as evidenced by a protracted deteriorating in the financials 

of both companies, at the expense of hard working taxpayers? 

What information do you possess that proves your company is a 

sound investment for the American taxpayer? 

Please refer to (1) the materials submitted to the U.S. Congress 

by Chrysler LLC on December 2, 2008, (2) the Restructuring Plan 

for Long-Term Viability submitted by chrysler LLC to the U.S. 

Treasury on February 17, 2009, and (3) the testimony and supporting materials from Chrysler LLC and its advisors that are part 

of the public record in the bankruptcy proceedings of Chrysler LLC 

pending in the U.S. Bankruptcy Court for the Southern District of 

New York. These public materials provide comprehensive information detailing the sudden and drastic effects of the global credit crisis on the U.S. auto industry, the potential disastrous effects on the 

U.S. economy of a liquidating bankruptcy of Chrysler, and the potential for the new Chrysler to preserve tens of thousands of jobs 

and generate billions of dollars of federal, state and local tax revenues in the U.S. 

2. When do you anticipate that your company will return to profitability? 

What are your projections for your company over the next five 

years? 

When do you anticipate that your company will go public? 

As part of the 363 sales process, Chrysler LLC submitted a business plan (the ‘‘363 plan’’). Currently, Chrysler Group LLC is elaborating its 5-year business plan, the results of which are expected 

to represent an improvement on the 363 plan outcome. 

Decisions with respect to an initial public offering are within the 

province of the Members (equity holders). 

3. What is the Administration’s exit strategy regarding the investment of TARP funds in your company? 

The $7 billion secured loan to Chrysler Group LLC from the U.S. 

Treasury requires repayment of all amounts borrowed by June 

2017. Decisions with respect to an initial public offering are within 

the province of the Members (equity holders). 

Funds advanced under the Warranty Support Program were repaid in July 2009, and funds advanced under the Supplier Support 

Program in May 2009 are scheduled to be repaid in 2010. 

4. When do you anticipate that your company will repay in full 

in cash all TARP funds advanced by the American taxpayers? 

The $7 billion secured loan to Chrysler Group LLC from the U.S. 

Treasury requires repayment of all amounts borrowed by June 

2017. Decisions with respect to an initial public offering are within 

the province of the Members (equity holders). 

Funds advanced under the Warranty Support Program were repaid in July 2009, and funds advanced under the Supplier Support 

Program in May 2009 are scheduled to be repaid in 2010. 


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5. How frequently does communication occur between any member 

of the Administration and the directors and executives from your 

company? What is the nature of such communication? 

There is no established schedule for communications. Since June 

10, 2009, interactions with the U.S. Treasury have occurred a few 

times a week and have related to, among other things, the formation and composition of the Board, financial reporting requirements, efforts to finalize a long-term business plan and an executive compensation program, and the Warranty Commitment Program and Supplier Receivables Program sponsored by the U.S. 

Treasury. 

6. Is the Administration in any manner providing input regarding corporate policy and/or the day-to-day management of your 

company? If so, what input is being provided and under what authority? Does your company seek the approval of the Administration 

regarding any matter? 

The U.S. Treasury has no role in the company’s day-to-day management or policy making, except that (1) the U.S. Treasury included a requirement in its First Lien Credit Agreement with the 

company that requires the company to maintain an expense policy 

prohibiting or limiting certain expenditures, and (2) the company’s 

executive compensation program is required to be approved by the 

U.S. Treasury’s Special Master for Executive Compensation, Mr. 

Kenneth Feinberg. 

7. What objective market analysis has your company undertaken 

indicating that American consumers prefer small cars to larger cars 

and SUV’s? • Analysis of industry trends indicate that over the past five 

small and compact vehicles have captured a larger portion of the 

U.S. light vehicle industry (2004 14%; 2008 22%). Industry forecasts predict a continuation of this growth over the next five years. • Based on our propriety web-based survey about powertrains, Americans feel that fuel prices will be, on average, $2.89 per gallon 

in one year and $4.50 in five years. This supports the expectation 

that more fuel efficient vehicles will grow in demand as we have 

seen with recent fuel price spikes. With technology, consumers will 

also have a choice of getting large vehicles that are more fuel efficient but with the likely price premium of the technology, small car 

demand will rise. 

• Since 2004, there has been a gradual increase in purchase intentions for smaller vehicles and a gradual decrease for larger vehicles. The gas price spike in 2008 magnified (and possibly accelerated) this trend. 


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• Based on our dedicated, proprietary i-community that monitors 

consumer perceptions of automotive propulsion and small cars, 41% 

of consumers would likely consider a small car in the future. Fifty 

percent indicated they were unlikely to consider a small car. 

What objective market analysis has your company undertaken indicating that American consumers will prefer vehicles produced by 

your company to those produced by other companies within and outside this country? • Chrysler does not currently offer A/B segment vehicles, however, we are successful in the segments in which we offer vehicles: 

Chrysler Share of Segment (Chrysler Segmentation) • Full Size Luxury 17.8% (Chrysler 300/C) • Compact SUV 43.5% (Wrangler, Compass, Patriot) • MPV 40.1% (Town & Country, Grand Caravan) • Large Pick-Up 17.8% (Ram) • Research shows that for small car buyers the top five primary 

reasons for purchase are the following (2008 New Vehicle Experience Study, Strategic Vision Inc.): 

Fuel Economy 42.7% 

Value for the Money 17.6% 

Price/Monthly Payment 6.0% 

Fun to Drive 4.2% 

Reliability 3.7% 

Having access to Fiat’s technology will enable Chrysler to compete in the small vehicle segments with these needs. • Fiat’s success in highly competitive small car segments in markets such as Europe and Brazil helped establish Fiat as a highly 

competitive global manufacturer. The small car technology that 

Fiat will transfer to Chrysler will lead to similar success in the 

growing U.S. small car segment. • In addition, Fiat will make available to Chrysler Group its C 

platform technology, which will be the basis for the renewal of the 

Chrysler product offerings in both the C and D market segments. 

These actions by Fiat will provide Chrysler with technologically updated and more competitive products in the most important segments in the U.S. market. 

8. Did the Administration in any manner pressure or encourage 

Chrysler to accept a deal with Fiat? 

Chrysler pursued an alliance with Fiat because it viewed Fiat’s 

products and distribution network as complementary to Chrysler’s 

and capable of strengthening Chrysler for the long-term. The U.S. 

Treasury indicated that it would provide financing in support of an 

alliance with Fiat—first in the context of an out-of-court restructuring that required significant concessions by key constituencies, 

and later in the context of a sale transaction under Section 363 of 

the U.S. Bankruptcy Code. 

9. Did the Administration in any manner thwart or discourage 

any merger or business combination or arrangement between Chrysler and GM? 

GM advised Chrysler it would discontinue merger discussions 

due to the need to address its own pressing liquidity issues. 

10. Will your company receive favorable government contracts or 

other direct or indirect subsidies the award of which is not based 

on objective and transparent criteria? 


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No. 

11. Will your company agree to promptly disclose all contractual 

arrangement with (i) the United States government and (ii) recipients of TARP funds, together with a detailed description of the contract, its purpose, the transparent and open competitive bidding 

process undertaken and the arm’s length and market directed nature of the contract? 

The Company would be willing to disclosure such arrangements 

as long as such disclosure would not violate confidentiality agreements or risk competitive harm. 

12. Do you anticipate that your company will be able to obtain 

private or public credit or enter into other contractual arrangement 

at favorable rates because of the implicit government guarantee of 

such indebtedness and contracts? 

No. And we question the validity of your premise regarding an 

implicit guarantee. 

13. Did any director or executive of your company in any manner 

communicate or consult with any member of the Administration regarding any testimony before the Panel or any response to the questions presented by the Panel? If so, please describe the communication or consultation. 

No, except for an ongoing dialog with the U.S. Treasury in the 

ordinary course of business to validate debt/cash amounts outstanding. 

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

1. By making the unprecedented investment in Chrysler and GM 

the United States government by definition chose not to assist other 

Americans that are in need. Given the economic suffering that the 

American taxpayers have endured during the last several months 

please tell us why your company merited such generosity to the exclusion of other taxpayers? 

In other words, why would the United States government choose 

to reward two companies that have been mismanaged for many 

years, as evidenced by a protracted deterioration in the financials 

of both companies, at the expense of hard working American taxpayers? 

What information do you possess that proves your company is a 

sound investment for the American taxpayer? 

The government’s provision of debtor-in-possession financing 

when none was available in the private market, along with its 

other support for General Motors, enabled the company to go 

through bankruptcy without liquidation. As Mr. McAlinden testified, the government’s actions probably avoided millions of job 

losses and billions of dollars of lost income and lost tax revenue. 

These millions of taxpayers, along with the state and local governments which their taxes support, benefited substantially from the 

government’s involvement. Beyond this, the soundness of the government’s investment will only be proved out over time. 

2. When do you anticipate that your company will return to profitability? 


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Only July 10, GM’s CEO announced that our Viability Plan projections comtemplate breakeven Adjusted Earnings Before Interest 

and Tax (EBIT) by 2010 and positive Adjusted Operating Cash 

Flow by 2011. 

What are your projections from your company over the next five 

years? 

Business plan projections from GM were included in the Stephen 

Worth Declaration filed in Bankruptcy court on June 4, 2009, in 

support of the proposed 363 sale. These projections contemplate adjusted Earnings Before Tax (EBT) of ($1.3)B, $3.0B, $5.3B, $6.9B 

and $7.8B for CY 2010—2014 and at the time were based on current assumptions including total U.S. industry sales projections of 

12.15M units, 14.3M units, 16.0M units, 16.4M units and 16.8M 

units for CY 2010—CY2014. 

When do you anticipate that your company will go public? 

The timing of an initial public offering will be heavily influened 

by conditions in the equity markets and continued recovery in the 

auto industry, but we’d like to see the company in a position to 

launch a public offering as soon as sometime next year if the market conditions are suitable. Ultimately, General Motor’s Board of 

Directors will determine when an IPO would be in the best interest 

of the Company and its stockholders. 

3. What is the Administration’s exit strategy regarding the investment of TARP funds in your company? 

We do not have any information to add to the testimony of Mr. 

Bloom at the hearing. 

4. When do you anticipate that your company will repay in full 

in cash all TARP funds advanced by the American taxpayers? 

The American taxpayer will be repaid as GM repays the United 

States Department of the Treasury loan and as the United States 

Department of the Treasury monetizes its equity in GM post our 

IPO. While we are required to repay the United States Department 

of the Treasury loan by 2015, our goal is to repay this loan much 

sooner. We expect the company will be taken public as soon as 

practical sometime next year. Ultimately, General Motors’ Board of 

Directors will determine when an IPO would be in the best interest 

of the Company and its stockholders. 

5. How frequently does communication occur between any member 

of the Administration and the directors and executives from your 

company? 

Communciations between the Administration and General Motors Company has been reduced significantly since July 10, 2009. 

The number of members on the President’s Automotive Task Force 

has been reduced significantly. 

What is the nature of such communication? 

The contact has focused on questions related to regular financial 

reporting requirements under the UST loan as well as the amendment of the UST loan document to further clarify certain reps and 

warranties related to GM and its covered group members. 

6. Is the Administration in any manner providing input regarding corporate policy and/or the day-to-day management of your 

company? 

There are some areas regarding corporate policy in which we 

communicate with Administration such as executive compensation. 


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The Administration does not provide input regaring day-to-day 

management of our company. 

If so, what input is being provided and under what authority? 

Generally, input has been provided by the United States Department of Treasury and we expect input from the TARP Special Compensation Master. 

Does your company seek the approval of the Administration regarding any matter? 

Yes, under the terms of the United States Department of the 

Treasury loan we must seek approval on items such as withdrawals from the escrow account as well as TARP Special Compensation Master approval of compensation plans and payments for 

our senior executive officers and the next 20 highest compensated 

employees. 

7. What objective market analysis has your company undertaken 

indicating that American consumers prefer small cars to larger cars 

and SUVs? 

GM continuously assesses the automotive market and consumer 

behavior from three viewpoints: historical lessons, current realities 

and future projections. History provides insight re: consumer behavior relative to actual market conditions—the end result of economic factors such as overall economic health, gas prices, regulatory impacts; new product entries; societal trends, etc. Current 

realities provide insight to real-time behaviors—for example, the 

dramatic shift to compact sized vehicles during the gas price spike 

of 2008 when consumers expected fuel prices to continue to climb 

to the $5/gal level. Future projections assess the expected impact 

of the economic and regulatory outlook, demographic and societal 

trends and expected supply side influences. This ‘‘scanning’’ process 

leverages consumer surveys, primary research and product clinics, 

internal models and external academic and industry experts from 

various fields. 

What objective market analysis has your company undertaken indicating that American consumers will prefer vehicles produced by 

your company to those produced by other companies within and outside this country? 

As part of both the vehicle and marketing development processes, GM leverages extensive consumer and expert opinion research. The research may include full scale models of future entries 

in a competitive showroom environment with a representative sample of current new vehicle owners, ‘‘garage visits’’ (ethnography) in 

competitive owners’ homes or focus groups in a neutral setting. All 

research is constructed to eliminate bias and GM’s sponsorship of 

the research is masked. 

8. Did the Administration in any manner pressure or encourage 

Chrysler to accept a deal with Fiat? 

We have no information regarding this matter. 

9. Did the Administration in any manner thwart or discourage 

any merger or business combination or arrangement between Chrysler and GM? 

No, the Obama Administration did not thwart or discourage any 

arrangements between GM and Chrysler. 


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10. Will your company receive favorable government contracts or 

other direct or indirect subsidies the award of which is not based 

upon objective and transparent criteria? 

We do not anticipate that we would receive any such treatment. 

11. Will your company agree to promptly disclose all contractual 

arrangements with (i) the United States government and (ii) recipients of TARP funds, together with a detailed description of the contract, its purpose, the transparent and open competitive bidding 

process undertaken and the arm’s length and market directed nature of the contract? 

We have agreed with the SEC to voluntarily comply with security laws and disclose material contracts as we enter into them. Per 

this agreement, we disclosed on August 7, 2009 the Amendments 

to the Loan and Security Agreement between General Motors Corporation and the United States Department of the Treasury, Secured Credit Agreement between General Motors Company and the 

United States Department of the Treasury, as well as other material agreements. 

12. Do you anticipate that your company will be able to obtain 

private or public credit or enter into other contractual arrangements 

at favorable rates because of the implicit governmental guarantee of 

such indebtedness and contracts? 

No. 

13. Did any director or executive of your company in any manner 

communicate or consult with any member of the Administration regarding any testimony before the Panel or any response to the questions presented by the Panel? 

A copy of Walter Borst’s prepared remarks was provided to the 

Automotive Task Force immediately prior to his testimony. 

If so, please describe the communication or consultation. 

Prepared remarks were provided as a courtesy, no consultation 

took place. 

Responses of Barry Adler, Charles Seligson Professor of 

Law, New York University School of Law to Questions for 

the Record from Panelist Representative Jeb Hensarling 

1. Does it appear that the United States government (as a major 

investor) or any other party supported or created any restrictions on 

bidders as part of the Section 363 sale of either the Chrysler or GM 

assets? If so, what were they and why do you think they were created? 

There were restrictions, described below, but I have no information on the source of the restrictions. 

2. Was there a market test to determine whether or not the creditors of Chrysler or GM would fare better from a Section 363 sale, 

a Chapter 11 reorganization or a liquidation? 

It is often stated that potential buyers of these companies knew 

of their availability for months or years prior to their bankruptcy 

filings and that this knowledge, together with management efforts 

to attract suitors prior to filing, constituted a market test. However, once the companies entered bankruptcy, the courts severely 

restricted the time for potential buyers to bid and generally required that any bidder assume significant liabilities to the autoVerDate Nov 24 2008 01:45 Oct 30, 2009 Jkt 052669 PO 00000 Frm 00151 Fmt 6602 Sfmt 6602 E:\HR\OC\A669.XXX A669

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worker retirement fund known as VEBA. In each case, there was 

an exception to the requirement that the liabilities be assumed, but 

by court order, the UAW had to be consulted before a noncompliant 

bid would be approved. Because it is possible that, but for these restrictions, potential bidders might have appeared after the bankruptcy filings, I do not believe that there was an adequate market 

test. 

If so, please describe the market test. If not, why do you think a 

market test was not employed? 

As to whether there was a market test, please see my response 

above. I have no information about why the debtor did not request 

what I would consider an adequate market test. 

3. Did the courts in the Chrysler and GM bankruptcies err in any 

manner? 

In my view, subject to a qualification mentioned below, I believe 

that the courts erred in approving a sale without requiring an unconditional auction of the assets, one designed to maximize the 

highest possible price for the bankruptcy estates. Because there 

was no such auction, the transactions should have been characterized not as sales but as reorganizations and the VEBA interests in 

the purchased assets should have been considered distributions, 

which arguably violated prohibitions against unfair discrimination. 

The qualification is that in the Chrysler case, the secured creditors 

who objected to the sale were subject to a loan agreement that arguably bound them to be represented by an agent of a majority of 

such creditors. Consequently, there may have been no dissenting 

creditor in the case with standing and sufficient voice to block the 

sale even if the transaction had been characterized as a reorganization. These matters are addressed in my statement and related article, which are, I believe, already part of the record. 

4. What action would you recommend to solve any of the problems 

presented by the Chrysler and GM bankruptcies? 

In my view, the bankruptcy code should be amended to prohibit 

sale of all or substantially all of a debtor’s assets except under conditions that would obtain under applicable non-bankruptcy law and 

unless the sale process imposes no requirement that a bidder assume some but not all of a debtor’s obligations. This proposal is set 

out in more detail in my statement and related article. 

5. What role did TARP play in the Chrysler and GM bankruptcies? 

My understanding is that TARP funds were a source of government finance, but I have no information beyond this. 

6. What negative public policy consequences have risen from the 

Chrysler and GM bankruptcies? 

My fear is that the Chrysler and GM bankruptcy cases will stand 

for the proposition that bankruptcy courts are permitted to substitute their own judgment for that of the market and sidestep 

creditor protections prescribed by the bankruptcy code. The result 

could be that lenders will become wary of extending credit on favorable terms to firms in need of funds, thus increasing the cost of 

capital. This would impede economic growth and development. 


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Responses of Stephen Lubben, Daniel J. Moore Professor 

Law, Seton Hall University School of Law, to Questions 

for the Record from Panelist Representative Jeb 

Hensarling 

1. Does it appear that the United States government (as a major 

investor) or any other party supported or created any restrictions on 

bidders as part of the Section 363 sale of either the Chrysler or GM 

assets? 

Yes. 

If so what were they and why do you think they were created? 

As I described at the Detroit Hearing and in my prepared remarks, the bidding procedures approved by both bankruptcy courts 

required any ‘‘Qualified Bidder’’ to assume various union agreements. As I also explained at the Detroit Hearing, and as I explain 

more fully in the supplemental paper prepared for the Panel, the 

flexible nature of bidding procedures in chapter 11 cases calls into 

question the importance of these requirements, since they could always have been changed to accommodate a bidder, if any had existed. 

The remainder of the question asks that I speculate or guess as 

to who required these procedures and why. I decline the invitation. 

2. Was there a market test to determine whether or not the creditors of Chrysler or GM would fare better from a section 363 sale, 

a Chapter 11 reorganization or a liquidation? 

Yes. 

If so, please describe the market test. If not, why do you think a 

market test was not employed? 

As is commonly the case in section 363 sales, the initial bids in 

the automotive cases were subject to higher and better offers. 

Moreover, under the terms of Bankruptcy Code section 363(k), the 

secured lenders in both cases had the option to bid their secured 

claims (in place of cash). Either an alternative bid or a credit bid 

would have resulted in an auction with the initial bidder. As is 

widely known, no alternative bidders of any sort materialized at either sale hearing, suggesting the current market value of the debtors’ assets were less than the initial bid. 

3. Did the courts in the Chrysler and GM bankruptcies err in any 

manner? 

Both the bankruptcy and appellate courts properly applied the 

law, as currently understood in the Second Circuit, to these cases. 

The bankruptcy courts in particular appear to have done a commendable job of balancing the right of claimants to be heard with 

the debtors’ need to resolve their financial difficulties in a timely 

manner. 

4. What action would you recommend to solve any of the problems 

presented by the Chrysler and GM bankruptcies? 

As I noted at the Detroit Hearing, section 363 sales followed by 

chapter 11 liquidating plans have become extremely common in the 

past decade. Congress may want to examine if this change in chapter 11 practice represents a socially or economically optimal development. 

5. What role did TARP play in the Chrysler and GM bankruptcies? 


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TARP funding allowed the debtors to enter bankruptcy in an orderly fashion, by avoiding an uncontrolled or ‘‘free fall’’ Chapter 11 

case. The funding also allowed the debtors to successfully reorganize—given credit market conditions, it was unlikely that these 

debtors would have been able to obtain sufficient DIP and exit financing. 

6. What negative public policy consequences have arisen from the 

Chrysler and GM bankruptcies? 

I am not aware of any. 

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

1. Does it appear that the United States government (as a major 

investor) or any other party supported or created any restrictions on 

bidders as part of the Section 363 sale of either the Chrysler or GM 

assets? 

Indiana’s funds were only invested in the secured credit of 

Chrysler. Therefore, I have no comments or observations to offer 

regarding the specifics of the GM bankruptcy. At the time of the 

Chrysler petitions to the bankruptcy court, I was neither concerned 

with nor watching developments in the GM case. 

To the question . . . ‘‘yes,’’ absolutely. 

If so, what were they and why do you think they were created? 

The principal restriction was imposed by the time requirement 

that mandated the bankruptcy be completed by June 15, 2009. 

Throughout the bankruptcy process, the government maintained if 

the deal was not completed by that date that Fiat would walk away 

from its ‘‘purchase’’ of 20% of the Chrysler assets. From the beginning, the June 15 date was a myth generated by the federal government. Fiat was being given the assets at not cost at a minimum 

value of $400,000,000. Why would Fiat establish or negotiate such 

a date when they were to receive such a bonanza? On the very day 

that the Chrysler assets were transferred to Fiat, the company’s 

chairman stated to the media that the June 15th date never originated from them. The artificial date drove the process in preventing creditors from having any opportunity to establish true values, prepare adequate cases, and therefore failed to protect their 

rights to the fullest provisions of the law. The artificial date also 

forced the courts to act with less than complete information. 

2. Was there a market test to determine whether or not the creditors of Chrysler or GM would fare better from a Section 363 sale, 

a Chapter 11 re-organization or a liquidation? 

I have no knowledge that any such test was conducted. 

If so, please describe the market test. If not, why do you think a 

market test was not employed? 

I assume that no test was conducted so that the restructuring 

could be done in a manner to reward specific non-secured creditors. 

There is no other logical reason to believe that a trustee or officer 

of the corporation, who acted in good faith, wouldn’t have performed such a test. 

3. Did the Courts in the Chrysler and GM bankruptcies err in any 

manner? 


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As stated in my verbal testimony, I am not a lawyer though we 

do have ample legal staff working on this issue as we consider 

going back to the Supreme Court of the United States to petition 

for a hearing. The U.S. 2nd District Court of Appeals in its written 

opinion of August 9th, 2009, denied our pensioners standing pursuant to the argument that we could not prove, under any other 

bankruptcy plan, we could have received more than the $0.29 we 

were offered. We believe this was an error because the court used 

a liquidation value for the company rather than an ‘‘on-going concern’’ basis. We received written notice from the U.S. Bankruptcy 

Court of New York by certified letter of our rights to file a claim 

on Monday, May 18, 2009, at 10:00 a.m. We were advised in the 

letter that any evidence we wished to submit to make a claim 

against the submitted plan, (in part, the $0.29), would have to include trade tickets, depositions, affidavits, documents of evidence to 

substantiate claims, and etc. and would have to be filed with the 

bankruptcy court on Tuesday, May 19, 2009, by 4:00 p.m. The 

bankruptcy of Chrysler was frequently referred to as ‘‘the most 

complex bankruptcy in American history,’’ and yet we were given 

thirty hours to respond. We feel this was clearly an error in the 

process that helped to reduce the wealth of our beneficiaries. 

4. What action would you recommend to solve any of the problems 

presented by the Chrysler and GM bankruptcies? 

This is the simplest question that could be asked of a former secured creditor of Chrysler. In the future, just follow the law. 

5. What role did TARP play in the Chrysler and GM bankruptcies? 

TARP funds were used to begin funding Chrysler in December of 

2008. As stated in my written and previously submitted oral testimony, the U.S. Congress passed TARP in October 2008 after hearing testimony from then U.S. Treasury Secretary Henry Paulson 

that TARP was not intended to be used to bailout the automobile 

industry. Two months later, the same Congress tried to pass a separate automobile bailout bill that failed. The obvious question is 

why would Congress have done such a thing if they thought that 

they already had the means to bailout the car companies? Clearly, 

Congress knew that TARP funds were not intended for the automobile industry when they passed the legislation. The Bush administration began the misappropriation of TARP funds and it continued under the Obama administration. If the TARP did not exist, 

it’s highly unlikely that the Chrysler bankruptcy would have proceeded as it did. 

It is important to note that in its written opinion of the 2nd District U.S. Court of Appeals, the Court pointed out that the questions raised by us, Indiana’s pensioners, remain interesting and 

‘‘vexing.’’ In oral arguments, the federal government stated that because car companies are so dependent and inter-related with banks 

that the car companies are, in fact, banks themselves. To the federal government’s statement, the Appellate Court stated if that is 

the standard then clearly no standard exists because all business 

are interrelated with their banks. The Appellate Court goes so far 

as to explain that the use of TARP funds for the automakers is 

worthy of review by a higher court, but they then state that they 


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do not have jurisdiction to make such a ruling because we, Indiana 

pensioners, have no claim of standing. 

The claim that Indiana’s pensioners don’t have standing remains, 

in itself, a ‘‘vexing’’ issue given the extraordinary schedule put into 

place by the government to facilitate its actions. 

6. What negative public policy consequences have arisen from the 

Chrysler and GM bankruptcies? 


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