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RAMIFICATIONS OF AUTO INDUSTRY 

BANKRUPTCIES (PART III) 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

COMMERCIAL AND ADMINISTRATIVE LAW 

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

JULY 22, 2009 

Serial No. 111–55 

Printed for the use of the Committee on the Judiciary 

( 

Available via the World Wide Web: http://judiciary.house.gov 

(II) 

COMMITTEE ON THE JUDICIARY 

JOHN CONYERS, JR., Michigan, Chairman 

HOWARD L. BERMAN, California 

RICK BOUCHER, Virginia 

JERROLD NADLER, New York 

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia 

MELVIN L. WATT, North Carolina 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

WILLIAM D. DELAHUNT, Massachusetts 

ROBERT WEXLER, Florida 

STEVE COHEN, Tennessee 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

PEDRO PIERLUISI, Puerto Rico 

MIKE QUIGLEY, Illinois 

LUIS V. GUTIERREZ, Illinois 

BRAD SHERMAN, California 

TAMMY BALDWIN, Wisconsin 

CHARLES A. GONZALEZ, Texas 

ANTHONY D. WEINER, New York 

ADAM B. SCHIFF, California 

LINDA T. SA ́ NCHEZ, California 

DEBBIE WASSERMAN SCHULTZ, Florida 

DANIEL MAFFEI, New York 

LAMAR SMITH, Texas 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

DANIEL E. LUNGREN, California 

DARRELL E. ISSA, California 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JIM JORDAN, Ohio 

TED POE, Texas 

JASON CHAFFETZ, Utah 

TOM ROONEY, Florida 

GREGG HARPER, Mississippi 

PERRY APELBAUM, Majority Staff Director and Chief Counsel 

SEAN MCLAUGHLIN, Minority Chief of Staff and General Counsel 

SUBCOMMITTEE ON COMMERCIAL AND ADMINISTRATIVE LAW

STEVE COHEN, Tennessee, Chairman 

WILLIAM D. DELAHUNT, Massachusetts 

MELVIN L. WATT, North Carolina 

BRAD SHERMAN, California 

DANIEL MAFFEI, New York 

ZOE LOFGREN, California 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia 

JOHN CONYERS, JR., Michigan 

TRENT FRANKS, Arizona 

JIM JORDAN, Ohio 

HOWARD COBLE, North Carolina 

DARRELL E. ISSA, California 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

MICHONE JOHNSON, Chief Counsel 

DANIEL FLORES, Minority Counsel 

(III) 

C O N T E N T S 

JULY 22, 2009 

Page 

OPENING STATEMENTS 

The Honorable Steve Cohen, a Representative in Congress from the State 

of Tennessee, and Chairman, Subcommittee on Commercial and Administrative Law ........................................................................................................... 1 

The Honorable Trent Franks, a Representative in Congress from the State 

of Arizona, and Ranking Member, Subcommittee on Commercial and Administrative Law .................................................................................................. 2 

The Honorable John Conyers, Jr., a Representative in Congress from the 

State of Michigan, Chairman, Committee on the Judiciary, and Member, 

Subcommittee on Commercial and Administrative Law .................................. 4 

The Honorable Howard Coble, a Representative in Congress from the State 

of North Carolina, and Member, Subcommittee on Commercial and Administrative Law ........................................................................................................ 5 

WITNESSES 

Ms. Louann Van Der Wiele, Vice President and Associate General Counsel, 

Chrysler Group LLC; and Kevyn D. Orr, Partner, Jones Day 

Oral Testimony ..................................................................................................... 7 

Joint Prepared Statement ................................................................................... 9 

Mr. Michael J. Robinson, Vice President and General Counsel of North America, General Motors Company 

Oral Testimony ..................................................................................................... 20 

Prepared Statement ............................................................................................. 22 

Mr. Harvey R. Miller, Partner, Weil, Gotshal & Manges LLP 

Prepared Statement ............................................................................................. 29 

Mr. Douglas G. Baird, Harry A. Bigelow Distinguished Service Professor 

of Law, University of Chicago Law School 

Oral Testimony ..................................................................................................... 59 

Prepared Statement ............................................................................................. 61 

Mr. Daniel J. Ikenson, Associate Director, Center for Trade Policy Studies, 

Cato Institute 

Oral Testimony ..................................................................................................... 64 

Prepared Statement ............................................................................................. 67 

Mr. Richard E. Mourdock, Indiana Treasurer of State 

Oral Testimony ..................................................................................................... 80 

Prepared Statement ............................................................................................. 82 

Mr. Jeremy Warriner, Indianapolis, IN 

Oral Testimony ..................................................................................................... 120 

Prepared Statement ............................................................................................. 122 

Mr. John J. Fitzgerald, President, Fitzgerald Auto Malls 

Oral Testimony ..................................................................................................... 146 

Prepared Statement ............................................................................................. 148 

Mr. Jim Tarbox, President, Tarbox Motors, Inc. 

Oral Testimony ..................................................................................................... 160 

Prepared Statement ............................................................................................. 162 

Mr. Greg Williams, President, Huntington Chevrolet, Inc. 

Oral Testimony ..................................................................................................... 164 

Prepared Statement ............................................................................................. 167 

Page

IV 

Mr. Robert G. Knapp, President, Knapp Chevrolet 

Oral Testimony ..................................................................................................... 176 

Prepared Statement ............................................................................................. 178 

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

Prepared Statement of the Honorable Daniel Maffei, a Representative in 

Congress from the State of New York, and Member, Subcommittee on 

Commercial and Administrative Law ................................................................. 6 

Material submitted by the Honorable Daniel Maffei, a Representative in 

Congress from the State of New York, and Member, Subcommittee on 

Commercial and Administrative Law ................................................................. 48 

Material submitted by the Honorable Steve King, a Representative in Congress from the State of Iowa, and Member, Subcommittee on Commercial 

and Administrative Law ...................................................................................... 201 

APPENDIX 

MATERIAL SUBMITTED FOR THE HEARING RECORD

Prepared Statement of the Honorable Chris Van Hollen, a Representative 

in Congress from the State of Maryland ............................................................ 205 

Response to Post-Hearing Questions from Louann Van Der Wiele, Vice President and Associate General Counsel, Chrysler Group LLC ............................. 206 

Response to Post-Hearing Questions from Michael J. Robinson, Vice President 

and General Counsel of North America, General Motors Company ................ 222 

Response to Post-Hearing Questions from Harvey R. Miller, Partner, Weil, 

Gotshal & Manges LLP ....................................................................................... 231 

Response to Post-Hearing Questions from Douglas G. Baird, Harry A. Bigelow 

Distinguished Service Professor of Law, University of Chicago Law School .. 237 

Response to Post-Hearing Questions from Daniel J. Ikenson, Associate Director, Center for Trade Policy Studies, Cato Institute ......................................... 244 

Response to Post-Hearing Questions from Richard E. Mourdock, Indiana 

Treasurer of State ................................................................................................ 252 

Response to Post-Hearing Questions from John J. Fitzgerald, President, Fitzgerald Auto Malls ................................................................................................. 257 

Response to Post-Hearing Questions from Jim Tarbox, President, Tarbox Motors, Inc. ................................................................................................................ 274 

Response to Post-Hearing Questions from Greg Williams, President, Huntington Chevrolet, Inc. ......................................................................................... 276 

Post-Hearing Questions submitted to Robert G. Knapp, President, Knapp 

Chevrolet ............................................................................................................... 279 

Letter from Michael J. Robinson, Vice President and General Counsel of 

North America, General Motors Company ......................................................... 280 

(1) 

RAMIFICATIONS OF AUTO INDUSTRY 

BANKRUPTCIES (PART III) 

WEDNESDAY, JULY 22, 2009 

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON COMMERCIAL

AND ADMINISTRATIVE LAW, COMMITTEE ON THE JUDICIARY, Washington, DC. 

The Subcommittee met, pursuant to notice, at 10:14 a.m., in 

room 2141, Rayburn House Office Building, the Honorable Steve 

Cohen (Chairman of the Subcommittee) presiding. 

Present: Representatives Cohen, Conyers, Sherman, Maffei, 

Johnson, Scott, Franks, Jordan, Coble, Issa, and King. 

Staff Present: (Majority) James Park, Counsel; Adam Russell, 

Professional Staff Member; and (Minority) Daniel Flores, Counsel. 

Mr. COHEN. This hearing of the Committee on the Judiciary, 

Subcommittee on Commercial and Administrative Law, will now 

come to order. Without objection, the Chair will be authorized to 

declare a recess of the hearing. 

I will now recognize myself for a short statement. 

We continue our hearings on the ramifications of auto industry 

bankruptcies and their effect on dealers and other issues. In my 

opening statement yesterday, I raised concerns about the impact of 

the Chrysler and General Motors bankruptcies on automobile dealers and tort claimants. We heard responses from Mr. Bloom and 

the Administration’s auto task force on these and other issues. 

Today, we will have the perspectives of Chrysler and GM as well 

as other interested parties. 

As was noted yesterday, one issue that has raised bipartisan concerns in Congress is the mass closure of GM and Chrysler dealerships. The car dealers contend that GM and Chrysler selected dealerships for termination using an arbitrary selection process. Additionally, I am concerned about the impact of these closures on minority dealers—and I may qualify that when I say ‘‘minority,’’ I 

don’t necessarily mean women. I am speaking about it from my district African Americans, and those statistics may be different and 

I appreciate your referencing those; I feel they will suffer in a disproportionate manner. 

Yesterday, I briefly spoke about Mr. John Roy, who was the only 

African American Chrysler dealer within a 300-mile radius of 

Memphis, his dealership being in South Haven. He was a dedicated 

and outstanding Chrysler dealer. Chrysler decided to terminate his 

franchise. There were business decisions that he had to engage in, 

2 

because of that, that affected his business and terminated it. I am 

very interested in what criteria were used to determine which dealers are allowed to remain in business and those which weren’t, particularly minority dealers. 

Another issue that the Subcommittee will explore is whether the 

use of section 363 sales in the Chrysler and GM cases threatens 

to undermine Chapter 11. The court in both cases approved the 

sale of a substantial number of assets by Chrysler and GM to 

newly created entities that were to become the ‘‘new’’ Chrysler and 

the ‘‘new’’ GM. Notwithstanding the court’s approval of these sales, 

some critics have charged this sale constituted an end-run around 

the Bankruptcy Code’s plan confirmation process and may have 

constituted improper sub-rosa reorganization plans. I hope that our 

witnesses can, and I am sure they will, shed some light on these 

issues and the use of this particular procedure. 

I thank our witnesses for appearing today and for adding to our 

understanding of the implications of these historic bankruptcy 

cases which has affected business and culture in America in a 

great way. 

I now recognize my colleague, Mr. Franks, the distinguished 

Ranking Member of the Subcommittee, for his opening remarks. 

Mr. FRANKS. Thank you Mr. Chairman. Good morning to you. 

And good morning to you folks. Due to the kind of—the nature 

of the hearing this morning, I hope you will grant me diplomatic 

immunity. I appreciate all of you for just having the courage to be 

here. 

Mr. Chairman, many decades ago in a much younger country 

some remarkable things took place. The founding of General Motors and its repeated resurrection from hard times through the 

spirit of private American enterprise was one of them. It produced 

an industrial giant the likes of which the world had never seen. 

Walter P. Chrysler’s salvation of the first Willys-Overland Company from bankruptcy, then the Maxwell-Chalmers Company, 

which he turned into Chrysler Corporation, was another. Walter P. 

Chrysler took companies from the ash heap and then he made 

Chrysler strong enough to take a sustained break from production 

and built the Sherman tank and the B-29 bomber engines that 

powered us to victory in World War II. 

In America today, remarkable inspiring things still take place, 

but sadly, they are not taking place through the auto task force or 

the bankruptcies of General Motors and Chrysler. In the Chrysler 

bankruptcy, a once-proud company confronting a deadly credit 

crunch and falling sales, came to Washington for handouts and a 

few months’ time. And I understand that. But it got a handout and 

a few months’ time only. But in those few months, Chrysler shifted 

from being a privately owned company to being owned by the 

UAW, the U.S. Government, the Canadian Government and an 

Italian auto maker. 

General Motors, confronting the same credit crunch and the 

same falling sales, came to Washington and got even more money 

and more time, but sure enough it became a company owned almost entirely by the UAW and the U.S. Government; and in the 

blink of an eye, American icons were turned into American tragedies. And I have got to ask the question, Why? Because their manVerDate Aug 31 2005 13:53 Feb 23, 2010 Jkt 000000 PO 00000 Frm 00006 Fmt 6633 Sfmt 6601 H:\WORK\COMM\072209\51225.000 HJUD1 PsN: 51225
3 

agement, unlike their companies’ founders, didn’t rely on private 

enterprise and the time-tested American remedy for corporate failure, that being bankruptcy and reorganization. I know it is always 

easy to say that from outside the perspective, but I believe that the 

axiom holds true. 

And because the Obama administration, the auto task force, saw 

a chance to take the limited bridge loans and the precious few 

months the Bush administration had granted to companies had extended them, they chose to turn those things into tools that to subject into penchant for political patronage—its radical climate and 

energy agenda and its broad plans to inject government deeper 

than we have ever seen into the bloodstream of the American economy. 

I had many questions yesterday for the man responsible for this 

at the auto task force, that being Ron Bloom. And, of course, I have 

questions for GM and Chrysler today and they are simple, and I 

hope and believe that they will be answered truthfully. 

But what political pressures for instance did the Obama administration and the auto task force bring to bear upon General Motors 

and Chrysler? What forced General Motors and Chrysler to sell 

crown jewels of iconic American industry to the UAW and to the 

U.S. Government, Canada and an Italian auto maker? What caused 

GM and Chrysler to shred absolutely the rights of their secured 

bondholders, that being the retired firemen, teachers, policemen, 

and nurses who helped GM and Chrysler survive, unfortunately, 

until the companies and the auto task force buried them alive? 

What caused General Motors and Chrysler to sign up to an inexorable death march under UAW ownership, and this being the 

same UAW whose wage demands and work rules plunged them 

down the path of bankruptcy in the first place? 

What caused GM and Chrysler to obliterate the thousands of 

loyal dealer franchises that sold their products for decades? If these 

dealerships were so ineffective, if they were so incapable, why not 

just let them die a natural death? If they were not profitable, they 

would have gone the way of the dinosaur by themselves. 

The loyal dealers they shed like so much confetti that no one can 

explain, based on criteria that no one can identify—other than, of 

course, perhaps some of the bloggers and investigators who seem 

to have concurred that it was dealers who contributed to Republicans who were shed and dealers who gave to Democrats who were 

saved? 

Why did GM and Chrysler leave behind their storied pasts and 

shrink into the minions and pawns of the Obama administration’s 

climate change program, energy program, union patronage and Socialist dreams? 

And finally, for anyone who loves America and American business, I ask, why did General Motors’ and Chrysler’s management 

not simply follow the examples of their forebearers and prevent 

this from happening the way that they did? William Durant built 

General Motors from—again, beginning in a bankruptcy, Buick’s 

bankruptcy, which he turned into a triumph of private enterprise. 

Walter P. Chrysler left GM chafing under Durant’s leadership, 

rescued Willys-Overland from bankruptcy and then rescued the 

Maxwell-Chalmers Company and turned it into Chrysler. With 

4 

Chrysler, he took on Ford and General Motors and turned the Detroit Big Two into the Detroit Big Three. 

Why did General Motors and Chrysler management not accept 

accountability, assume responsibility and prepare for bankruptcy 

when it was obviously coming in 2008? This is not a new conclusion 

on my part; some of us believed at the time that the bailout was 

being voted on that the bankruptcy should have been the first approach. 

If they had, they could have gone through bankruptcy as private 

companies seeking private solutions. They have could have found 

those solutions and emerged again, in my opinion, as private companies. America would have been the stronger, not the weaker, and 

taxpayers would have saved money they may now never see again. 

I know that we will ask many questions today and we will hear 

the best answers people can give us, but I do mourn for the spirit 

that once animated these great companies and pray for the country 

and for the future of American free enterprise. 

And with that, Mr. Chairman, I yield back. 

Mr. COHEN. I thank the gentleman for his statement. 

Before I recognize Mr. Conyers, the distinguished Member of the 

Subcommittee and the Chairman of the full Committee, Mr. 

Franks referenced the Big Two in Detroit at one time. Well, we 

have the ‘‘big two’’ here, and the other of the ‘‘big two’’ is Representative Kilpatrick, and we want to welcome her to the Subcommittee for her attendance and appreciate her interest in this 

issue. 

Now I recognize the senior member of the ‘‘big two,’’ the Chairman of the Committee, Mr. Conyers. 

Mr. CONYERS. Thank you very much, Chairman Cohen. 

This is the second part of this hearing. And I always dare hope 

that we come out of the hearing with knowing a little bit more and 

feeling a little bit more congenial than the first day. But my hopes 

are dashed again. My dear friend, the Ranking Member, insists 

on—I don’t know what the collective bargaining movement ever did 

to him or his friends, but this is a vital part of our system and 

after all President Gettelfinger has suffered from very disturbed 

members of his union by all the concessions that he has given up, 

he is now informed that he and his crew are running two automobile companies. And, goodness, I just want to say in his defense 

that that is not exactly the case. 

The auto bailout activity was created under the Bush administration, and you were against that. Okay—well then, I guess I 

should just get used to it. 

But the whole idea is that this wasn’t our idea. We didn’t ask 

the two largest automobile companies of the three to come to us 

and that we wanted to give them money. They are the ones that 

came and asked for help. And we have collectively agreed to do it. 

The current President has agreed to do it. 

And the mention of Walter P. Chrysler, my father came from 

Monroe, Georgia, to Detroit and the first job he got was working 

for the Chrysler Corporation on East Jefferson in Detroit. I worked 

there summer during law school, and the whole idea—he had met 

Chrysler; I never met him. But we know a lot about the automobile 

industry in our family. My brother is the senior minority auto dealVerDate Aug 31 2005 13:53 Feb 23, 2010 Jkt 000000 PO 00000 Frm 00008 Fmt 6633 Sfmt 6601 H:\WORK\COMM\072209\51225.000 HJUD1 PsN: 51225
5 

er in the United States, past president of the National Association 

of Minority Auto Dealers. 

And, Mr. Chairman, here is what we are up against: We are trying to save a noble and important industry. But what we are also 

trying to do is to create as much cushion as we can as we have to 

do all this downsizing. 

Plant after plant is being closed in Michigan and Ohio. To my 

dislike, there is plenty of outsourcing going on at the same time. 

The people whose plants are closed, they not only lose their job, 

they lose their health care. They lose their pensions. And frequently they end up on the foreclosure list as Detroit and Wayne 

County forecloses on an average of 147 homes every day. 

So what I think that this Committee is charged with, what I 

think Carolyn Cheeks Kilpatrick’s concern that brings her over to 

this hearing room is that we are trying to ease what we all know 

we have to do. To me, the suppliers are probably in a little bit better shape because I think their parts, the demand for their work 

is going to continue on. But the dealers, how can we modify the 

pain that they are going to have to sustain? 

We are not saying we can’t close any dealerships. We are just 

talking about perhaps a nonlegislative way to reduce this. That is 

what brings us here today and I hope that in that spirit we can 

work our way through these considerations. 

Mr. COHEN. I thank the gentleman for his statement. 

Is there any other Member that would like to make a statement? 

The gentleman from North Carolina, Mr. Coble. 

Mr. COBLE. Mr. Chairman, I appreciate that, and I won’t use my 

5 minutes. It is good to have our witnesses with us today. 

Mr. Chairman, I indicated yesterday, in communities if you are 

going to categorize groups between thugs and heroes and leaders, 

there are certain groups that would automatically fall in the thug 

category. On the hero and leader side, with rare exceptions, the 

local automobile dealer, they are the heroes and leaders in their respective communities. They are the ones who support Little League 

baseball, Boy Scouts, Girl Scouts efforts. They are the first ones oftentimes to be at the head of the line in supporting causes of charity and to extend a hand to the impoverished. And now, unfortunately, many of these dealers and their employees may end up in 

the impoverished category. I hope not. 

I believe, Mr. Chairman, we are going to overcome, we are going 

to prevail finally. But we won’t prevail today or tomorrow, Mr. 

Chairman, probably not this year; and that assurance that we will 

prevail may not be too comforting to the dealer who may have lost 

his dealership and even to the management of GM and Chrysler 

with us today. It is just not a good time for any of us. But I do 

believe that ultimately we will come out of it on top. 

I look forward to the hearing today, Mr. Chairman, and I appreciate your calling it. 

And with that, I yield back my time. 

Mr. COHEN. Mr. Coble, I appreciate your statement. 

The other Members’ opening statements will be included in the 

record, without objection. 

[The prepared statement of Mr. Maffei follows:] 

6 

PREPARED STATEMENT OF THE HONORABLE DANIEL MAFFEI, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF NEW YORK, AND MEMBER, SUBCOMMITTEE ON COM- MERCIAL AND ADMINISTRATIVE LAW

Thank you, Mr. Chairman for holding continued hearings on the ramifications of 

the auto industry bankruptcies. Automobile dealers are one of the largest private 

sector employers in the United States, providing tens of thousands of local jobs and 

contributing millions of dollars in tax revenues to states. They are anchors in communities throughout the country and many times ownership is passed down from 

generation to generation. In addition, many auto dealerships are minority owned 

and have traditionally provided strong local community support. 

As I pointed out in yesterday’s hearing, there has been a lack of transparency in 

the means by which Chrysler and GM have chosen to reject dealers’ franchise agreements, and I still believe there is a lot of confusion out there as to how the closing 

of hundreds of dealerships will be financially beneficial to these two auto companies. 

Over time, automakers created the franchise dealer network specifically to lower 

their costs, as they outsource virtually all costs associated with selling and servicing 

cars. 

There are some arguments that in the long run you need to have a smaller dealer 

network to help make sure the prices are stabilized and there are some expenses 

that auto companies have to service these dealerships but, in the short run, we can’t 

find anything. In my district, we have already lost 11 dealers in the last couple of 

years because of market forces, so it seems like the market is working in some 

cases. 

This is precisely what led me, along with my good friend from Maryland Frank 

Kratovil, to introduce H.R. 2743, the ‘‘Automobile Dealer Economic Rights Restoration Act of 2009,’’ which would require Chrysler and GM to continue to honor their 

commitments to auto dealers. Specifically, the legislation requires that auto manufacturers in which the Federal Government has an ownership interest continue to 

honor their commitment and not deprive economic rights to the dealers, essentially 

protecting small business owners, workers, communities, and jobs. 

This bill has widespread bipartisan support, as there are currently over 250 

House cosponsors. We have Members signing on who are on the left of the left, the 

right of the right, and everything in between. From all over the country from rural 

areas to urban areas, this affects all local communities. These are family businesses 

that are really part of the fabric of our communities. I look forward to the testimony 

of our witnesses. 

Mr. COHEN. I would like to thank all our witnesses for their willingness to participate in today’s hearing. Without objection, your 

written statements will be placed into the record, and we ask that 

you limit your oral remarks to 5 minutes. There is a pictured color 

system that shows you 5 minutes, 4 minutes, 1 minute. If you have 

green, you are in the 5-to-1-minute territory; yellow, you are in 

your last minute; and red, you are beyond your time. And there you 

go. 

Ms. Van Der Wiele and Mr. Orr will split the time between the 

two of you, as I understand it, and you will note the lighting system. After each witness has presented his or her testimony, Subcommittee Members will be permitted to ask questions subject to 

the 5-minute limit. 

To my understanding Mr. Miller will not have oral remarks, but 

will be available for questioning on behalf of General Motors Corporation. 

Mr. COHEN. I am pleased to introduce the witnesses on our first 

panel for today’s hearing. 

Our first witness is Ms. Louann Van Der Wiele. Ms. Van Der 

Wiele is Vice President and Associate General Counsel in the Office 

of General Counsel of Chrysler Group in Auburn Hills, Michigan. 

Her responsibilities include overseeing employment litigation, environmental litigation, and defense of product liability, class action, 

7 

and warranty litigation involving Chrysler, Dodge, and Jeep. She 

also advises the company on other vehicle-related consumer protection matters, regulatory affairs, and risk management issues. Ms. 

Van Der Wiele joined Chrysler in 1986. 

Thank you, Ms. Van Der Wiele, and I would like to ask you to 

proceed with your testimony. 

JOINT TESTIMONY OF LOUANN VAN DER WIELE, VICE PRESIDENT AND ASSOCIATE GENERAL COUNSEL, CHRYSLER 

GROUP LLC; AND KEVYN D. ORR, PARTNER, JONES DAY 

Ms. VAN DER WIELE. Thank you, Mr. Chairman. 

Chairman Cohen, Ranking Member Franks, and Members of the 

Subcommittee, thank you for providing this opportunity to discuss 

the ramifications of the former Chrysler LLC’s bankruptcy. 

I sit here today representing the new Chrysler Group LLC as 

Vice President and Associate General Counsel. With me is Kevyn 

Orr, representing our outside legal counsel. Kevin will outline the 

bankruptcy process, and then I will discuss the ramifications of the 

bankruptcy. Throughout my testimony I will refer to the former 

Chrysler as Old Carco, which is a term the bankruptcy court uses, 

and I will refer to the new company as Chrysler Group. 

Mr. ORR. Good morning, Mr. Chairman, Mr. Ranking Member, 

and Members of the Committee. 

Mr. COHEN. Mr. Orr, this is kind of unique for me to split the 

testimony, but I want to recognize Kevyn Orr and introduce you as 

a partner in the Jones Day firm. 

Prior to that he was with the Department of Justice. In June, 

1995, he was Deputy Director of the Executive Office for the 

United States Trustees; in February of 2000, he became director of 

that program. He joined the litigation department of FDIC in 1991 

and transferred to the Resolution Trust Corporation. By 1994, Mr. 

Orr rose to the position of Assistant General Counsel for Complex 

Litigation of Bankruptcy at the RTC. 

We appreciate your testimony and you may proceed. 

Mr. ORR. Thank you for the recognition, Mr. Chairman. 

Mr. COHEN. You are welcome, Mr. Orr. 

Mr. ORR. As Louann stated, my name is Kevyn Orr, and I am 

a Partner at the law firm of Jones Day. I and my partners have 

provided Old Carco with restructuring advice and, eventually, its 

bankruptcy planning since last fall. 

The circumstances that resulted in the bankruptcy have been 

well chronicled. Last fall, Old Carco sought Federal assistance to 

continue its ongoing restructuring. Old Carco received interim 

funding in January and in February submitted a viability plan to 

the U.S. Treasury. 

On March 30, the Automotive Task Force informed Old Carco 

that although it could not survive as a stand-alone entity, the company could become viable with an appropriate strategic partner, 

such as Fiat, if it obtained additional concessions from key stakeholders. 

When certain creditors would not agree to the necessary concessions, Old Carco filed for bankruptcy. In connection with this filing, 

Old Carco, Fiat, and Chrysler Group entered into an arms-length 

purchase agreement under which Old Carco would transfer the maVerDate Aug 31 2005 13:53 Feb 23, 2010 Jkt 000000 PO 00000 Frm 00011 Fmt 6633 Sfmt 6601 H:\WORK\COMM\072209\51225.000 HJUD1 PsN: 51225
8 

jority of its operating assets to the new Chrysler Group in exchange for cash and Chrysler Group’s assumption of certain liabilities. The Bankruptcy Court approved the Fiat transaction, and 

after several court challenges were resolved, the transaction was 

consummated on June 10, 2009. 

As part of the process of putting together this package, Old Carco 

decided to reject 25 percent of its dealers. Old Carco selected dealers for rejection using a thoughtful, rigorous and objective process. 

The Bankruptcy Court approved the dealership rejections as a 

sound exercise of business judgment. 

Chrysler Group has worked hard to assure a soft landing for Old 

Carco dealers whose contracts have not been assumed by arranging 

for the redistribution of 100 percent of inventory, parts, and special 

tools. Chrysler Group has helped 436 displaced dealership workers 

find jobs at 239 dealers. 

Similarly, the new company did not assume product liability 

claims out of the sale of vehicles before bankruptcy. However, 

Chrysler Group has agreed to indemnify its dealers against product 

liability lawsuits. As a result, in the vast majority of product liability cases involving Old Carco vehicles sold before the bankruptcy, 

Chrysler Group will defend its dealers pursuant to its dealership 

agreements. 

Louann. 

Ms. VAN DER WIELE. While difficult and painful, the bankruptcy 

and subsequent sale of assets to Chrysler Group were vastly preferable to the only other alternative, the complete liquidation of Old 

Carco. 

Customers benefit because Chrysler Group is now able to provide 

them with a quality sales and service experience. Employees benefit because Chrysler Group will continue to employ more than 

30,000 people in the United States and, to a large extent, maintain 

retiree benefits. 

Suppliers benefit because Chrysler Group intends to move forward with approximately 1,100 production suppliers that employ 

thousands of people throughout the country. Dealers benefit because 75 percent have become Chrysler Group dealers and the remainder have the benefit of the soft landing that Chrysler Group 

has agreed to provide. Taxpayers benefit because Chrysler Group 

is well positioned to become a viable company that will fully repay 

its debt to the taxpayers. 

None of these benefits would have accrued if Old Carco had liquidated. Customers would have lost access to warranty coverage, 

service, and parts. Tens of thousands of employees would have lost 

their jobs and retirees, their benefits. Almost 3,200 dealerships 

would have closed. Taxpayers would have had to pick up significant 

costs for unemployment support, health care, and pensions that 

would default to the Pension Benefit Guaranty Corporation. 

We appreciate the opportunity to testify before the Subcommittee 

today and look forward to answering your questions. 

Mr. COHEN. Thank each of you for your testimony. 

[The joint statement of Ms. Van Der Wiele and Mr. Orr follows:] 

9 

JOINT PREPARED STATEMENT OF LOUANN VAN DER WIELE AND KEVYN D. ORR


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Mr. COHEN. Our final witness to give oral testimony is Mr. Michael Robinson. Mr. Robinson is Vice President and General Counsel of North America for General Motors and formerly held the 

same position for the old General Motors, the one your grandfather 

knew. 


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Mr. Robinson joined General Motors in 1984 and has held a 

number of positions on the legal staff for GM. Before assuming the 

North America General Counsel role in 2008, he served as Practice 

Area Manager and Managing Attorney, and prior to that he was 

Corporate Compliance Officer. 

In the 1990’s, he provided counsel to General Motors leadership 

on matters involving lobbying and government ethics issues. 

I think that may be an oxymoron, but maybe not. 

Mr. Robinson, you may proceed with your testimony. 

TESTIMONY OF MICHAEL J. ROBINSON, VICE PRESIDENT AND 

GENERAL COUNSEL OF NORTH AMERICA, GENERAL MOTORS COMPANY, ACCOMPANIED BY HARVEY R. MILLER, 

PARTNER, WEIL, GOTSHAL & MANGES LLP 

Mr. ROBINSON. Good morning, and thank you, Chairman Cohen 

and Ranking Member Franks. I am Michael Robinson, General 

Counsel for North America’s GM operations. I have with me and 

I appreciate your recognizing, Mr. Chairman, Harvey Miller from 

the Weil, Gotshal law firm. Mr. Miller is not making introductory 

remarks this morning, but he is here, we hope, to assist the Subcommittee in answering any questions that they may have that relate to bankruptcy, especially the intricacies of bankruptcy. 

Mr. Miller represented General Motors in the filing on June 1. 

He represented us through the asset sale that took place and is a 

renowned expert in the bankruptcy field. So we look forward to 

your questions this morning. 

Upon the day we emerged from bankruptcy as a new car company, our President and CEO, Fritz Henderson, said business at 

usual at GM is over. The last 100 days have shown everyone, including us, that a company not known for quick action can, in fact, 

move rather fast. 

There are many who contributed to our moving through the 

bankruptcy process as quickly as we did. First, the American public. I know this has been controversial within a political context, 

but without our Nation’s support, we would not have this precious 

second chance. We understand our responsibility to the taxpayer, 

and we will repay that investment. 

Secondly, there are many who have been called upon to make 

sacrifices to create a new GM, one that competes, wins, and is profitable for the long run. Behind each action we are taking to reinvent GM, there is a human story; we recognize that. 

As those familiar with bankruptcy law know all too well, this is 

a painful process that spares no particular group. This collective 

sacrifice was necessary to put GM on a brighter path to long-term 

viability and success: to deliver and reduce debt, to operate under 

competitive labor agreements, to have manufacturing capacity and 

dealer networks that match today’s market realities, and most importantly to continue to design and build winning cars and trucks 

with leading technologies. 

Let me briefly touch upon a couple of groups that I know are of 

particular interest to this Committee and how our restructuring affects them. With respect to GM dealers, we cannot go through this 

sweeping transformation without a comparable effort to reshape 

our retail dealer network, one which was, frankly, created during 

21 

the 1950’s and 1960’s before we had the infrastructure of interstate 

highways. 

We worked very hard to restructure GM’s dealer network as 

carefully, responsibly and objectively as we could. It is important 

to note that of our approximately 6,000 dealerships in GM’s network, we were able to retain 4,100 of those dealerships. We also 

expect another 600 or so dealerships will stay in business as Saturn, Hummer or Saab dealerships if the sale of those brands to 

new ownership closes, as we hope it will. 

This left us with the hard choice to send wind-down agreements 

to about 1,300 dealerships. From the start, we wanted to help these 

dealerships wind down their dealerships in an orderly fashion with 

a structured financial assistance package that was very beneficial 

to them compared to their alternative, that is, where most contracts in bankruptcy are typically rejected with no assistance whatsoever. 

GM is providing, in aggregate, nearly $600 million in available 

assistance to these dealers, with the first installments, by the way, 

having already been paid to these dealers just this past Monday. 

With normal dealership attrition factored in, we are building a 

profitable business plan for GM, having between 3,600 and 3,800 

U.S. GM dealers by the end of year 2010, which, with a retail sales 

market of just over 10 million cars and trucks and a conservative 

market share assumption, means that the number of units sold per 

dealership should nearly double. For dealers, this translates into 

greater return on investment, ability to have the best locations and 

facilities and the best sales personnel to take care of customers, all 

of this is to attract new customers. 

Second, a concentrated and highly profitable dealer network will 

reduce costs for GM at a time when every dollar really counts. 

These cost savings come in two categories. About $2 billion in cost 

is in direct dealer support programs, or subsidies that have been 

incorporated and accumulated over time to help support the weaker parts of our dealer network. These are costs, by the way, that 

Toyota does not have. Another $415 million or so in gross fixed cost 

savings is the potential here. These cost burdens are just not sustainable as we go forward. 

However, even with these changes, GM will have the largest 

dealer network in the country, more than any of our competitors, 

in our case, 3,800 versus Toyota’s 1,200. This would include an extensive rural and small town network of 1,500 dealers nationally 

in markets where we hold, on average, a 10 percent market share 

advantage. 

The restructured dealer network, the right number of dealers in 

the right locations with the right brands is key to our success. 

These dealers are helping to create a viable GM that will preserve 

over 200,000 jobs at GM and hundreds of thousands of jobs beyond 

that with our direct manufacturing and supplier networks. 

In closing, we developed a restructuring plan that meets the high 

standards of the President’s auto task force and was approved by 

the U.S. Bankruptcy Court that permits us to roll up our sleeves 

and get back to work. Now we can place a singular focus on customers, cars, and the changes we need to make to our culture to 

22 

succeed. We want to repay the taxpayer as quickly as we can, and 

this plan gives us the best chance to do that. 

We remain grateful for the government’s support during this critical time and we promise to continue to be open and transparent 

in everything we do every step of the way. 

Thank you, Mr. Chairman. I look forward to the questions of the 

Committee. 

[The prepared statement of Mr. Robinson follows:] 

PREPARED STATEMENT OF MICHAEL J. ROBINSON


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Mr. COHEN. Thank you for your testimony, Mr. Robinson. 

And you did recognize Mr. Miller, whom we have had before our 

Committee before. But Mr. Miller is always kind of different in his 

testimony. The last time, because of airplanes, he wasn’t able to be 

here; so we had his picture and his voice. Now we have had him 

in person, but not testifying—but his great gray matter with us, so 

we appreciate that. 

Mr. MILLER. Thank you, Mr. Chairman. 

[The prepared statement of Mr. Miller follows:] 

PREPARED STATEMENT OF HARVEY R. MILLER


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Mr. COHEN. Thank you. A great reputation in the bankruptcy 

litigation area. 

I will now recognize myself for questioning, and we will be limited to the 5-minute rule as well. I would first like to ask Mr. Robinson. 


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There were some questions in the opening statement by the 

Ranking Member about bankruptcy and how this came about and 

all the capitalism, socialism, et cetera. 

Why did General Motors come to the United States Government, 

President Bush at the time, and say, Please help us? What were 

the causes in the economy that caused General Motors to come to 

this position? 

Mr. ROBINSON. First of all, Mr. Chairman, I don’t mean to argue 

with Mr. Franks, but we are capitalists. I can assure you of that. 

Secondly, we—as the facts have been revealed through various 

processes, hearings in front of Congress and, of course, in the bankruptcy court itself, there were no other options. The capital markets had dried up. We had no other opportunities—— 

Mr. COHEN. The capital markets dried up. You couldn’t get borrowed money? 

Mr. ROBINSON. There was no way to borrow money. 

Mr. COHEN. Something happened during the previous Administration where they didn’t have regulations or something, and the 

country was about to go kerflooey? 

Mr. ROBINSON. I don’t think of it in terms of Administrations; I 

think of it in terms of the financial markets. But, yes, during the 

2008 economic crisis, the financial market crisis, the housing crisis, 

there were sufficient reasons for the market to have done what it 

did; but the practical fact of the matter is, there was no capital 

from which we could sustain the business. 

Mr. COHEN. And these conditions also affected dealerships, right? 

Certain dealerships would have had problems because they couldn’t 

access to capital and financing? 

Mr. ROBINSON. It affected everybody. 

Mr. COHEN. Ms. Van Der Wiele and Mr. Orr, with Chrysler, we 

have a situation in the mid-South area, greater Memphis area, 

with a minority dealer. They had financial problems because they 

couldn’t get financing, et cetera. 

I spoke to you yesterday and asked you about minorities that are 

affected. While I am concerned, indeed, about all minorities, in the 

particular situation in my jurisdiction, as an African American 

dealer, is there a different effect among African American dealers 

than there was with either Latino men or women in terms of 

Chrysler? 

Mr. ORR. Mr. Chairman, there was no effect in terms of any of 

the traditional minority categories with regard to our rejection decision for minority dealers. In fact, it is exactly the same whether 

you are a minority dealer or a mainstream dealer. 

Mr. COHEN. So you are saying the percentages are exactly the 

same? 

Mr. ORR. The percentages are exactly the same. Seventy-five percent of our dealers were saved; 25 percent of our dealers, unfortunately, we had to reject. The exact percentages regarding those 

numbers are the same for minorities. 

Mr. COHEN. The same for African Americans? 

Mr. ORR. The same for African Americans. 

Mr. COHEN. Okay. 

Mr. Robinson, is it the same thing for you? 

39 

Mr. ROBINSON. Pretty much, Mr. Chairman. Our ratios are a little bit different. Actually, in an incremental way, the minority population of our dealerships actually fared better than the general 

population of our dealerships. I think the percentage was—80 percent, I think, of our minority dealer population will remain after 

the 1,300 or so dealers get the wind-downs completed, and I think 

76 percent of our overall dealer population survives that process. 

Mr. COHEN. Mr. Miller, welcome. The issue of tort liability is one 

that is before this Committee and one that we will be hearing 

about. GM, separate from Chrysler, is accepting certain liability, 

but only for post-petition tort claims. 

Why not pre-petition tort claims? 

Mr. MILLER. The question, Mr. Chairman, related to the assumed 

liabilities that the purchaser would undertake as part of the asset 

sale. There was a substantial negotiation with the U.S. Treasury 

representatives and the auto task force in connection with the 

product liability claims. And as you must know, during the course 

of the hearings before the Bankruptcy Court, there was a compromise agreed to in which the assumption of product liability 

claims was greatly increased. 

It was a question of survivability of the successor corporation or 

business. 

Mr. COHEN. You think that that would have been in jeopardy if 

they would have accepted the pre-petitioned tort claims? Is it that 

great of a potential—— 

Mr. MILLER. Mr. Chairman, it is a question of how many liabilities does the purchaser assume without going into that dangerous 

area of being not feasible as a business operation. 

As pointed out by my colleague, my learned friend Professor 

Baird, in his statement, there is no assurance of feasibility or success, even now after this sale; and you are on a very difficult path. 

As Mr. Robinson said, bankruptcy is painful and you have to draw 

the line at some place. 

Mr. COHEN. Professor Baird also suggested that tort claims, if I 

quote him, are among those that should be protected with a superpriority lien. 

Mr. MILLER. I understand that, Mr. Chairman. And the problem 

with creating super-priority liens is when do you stop doing that? 

And if you create enough super-priority liens, there can never be 

a bankruptcy reorganization, because you will never be able to sustain the cost of that restructuring process. 

Mr. COHEN. Let me give myself a few extra seconds here to ask 

you this. 

In your long experience, in most cases where there are large 

bankruptcies like this—and there is a question about civil—doesn’t 

most of the liability still attach or is the liability extinguished for 

tort claims? 

Mr. MILLER. In most cases, the liability for tort claimants is extinguished; it remains with the old company in the context of a section 363 sale. 

If it is a traditional Chapter 11 in which there is a plan of reorganization and it is a negotiation over a long process, it may be different because of the bargaining. You have to take into account the 

assets you are dealing with. 

40 

In the context of GM and, I assume, Chrysler you are dealing 

with a wasting asset. If you compare, for example—if I can refer 

to the Delphi case, which is about to enter its fourth year of bankruptcy if it doesn’t come out, you had a company that went into 

Chapter 11. At the time it went in, there was a substantial basis 

to think that that company was solvent. During the course of the 

bankruptcy, it has turned into an insolvent company—in fact, administratively insolvent. 

So that a traditional Chapter 11 in the context of the economic 

circumstances we are in today is not feasible for a large company. 

Mr. COHEN. Thank you, Mr. Miller. 

I now recognize the Ranking Member of the Subcommittee for 5 

minutes, Mr. Franks. 

Mr. FRANKS. Thank you, Mr. Chairman. 

Ms. Van Der Wiele, I might go ahead and address this both to 

you and Mr. Orr. As I understand it, there was a significant effort 

on the part of the Chrysler earlier on, when they began to see some 

of the dealers have—tell the dealers that they were going to have 

to be terminated, that you tried to use some of the Treasury money 

to assist them and that there was some resistance on the part of 

Treasury to that end; is that correct? 

Mr. ORR. Mr. Franks, I am not exactly sure to what you are referring. You are talking about the early stages of the bankruptcy? 

Mr. FRANKS. Yes. From the Treasury itself, that there was a resistance in the bankruptcy process where you tried to—in the process that you tried to help some of your dealers, much the same way 

as Mr. Robinson has said, where General Motors made some efforts 

to assist them, that you also tried to do the same thing and that 

there was resistance on the part of the Treasury; is that correct? 

Mr. ORR. I think I know to what you are referring, Mr. Franks. 

Actually, we received support of Treasury in trying to help our 

dealers. In the case we recognized that some of our dealers were 

going to have problems obviously with bankruptcy filing and our 

financier, where two-thirds of our dealers—Chrysler Financial announced on the date that we filed, April 30, that they would no 

longer be providing wholesale financing to our dealers. We had 

begun on April 23 to go back and seek alternative wholesale financing—ironically, through GMAC—to benefit our dealers for wholesale flooring; and we also put in place in the case a structure, a 

reallocation program, that assisted our dealers with reallocating 

the inventory, the vehicles that they had on their lots, to other 

dealers that were going forward. 

The reality is that Treasury was somewhat supportive in our efforts to do that and recognizing that it was for the benefit of both 

the dealers that were rejected and the dealers that would be—75 

percent going forward that would be assumed. 

Mr. FRANKS. If the airline companies came to you now and asked 

you, what were the worst things and the most political things to 

which the President and the auto task force subjected Chrysler 

since it became involved—I know it is a very loaded question, but 

I hope you will be as candid as you can. 

What would you try to redirect the airlines’ focus on? What 

would you warn them about? What would you say, be careful here, 

be careful there? 

41 

Mr. ORR. Well, honestly, Mr. Chairman, my role as counsel to the 

company was focus on the legal doctrine, the law and the case law. 

The political aspects, I will leave to—another day to someone 

else. 

Mr. FRANKS. Let me shift gears. 

Mr. Robinson, if the airlines came to you and asked what things 

the Administration and the auto task force had done that most 

harmed your ability to raise private capital or attract private ownership, going forward, what would you tell them? 

Mr. ROBINSON. Well, I wouldn’t—I wouldn’t get into a political 

discussion, quite frankly. I think the reality for us is that there 

was a benefit to us, quite frankly, in some of the objectivity with 

which the task force took the task of evaluating our business plan 

and forcing us to take harder looks at some things that we needed 

to do to be successful in the long term. 

So, to the contrary, I didn’t view this—my exposure to it, anyway—as not a political process so much as it was an objectivity exercise with some soul searching from the outside. 

Mr. FRANKS. So your perspective is that the government’s—of the 

things that they pressured you or didn’t pressure you to do, is all 

objective; and it all worked out perfectly for you? 

Mr. ROBINSON. I think we made the business decisions we had 

to make without any political interference. 

Mr. FRANKS. Does that include firing of Mr. Wagoner and the 

purging of your board? Do you think that was a good thing? 

Mr. ROBINSON. I didn’t have anything to do with it. I will tell you 

I heard the testimony yesterday and I accept it for what it is. 

Mr. Wagoner is somebody I know personally. I know what kind 

of person he is. 

But I also heard the criticism that we didn’t move fast enough, 

far enough and aggressively enough; and I accept the criticism of 

the Treasury for what it was. 

Mr. FRANKS. As a capitalist, does it concern you that government 

can come in and fire your CEO and purge your board? Does that 

not concern you some? 

Mr. ROBINSON. Well, we—we don’t intend to be in the business 

of being run by the government. I think the government has made 

it clear they want us to be successful so they can get out of the car 

business as an investor. So we want to oblige them as soon as we 

can. 

Mr. FRANKS. I don’t want to be too insistent, but I mean, I believe you when you say you want to be a capitalist. I really do. 

But obviously this has put you in a compromised position. And 

I am sorry that it has, because I do think that the gas prices and 

some of the pressure in capital markets made impossible circumstances for a lot of you. 

But the fact remains that our government has come in and 

seized a lot of power there. If we can’t come to that conclusion together, we are on a different planet. And I am sure that it has to 

concern you some that capitalism is challenged here in this way for 

government, as in other socialist environments, has tried to exert 

force over the economic mechanisms. 

Does that not concern you as a capitalist? 

42 

Mr. ROBINSON. Going to the government for a loan was not our 

first choice. We were in the position we were in because there were 

no other capital markets available to us. And having been through 

this process, I think we have made most of the opportunity that 

has been given to us. 

It is what it is, sir. 

Mr. FRANKS. Thank you, Mr. Robinson. 

I yield back, Mr. Chairman. 

Mr. COHEN. Thank you, Mr. Franks. 

I would now like to recognize the gentleman from Michigan, the 

distinguished Chairman of this Committee, Mr. Conyers. 

Mr. CONYERS. Thanks, Chairman Cohen. 

The interesting thing about these hearings is that you get testimony all over the spectrum. We get it. I just hope that you leaders 

here in the first panel can just stay quietly around to listen to 

some of the other testimony. 

The dealers are going to be hollering their heads off about this. 

I want you to examine with us some of the unfairness and some 

things that may be able to be rectified. So I don’t want you to, you 

know, leave the room and go to your commercial flights, but that 

you stick around with us and let’s wade through this hearing 

today. I think it is pretty important. 

I notice that my colleague, Carolyn Cheeks Kilpatrick, is here. I 

am sorry that she can’t ask any questions. She knows how strict 

the rules are in Judiciary. 

Ms. KILPATRICK. I accept them. 

Mr. CONYERS. And, of course, Sheila Jackson Lee is always 

around, and under these circumstances, she can’t even say anything. 

So here is what I am trying to do. Here is what I am trying to 

get out of these two excellent hearings that have been held. Is 

there any way we can cushion some of the problems of the accident 

victims, of the dealers themselves, of the suppliers? Are there some 

strategies that we can consider that are not legislative? We are not 

trying to pass some more laws in this. 

How open are you to—all four of you on this panel, to that kind 

of a concept? 

Mr. COHEN. Can we get a witness? 

Ms. VAN DER WIELE. Mr. Chairman, I think that certainly—as 

it respects the dealers, I think that there is a good possibility to 

have discussions in a nonlegislative context. I believe that Mr. 

Press, who has testified here before, has initiated some of those 

discussions; and we support continuing those discussions. 

Mr. ROBINSON. Mr. Chairman, General Motors—as accelerated as 

all this timing has been for all of us, General Motors has engaged 

the dealers as Chrysler has, through the NADA in particular. We 

think there are a lot of possibilities available to us. We have been 

very interested in having those discussions move forward. 

We have got a number of ideas to do things in addition to the 

things we have already been done, which is, quite frankly, a lot beyond what normal bankruptcy would allow us to do; and we are 

certainly interested in sitting at the table with the representatives 

of NADA and talking, in addition, with any individual dealers that 

have an individual point of view about their circumstances. 

43 

We have had an appeals process to address some of the concerns 

that Chairman Conyers has mentioned. We have attempted to soften the blow with wind-down dealers, with a substantial financial 

package, some of which they have already received; and others 

have asked if they can accelerate that process. 

We have actually had a few dealers in the last couple of weeks 

ask if they can get the wind-down package although they were offered continuation agreements. I think we have had nine or ten of 

those that have come to my attention. 

So we are trying to work with the dealers. We will do that and 

continue to do that, but we have to work through a mechanism 

that allows us to deal with the entire dealer population; and we 

prefer that to be NADA. 

Thank you, sir. 

Mr. CONYERS. Mr. Orr, Chrysler has taken a little harder line in 

the kind of discussion that I am outlining. You folks have terminated your dealers, period, and up here on the panel we are beginning to distinguish—and this is not unusual, but even after Trent 

Franks went into this great soliloquy about Chrysler, you guys are 

toeing a tougher line. 

Can you look at this with us? And maybe as you listen to some 

of the other discussion from the scholars and the dealers, maybe 

we can loosen up a little bit. 

Mr. ORR. Mr. Chairman, on behalf of Old Carco, our approach 

was necessitated by a little bit of a difference in terms of both the 

structure of our dealer relationship—Chrysler had legacy perpetuity agreements; that is, they did not terminate on a certain 

date, they went on and on and on. The only time to reject those 

agreements was in the course of the bankruptcy pursuant to section 365 of the Bankruptcy Code. 

In addition, our purchase was with a ancillary third-party purchaser, Fiat Group, now New Chrysler. We don’t even own the 

name anymore; we are called Old Carco. So under the terms of our 

purchase agreement, our purchaser had the right to select which 

assets, including those assets in the dealer network it chose to purchase. 

So the structure of our deal was a little bit different, and perhaps 

that results somewhat in the perception that we are taking a little 

bit harder line. Our requirements in both the naming of our purchaser and the nature of our transaction were different. 

However, to the extent Ms. Van Der Wiele has spoken on behalf 

of the new company, I think there is some commonality in terms 

of an expression going forward with the new company. It would not 

benefit dealers to talk to me. We are Old Carco. We do not manufacture cars. They are rejected dealers on my behalf. 

Mr. CONYERS. Well, so you were legally forced to take what appears to be a little bit tougher stance than this wind-down. I hope 

you are right. I hope the discussion bears up the position that you 

are sharing with us today. 

Mr. ORR. Well, respectfully, Mr. Chairman, I believe the case 

law, both Lionel and Bildisco, regarding rejection and the obligation of the debtor to exercise its fiduciary duty regarding burdensome contracts, was substantiated both by the Bankruptcy Court, 

44 

the Second Circuit Court of Appeals, and implied by the U.S. Supreme Court’s implicit rejection issue of stay into our transaction. 

In fact, of the 789 dealers that Old Carco rejected, only one dealer has taken an appeal of the rejection order opinion, and that appeal is pending. 

Mr. CONYERS. I know that, but citing all of these authorities that 

you had to be tough doesn’t change my position at all. 

Mr. ORR. I understand. I understand. 

Ms. VAN DER WIELE. Mr. Chairman, if I could point out, Chrysler Group, the new company, has made an effort to provide a soft 

landing to the rejected dealers. It has taken its promise to redistribute all of the vehicle inventory, parts, and special tools; and as 

I said before, it is willing to discuss some type of nonlegislative solution, and it has already offered to dealers the opportunity to provide total transparency in the dealer selection process for that individual dealer. And in addition to that, it is willing to consider a 

dealer for further business opportunities with Chrysler Group. 

Mr. CONYERS. Mr. Chairman, just concluding, if you pulled us all 

in a back room after these hearings—and we have all heard each 

other in the way that this is going on—and you brought in coffee 

and locked the door, I think we could work something out that is 

considerably more favorable to the people that are going to have to 

feel this pain. 

And I just want all of you to know that that is where we are all 

coming from. We would include Kilpatrick and Jackson Lee and everybody—and Coble and, of course, Trent Franks, by all means— 

and we could probably get somewhere, maybe sandwiches later on 

after the coffee runs out. 

Mr. ISSA. I will do the sandwiches. 

Mr. COHEN. Thank you, Mr. Chairman. I appreciate the suggestion. 

I would like—before I recognize Mr. Jordan who, I think, will be 

next on the questioning, I would like it if the four of you would be 

kind enough to stay, if you can, after your panel to hear the next 

panel, and possibly come—because Starbucks is being ordered. But 

if you could stay, it might be very helpful to hear the testimony, 

et cetera. 

Mr. Jordan, you are recognized for 5 minutes. 

Mr. JORDAN. Thank you, Mr. Chairman. I want to thank the witnesses for being here today and thank you for the role your respective companies have played in the United States of America. 

My dad, a 30-year worker at General Motors in Dayton, Ohio, 

put three kids through college working for that company, so we do 

appreciate that. 

But I want to go, Mr. Robinson, back to where my colleague, Mr. 

Franks, was with his questioning, this interaction between the task 

force and General Motors. 

Mr. Bloom went to great lengths yesterday to describe that, to 

say that General Motors makes decisions about how the company 

operates, not the auto task force, even though—as Mr. Franks 

pointed out, even though the former CEO was told to take a hike 

by the government, even though the government is the majority 

owner of the company, even though the government controls the 

board, even though Fritz Henderson said 2 weeks ago in an interVerDate Aug 31 2005 13:53 Feb 23, 2010 Jkt 000000 PO 00000 Frm 00048 Fmt 6633 Sfmt 6601 H:\WORK\COMM\072209\51225.000 HJUD1 PsN: 51225
45 

view that he is on a, quote, ‘‘short leash’’ in running the company 

and has to deal with the task force on a regular basis. 

You seemed to indicate that you agreed with Mr. Bloom’s depiction of how that interaction takes place. Give me your thoughts on 

how that works out, because I think a lot of Americans, a lot of taxpayers, who now own the company, would look at the facts and say, 

it looks like these 10 guys on the auto task force, who have no experience in the auto dealer business, no experience in the auto 

manufacturing business, are actually running the company. 

Mr. ROBINSON. Well, the best way I could answer that, Congressman, is that in my experience—and I am not in every conversation, 

by any means; I certainly am not. But my understanding from the 

people that are in a lot of the conversations that have taken place 

over time is that the description he gave you is a very accurate description of the way I understand it has worked. 

Mr. JORDAN. Isn’t it true that the auto task force had to sign off 

on the restructuring plan, so in the end they gave the thumbs up 

or thumbs down to the plan that included which dealerships would 

be closed, which dealerships would remain open, and just as importantly which manufacturing facilities would be closed and which 

ones would remain open? 

Mr. ROBINSON. Well, you have asked a couple of questions that 

contradict each other in terms of what the answer would be that 

I give you. 

They absolutely reviewed the restructuring plan in the aggregate. There is no question about that. To my knowledge, they did 

not review individual dealerships. They did not review individual 

plants. 

Mr. JORDAN. But that is my point. Same difference. If they are 

going to sign off on the whole plan, which includes which facilities 

are going to close on the manufacturing side and which dealerships 

are going to close, which are going to stay open, they, in effect, 

made a decision on the final restructuring plan. Is that right? 

Mr. ROBINSON. They looked at aggregate numbers as far as I can 

tell. I don’t think they say individual—— 

Mr. JORDAN. Let me ask you this question. Were there previous 

plans submitted to the task force? 

Mr. ROBINSON. I believe so, yes. We had a February 17 mandate 

to provide a plan to the task force—— 

Mr. JORDAN. How many plans were before the task force? 

Mr. ROBINSON. At least two, one on February 17 and then one 

subsequent to the President’s comments on March 30, that was 

provided to the task force consistent with the President’s direction. 

Mr. JORDAN. So the first plan that comes before the auto task 

force, they said, We don’t like this? 

Mr. ROBINSON. Correct. 

Mr. JORDAN. And there could have been dealerships in that plan, 

manufacturing facilities in that plan that were slated to stay open 

that in the subsequent plan, the final plan, the one adopted that 

are now closed? 

Mr. ROBINSON. That is mathematically true. 

Mr. JORDAN. Is there—can the public have access to that first restructuring plan? Is that public knowledge? 

46 

Mr. ROBINSON. No it is not. It is confidential business information. 

Mr. JORDAN. So the taxpayers who are now paying for the company, we may have had, in fact—and this is back to the point. If 

GM is running the affairs, the first plan that was submitted to the 

task force could, in fact, have included for example the GM manufacturing facility in the Fourth District of Ohio in Mansfield, it 

could have said that facility should stay open and the auto task 

force says, We are saying no to that plan? 

Mr. ROBINSON. I don’t know whether it did or it didn’t. But it 

could have. I don’t know. 

Mr. JORDAN. Do you think that is some information that the taxpayers of the country would like to see and should have a right to 

see? 

Mr. ROBINSON. I can’t answer that, but I can tell you—— 

Mr. JORDAN. I know there are a lot of people in Mansfield, Ohio, 

a lot of people I have the privilege of representing, who would like 

to see that. 

Mr. ROBINSON. I can certainly understand that, sir. But I can tell 

you this: that our own management, confronted with the rejection 

of that initial plan, came to the conclusion the government was 

right in forcing us to take another hard look—— 

Mr. JORDAN. Of course they are right. They are paying the bill. 

You had to come to that conclusion. It is the same conclusion that 

Kent Lewis came to when Ben Bernanke and Hank Paulson told 

him, You either go through with the Merrill Lynch acquisition or 

you are gone and your board is gone. 

You have to come to that conclusion. That is why it is important 

for the public to be able see what took place, what was in that first 

restructuring plan—a great example of the fact that the auto task 

force is running the company; it is not GM who is running the company. 

Mr. ROBINSON. I would have to disagree with you, sir, on that. 

I understand your point—— 

Mr. JORDAN. But the facts, I think, support my conclusion. 

Mr. ROBINSON. Well, the fact is that they provided a level of objectivity in reviewing a plan that we thought was adequate, and 

they pointed out the inadequacy of it which—— 

Mr. JORDAN. A level of objectivity from 10 guys who had never 

been in auto manufacturing, had never been in the auto dealership 

business. 

This is the problem when you start down this road where you 

have this kind of unprecedented involvement of the government in 

the private sector, back to Mr. Franks’ important point that he 

made in his opening statement. 

Mr. COHEN. Mr. Miller, do you seek recognition to respond? 

Mr. MILLER. If I might, Mr. Chairman, I would like to add some 

perspective to the concept of capitalism and private capital. Mr. 

Franks referred to Mr. Wagoner’s departure. 

You have to remember the government was a creditor for, I be- lieve, about $19.4 billion as a secured creditor. The government 

acted in the same manner as any secured creditor in a distressed 

situation; and it is not unusual in those situations for the secured 

creditor in that situation to say, we have lost confidence in the 

47 

CEO. And in many of those situations what happens is, either the 

CEO is retired or a chief restructuring officer is appointed at the 

suggestion of the secured creditor. And that is just normal debtor/ 

creditor relationships, and it is the secured creditor who has largest economic stake. 

And when you look at a company like GM, which had $19.4 billion of outstanding secured debt, the ability to get any kind of additional capital—nobody would lend money unless it could prime the 

government. And putting aside the fact that there was no private 

capital, since Lehman went down, from September 15 on through 

the balance of the year and into 2009, what was being done was 

not the government acting as this great 1,800-pound gorilla, or 

whatever you want to call it; it was a secured creditor trying to 

protect its economic investment in this company. 

Thank you, Mr. Chairman. 

Mr. JOHNSON. Would the gentleman yield? 

Mr. COHEN. The Chairman always recognizes the distinguished 

gentleman from Georgia. 

Mr. JOHNSON. Thank you, Mr. Chairman. And again I appreciate 

your holding this hearing. 

I wanted to ask you, sir, do you believe that the auto manufacturers had to be bailed out by the taxpayers of the United States 

of America? Was that a good decision or was it a bad decision? 

Mr. JORDAN. If you are asking if I supported the bailout, I did not. I did not vote for the initial $700 billion bailout which—the 

funds were taken from that to give that, so I did not support that. 

Mr. JOHNSON. Let me ask you about the auto bailout, auto manufacturers’ bailout. Do you think, in retrospect, that that was a 

worthwhile endeavor for the taxpayers? 

Mr. JORDAN. Again, I did not support that legislation either. 

Mr. JOHNSON. All right. So you would have supported just letting 

our manufacturing base in this country, the auto makers, just simply go out of business—— 

Mr. ISSA. Mr. Chairman, could I have regular order, please. 

Mr. COHEN. I think that is probably a pretty good idea at this 

point. We should take advantage of our witnesses. 

Thank you, Mr. Johnson. 

Mr. JOHNSON. I would yield back 

Mr. COHEN. I would now like to recognize Mr. Maffei from the 

great State of New York for 5 minutes. 

Mr. MAFFEI. Thank you, Mr. Chairman. And as one of the lead 

sponsors of one of the proposals addressing the auto dealers’ concerns, H.R. 2743, the Automobile Dealer Restoration Rights Act, I 

want to thank you again, and the Chairman of the full Committee 

and the Ranking Member, as well, for being willing to hold these 

hearings. And I want to thank the witnesses especially for coming. 

Yesterday it was quite interesting with Mr. Bloom. He mentioned 

a number of things. One thing he did was he did at one point characterize where the National Automobile Dealers Association was on 

one issue that they take issue with, and I did want to, by unanimous consent, submit to the record just a news release they have, 

just stating their view on that particular comment. 

Mr. Chairman, I submit the statement into the record. 

Mr. COHEN. Without objection. 

48 

[The information referred to follows:] 

Mr. MAFFEI. Thank you. 

On the question of the auto companies, we asked him, several 

Members asked him about what the rationale was for needing to 

do the reductions. I asked him whether it was the policy of the Administration that the dealer cuts needed to be done; and if they 

had not been done, then the companies would not have been viable. 

He did not directly answer that question; he simply said it was a 

part of the whole package. 


2.eps
49 

I do believe, as I pointed out in yesterday’s hearing, that there 

has been a lack of transparency and a lack of consultation with the 

dealers in the means by which Chrysler and GM have chosen to decide which franchise agreements to reject. And I still believe there 

is a lot of confusion as to how the closing of these dealerships, hundreds across the country, will be financially beneficial to the two 

auto companies. 

It seems to me that although there might be some long-run cost 

savings that the automobile companies provided these dealer networks over time in a way to lower their costs. And most of the 

costs, as I mentioned yesterday, the employees, the rent or the 

mortgage, a lot of—the equipment is all dealt with—the dealers all 

do that. 

So I do want to ask our witnesses, both Ms. Van Der Wiele and 

Mr. Robinson, and I will start with Mr. Robinson. Can you describe 

in terms that Members of Congress can understand, and their constituents, how reducing these dealer networks this substantially 

makes General Motors more viable? 

Mr. ROBINSON. Mr. Maffei, I would break it down into two categories. And I know from your comments about Mr. Bloom’s remarks yesterday, you are not interested in hearing a lot of detail 

about financial analysis. But I will tell you as a matter of fact over 

time, because of the inefficiencies in the network and a host of reasons, there are a bunch of built-in costs that have accumulated 

over time for General Motors that one of our competitors, Toyota, 

doesn’t have. 

Mr. MAFFEI. Actually, on the contrary, Mr. Robinson. At least 

some example; I would be happy to hear actually some real specific 

examples. 

Mr. ROBINSON. Let me give you an example. In terms of the 

brand equity that we are trying to protect and develop here—and 

that is really what drives this, because without successful brands 

we are not going to be successful with this second chance we have 

been given. So the driving force is to build brand equity and be successful that way. 

One of the symptoms of a weak brand is subsidizing at the distribution network. Now, we have done it in various forms and we 

can provide you with an overall breakout of basic categories of expense. But, for instance, we have a 1 percent program with our 

dealers where, essentially, for all the revenue we receive on the 

sale of cars, the dealers get back 1 percent because the weaknesses 

in the network have required that over time. We provide dealers 

with other subsidy supports on advertising and various programs 

that, quite frankly, Toyota doesn’t have to engage in. 

From my perspective—and I am not an expert on marketing, I 

am a lawyer. But from my perspective, this falls in much the same 

category as the things we had to do with our labor agreements, for 

instance, to get our costs comparable to Toyota to be competitive. 

But let me give you another example that is more concrete than 

talking about numbers. The City of Cleveland is an example that 

comes to mind. We sell the same number of vehicles, more or less, 

than Toyota in that marketplace, about 9,000. For Chevrolet 9,000, 

the same for Toyota. They have 5 dealers, we have 14 dealers. The 

50 

weaknesses that that generates in our dealer distribution network 

are profound and need to be fixed. 

We have other weaknesses in rural markets, as well, with dealers that aren’t meeting standards. And we have tried to help these 

dealers with, as you know, these wind-down agreements. 

But from my perspective as a lawyer in dealing with the folks 

that are trying to fix the business, it is a brand issue, and the dealers are a symptom. The weaknesses in the dealer network are really a symptom of the brand issue. 

Mr. MAFFEI. Thank you, Mr. Robinson. I would point out that 

UAW, in terms of labor agreements and indeed the creditors, were 

included in discussions that the dealer networks never were, at 

least not until recently. 

I ask the Committee’s indulgence that I just let Ms. Van Der 

Wiele to just address my question. 

Ms. VAN DER WIELE. Thank you, Mr. Congressman. Going forward, the new Chrysler Group LLC will reduce the number of overlapping products. We are moving forward from 27 nameplates covering 13 product segments in the 2007 calendar year, to a target 

20 nameplates covering 17 segments by the 2013 calendar year. 

Fewer nameplates with better product and customer market coverage will help improve the overall return on our product capital 

investment. This means that dealers need to have all three of our 

brands under one roof in order to offer a full range of products and 

to optimize their profit potential. 

I have some examples here of lost revenue and costs associated 

with discontinued dealers: product engineering and development 

for sister vehicles. 

Mr. MAFFEI. Ms. Van Der Wiele, I am already out of time. Why 

don’t we just submit that? We can submit that to the record. 

But I would caution you that that doesn’t really answer my question in a way that I can explain to any of my constituents. And 

that is part of the problem here. 

Anyway, I yield back the time that I have already used up. 

Mr. COHEN. Thank you. 

Mr. Coble from North Carolina, you are recognized for 5 minutes, 

sir. 

Mr. COBLE. Thank you, Mr. Chairman. 

Witnesses, thank you all for being here with us today. I had to 

momentarily leave, so this may have already been covered, but let 

me put a two-part question to Mr. Robinson and/or Mr. Miller. 

If you would, Mr. Robinson, explain the significant distinctions 

between the Chrysler plan and the GM plan on the one hand. 

And, secondly, I have cosponsored H.R. 2743 and 2794, which 

were introduced by Representatives Maffei and LaTourette. Both 

bills came to me strong, with a strong endorsement of the Auto 

Dealers Association in North Carolina. 

Explain, if you will, to me the dealership wind-down process, including in your bankruptcy plan; and also, if either of these two 

bills is enacted, how that would affect the dealerships that participate in the process. 

Mr. ROBINSON. Congressman Coble, I will answer the second 

question first, if that is okay, because I have some concerns about 

that. 

51 

I mentioned earlier in my testimony that General Motors has a 

plan to allow for a soft landing for these wind-down dealers. The 

first installment on that wind-down plan—by the way, 99 percent 

of the dealers that were given the notification that they had this 

opportunity signed up for it. That was approved by the bankruptcy 

court. The bankruptcy court concluded these are not coercion contracts. That is in the language of the sale order. 

And, by the way, just so you know, there were originally some 

objections by 45 State attorneys general in the process of looking 

at the sale process. They withdrew their objection, and they accepted the fact that these wind-down agreements are not coercive as 

part of the language of the sale order. 

I can’t talk to Chrysler’s program. I can only tell you about ours. 

I have concerns about the legislation in this respect. We could have 

a nice constitutional argument, constitutional law argument about 

a lot of the issues that it raises, but a practical issue for me is this: 

We have already started making payments to dealers, according to 

the terms of the wind-down, to this point in the neighborhood of 

$150 million. Dealers are coming to us now saying: ‘‘Can you accelerate the process? I have sold down my inventory. I would like to 

get out of this business and terminate my dealership. You didn’t 

terminate me, but I would like to terminate my dealership arrangement with you. Can you provide the rest of the money?’’ 

And we want to honor those requests. We have had probably 25 

or so to this point. I don’t know as I sit here what the consequences 

will be for dealers, for us, if Congress passes a law that says we 

have to take these dealers back. We will obviously comply with 

whatever the ultimate ruling on the law is, but I am confused as 

to what this is going to do to a lot of people that have received a 

lot of money from us at this point. 

Mr. COBLE. And how about the first question? 

Mr. ROBINSON. The first question on the difference is I can talk 

about our program of wind-down. And the dealers basically, for any 

new car in inventory, if they have gotten a wind-down agreement 

from us for any franchise, it is $1,000 per vehicle. Plus, if it is a 

complete wind-down of their operation, 8 months of rent coverage, 

whatever they say it is based on their financial statements. We are 

not quibbling with them about the rent factor. 

Mr. COBLE. I thank you for that, Mr. Robinson. 

Ms. Van Der Wiele and/or Mr. Orr, let’s shift to your situation. 

Why did not you all at Chrysler include a dealership wind-down 

similar to the GM proposal? Obviously there was a good reason; I 

would just like to know what it is. 

Mr. ORR. Mr. Coble, the nature, as I mentioned before, the nature of the dealership agreements at Chrysler were essentially perpetuity agreements that went on and on. We did not have term 

agreements that would expire, and it was necessary for us and our 

debtor, pursuant to our master transaction agreement, our purchase and sale agreement, to make a determination about what assets we would reject and pass on to our purchaser. That necessarily 

included a reduction in dealer network. 

In fact, the testimony in the court below, both by the purchaser, 

was that the analyses—the dealer network needed to be downsized. 

Three of the dealer witnesses in the case below testified that there 

52 

were too many dealers at Chrysler. They testified that there are 

economies of scale and efficiencies for consolidation of our dealer 

networks. These are the witnesses of the dealers objecting to our 

sale. And they also testified that there would be increased sales to 

the remaining dealers through winding down the network. 

So the decision made economic sense, both increasing the probability of gaining market share and what the industry calls 

through-put, which is basically sale of cars, that was required by 

our purchase and sale agreement. And frankly, Mr. Congressman, 

we did not have the cash on hand to institute the type of program 

that would require wind-down and payout of certain benefits to our 

dealers. 

Mr. COBLE. Thank you, sir. 

Mr. Robinson, in your testimony you indicated there were certain 

costs that were not borne by Toyota. What were those costs? 

Mr. ROBINSON. Well, part of it, sir, is an arrangement we have 

created with the dealers where we flow money back to the dealerships for advertising purposes and things like that. And that is 

quite a sum of money. It is probably half—I haven’t got the figures 

in front of me, but it is probably half of the $2 billion or so associated with that. There are other fixed costs associated with the size 

of this dealer network to the tune of another $400 or so million. 

The total cost that is associated with this series of accumulated 

subsidies is about $2.5 billion. 

Mr. COBLE. I thank you. I see my time has expired. Thank you, 

gentlemen, for being with us. Mr. Chairman, I yield back. 

Mr. COHEN. I thank the gentleman for his questions. I now recognize the gentleman from Georgia, the Subcommittee Chairman, Mr. 

Hank Johnson. 

Mr. JOHNSON. Thank you, Mr. Chairman. 

You know, the taxpayers have spent—and some would say invested—$60 billion in bailout money for the automobile manufacturers. And I myself think that was a much better way to go than 

to allow our manufacturing base to wither away. Doom was impending. 

And so it is understandable that you would take your last resort, 

which is to go to the government and ask for money. And that was 

the practical reality of things. What would we do? Would we just 

do nothing? We certainly couldn’t do that. So with this $60 billion investment in the companies, the American people deserve aggressive protection as to how that money 

would be spent and the effects of corporate decisions, including 

things like corporate bonuses. And if there is someone at the company who is not equipped to lead the companies into the future, 

then they certainly need to come out. 

And taxpayers are the ones that are represented by the government, and the government thus has a role to play in overseeing the 

$60 billion investment. You know, it is not meddling in the affairs 

of the companies, it is just wise and pursuant business decisions 

being made by, he government which never desired to be an automobile business. 

And so I will ask, though, from the representatives from GM and 

Chrysler, the amount of cars sold by Chrysler, Ford, and GM has 

decreased over time. And, now, about 3 years ago Ford, I guess, 

53 

saw things coming; they mortgaged the company to the tune of, I 

believe, about $18 billion, and they have been able to avoid asking 

for any taxpayer bailout money. 

GM, which had the most market share, did not escape that fate, 

and neither did Chrysler, who is coming back for the, actually, I 

think second time over the last 30 years or so for a bailout. 

And so meanwhile, the domestic automobile manufacturers are 

victims of a declining market, and Ford has been able to weather 

the storm. In fact, Chrysler and GM went bankrupt. Ford never did 

go bankrupt. 

Now, Ford does not have a program of closing dealerships, but 

GM and Chrysler do. Now, is that difference a result of basic mismanagement, wrong decision-making by the folks at GM and 

Chrysler? I mean, how could we account for it? 

Mr. COHEN. Mr. Johnson asked: Did Ford have a better idea? 

Can anybody tell us? 

Mr. ROBINSON. I will try to answer your question, Congressman, 

this way. I can’t speak for why Ford did what it did when they did 

it. I do know, from what I can read in the trade publications, that 

they did have an extensive dealership network program that preceded where we are today. Their dealer count is going to be in the 

neighborhood of where we are, when we are done with our program. 

Why didn’t we do what they did 3 years ago? I can’t answer that 

question. I don’t think anybody foresaw 3 years ago the environment that we would be in at the end of 2008, quite frankly. If they 

did what they did to monetize their assets at a time when they did 

it, I am sure they had good reasons for it. I am not sure they saw 

the economic tsunami any more clearly than anybody else, but they 

must have had good business reasons for doing what they did. 

Ms. VAN DER WIELE. Yes, Mr. Congressman. I also can’t speak 

to Ford’s decision-making, but what I can do is put the dealership 

issue in perspective. And that is, between 1990 and 2007, the average number of new vehicles sold in the United States was 16 million. This year, they are projecting no more than 10.1 million. 

So, obviously, all the auto companies, particularly those that 

have—the Big Three that have the legacy dealerships had to reduce the size in order to cope with the drastically lowered sales volume. 

Mr. JOHNSON. Is it true that Ford sales has a lower market share 

than GM or Chrysler? Is that true or is that false? And if it does, 

then isn’t it a fact, then, that GM going down to the number of 

Ford dealerships, the number of dealerships that Ford relies upon, 

wouldn’t that cancel out that argument that we are just simply 

going down to the number of dealerships that Ford has? 

And I appreciate the Chairman’s allowing me to just exceed the 

time, and this will be my last question. 

Mr. ROBINSON. Congressman, we will still have more dealerships, 

I believe, than Ford. If you look at the difference in our market 

share, I don’t think it is proportional to the difference in the number of dealers we have or have had up to this point time, where 

we have had over 6,000 versus the difference in our market share. 

Again, that is a lawyer’s reaction to a market analysis question, so 

bear with me. 

54 

Mr. COHEN. Thank you, sir. 

Mr. Issa from California is recognized for 5 minutes—or even a 

few seconds further. 

Mr. ISSA. Perhaps. Thank you, Mr. Chairman. 

Mr. Miller, you had an analysis earlier about what an ordinary 

creditor would do; right? 

Mr. MILLER. An ordinary secured creditor, sir. 

Mr. ISSA. So for going $3.8 plus-or-minus billion of DIP financing 

in Chrysler, that wouldn’t be routine, would it? 

Mr. MILLER. The amount is very substantial. The question is, if 

you have an outstanding secured creditor, the ability to get DIP financing—as we call it—nobody would do it unless you could prime 

the existing secured creditor. So that eliminates the possibility of 

getting DIP financing. And also, the amount—— 

Mr. ISSA. No. In the case of Chrysler, the Federal Government 

has simply walked away from a portion of the money it loaned in 

the transaction at the time of sale. 

Mr. MILLER. I wouldn’t say that they walked away. They took an 

equity interest. And that is exactly almost the same thing that has 

been done in GM. The new GM—— 

Mr. ISSA. Why take equity and forgive debt? Why not keep the 

debt and forget the equity? 

Mr. MILLER. Because the new company, the successor, the purchaser, whatever you want to call it, cannot service that debt. That 

is the recognition that you had to—you have a smaller company. 

Its ability to service its leverage ratio has to be consistent with 

what the market will appreciate. The hope is that someday these 

companies will be able to go into the private market and get financing. And so you can’t be overleveraged. 

That is why debtors—in many situations, including the automobile companies, secured creditors will exchange debt for equity 

in the hope that the successor company will be viable and profitable. 

Mr. ISSA. Well, I appreciate that. But Chrysler reeks of the government deciding what they wanted to do without much consideration to their original charter under the TARP, the money they 

used. 

Mr. Robinson, is General Motors as committed as Chrysler, the 

new Chrysler Corporation, seems to be in her statements that they 

will provide, if you will, somewhat of a first—and correct me if I 

am wrong, ma’am—a right of first refusal to those displaced dealers in future considerations? I heard it pretty profoundly that you 

wanted to make business opportunities available to them. 

Ms. VAN DER WIELE. Yes. I don’t think I used the term ‘‘right 

of first refusal.’’ 

Mr. ISSA. Right. I realize it was less than that. 

Is General Motors committed to recognize that the dealers who 

lost their dealerships lost them to dealers that got the value that 

was once theirs delivered to the dealer across town? Is General Motors equally committed to finding innovative ways to accomplish 

that for dealers who could meet criteria in the future for whatever 

opportunities become available? 

Mr. ROBINSON. Congressman, I would put that specific proposal 

on the list of things that we would be prepared to sit down across 

55 

the table and work out with the NADA and their membership. Our 

intent is not to go back into places that we have had to exercise— 

go through this wind-down process. 

I hope we have that problem 2, 3, 4 years from now, that things 

turn around, the markets are stronger, the opportunities are greater. But I think on behalf of the company, I can commit that we are 

very interested in having that conversation with the authorized 

representatives of the dealer body. 

Mr. ISSA. And Ms. Van Der Wiele and Mr. Robinson. 

Mr. ROBINSON. And I would call it a right of first proposal. 

Mr. ISSA. That is fine. 

The second point I want to make sure that both of you are willing to commit to is the dealers that lost their dealerships, by and 

large, no matter what you say on the wind-down, they got screwed. 

They got less in the wind-down than the value of their dealerships 

before your bankruptcies caused them to lose their dealership. Is 

there any argument there here today? 

You don’t have to use my particular parochial term, but they got 

less than the fair value in an ordinary market. Isn’t that true? 

Ms. VAN DER WIELE. I don’t know specifics. But I can say that 

the dealers, like all other stakeholders, had to accept less than they 

would have anticipated but for the bankruptcy situation. But it 

wasn’t just the dealers. 

Mr. ISSA. Let’s make sure we are clear here. They were protected 

by State franchise. They had an asset which they had purchased; 

in many cases, they had purchased the right—the exclusive right 

in an area to sell a Chrysler, a Dodge, a Jeep, to sell a Chevy, a 

Pontiac, some of them. 

Mr. ROBINSON. Oldsmobiles, too. 

Mr. ISSA. But they had purchased that. And that was diminished 

to zero, other than whatever compensation you gave them. Is that 

a fair statement, that that purchase right was eliminated? 

Mr. ROBINSON. Well, I would agree, Congressman. They couldn’t 

sell a franchise at the point they received the wind-down agreement and signed up for the program. In some cases the dealers, 

quite frankly, may be doing better with the wind-down agreement 

than they would have if they otherwise didn’t get the wind-down. 

Mr. ISSA. That would be a rare case, I suspect. 

Let me ask one or two quick follow-ups. In the case of a dealer 

who purchased a dealership and has a loan from one of your finance arms, particularly in the case of General Motors, so they 

have a liability that is offsetting the asset they purchased. 

Why in the world shouldn’t we envision here on the dais that 

they can essentially default without personal guarantees? Because 

one taking from one part of your company to another is, in fact, a 

fair offset, even though technically under bankruptcy it isn’t. 

When we are sitting up here looking at a flaw in the bankruptcy 

system, if I have a dealer who owes 4.5 or 5.5 or 6.5 million to 

GMAC and they have taken the dealership, and the wind-down is 

not 4.5 million, it is not offsetting, why shouldn’t they be able to 

say: ‘‘Here’s my building. It is your problem,’’ and be able to say 

‘‘You can’t go after my personal guarantee, because in fact an arm 

of the very entity took it?’’ 

56 

Now, there are not a lot of those, but there are some where it 

is literally two parts of your company. 

Mr. ROBINSON. Mr. Miller may be closer to this than I am at this 

point, but, quite frankly, GMAC was once upon a time a wholly 

owned subsidiary of General Motors. It is not, and we own less 

than 10 percent. 

Mr. ISSA. I appreciate all of that. But taxpayer money went into 

turning around both of your companies and forgiven for stock. My 

question is: Shouldn’t we on the dais find a solution for those dealers who essentially have been screwed by the bankruptcy system? 

And I apologize for using that word twice, but I don’t know a more 

accurate term than when billions of dollars go to taking care of 

making sure that your entities are going concerns, and in a sense 

they get no better, perhaps worse, of a deal than they would otherwise. 

I am looking at car deals around the country—I am sure there 

are many more examples than I presently know about—who are 

going to lose their homes because the asset they had was wiped out 

in bankruptcy and their liability is to the very group that said, 

‘‘Buy the dealership, we will carry back this loan.’’ 

And you may say it is only 10 percent today, but you had an effective control at the time the deal was made. That is why the relationship was created, why they didn’t go to some other bank. General Motors—to a lesser extent Chrysler—was in the business of if 

you wanted a dealer, you helped him with the financing. 

I am only asking, Do you think that we should consider; not, Do 

you have the power to do it? 

Mr. ROBINSON. That is a policy consideration that I would think 

the Subcommittee would want to take a look at; but I can’t answer 

the question any differently than that, sir. 

Mr. COHEN. The gentleman’s time has expired. 

Does Mr. Sherman seek recognition? You are recognized for 5 

minutes. 

Mr. SHERMAN. First—and other questioners may have done this. 

I guess I will address this to the vice president of Chrysler. Why 

is it thought to be in the automobile company’s interest to have 

fewer sellers charging a higher margin for your product when those 

in other businesses seem to want the smallest possible gap between 

what the manufacturer gets paid and what the consumer pays? 

Ms. VAN DER WIELE. Mr. Congressman, I can answer that in a 

general fashion, although with your permission I think my colleague could provide more specificity than I can. 

Mr. ORR. Mr. Sherman, if I may. Much has been made about why 

don’t we have more dealers, ‘‘Why would you want to reduce your 

dealer network? It seems to me you are reducing the outlets for 

selling your product. It doesn’t make sense.’’ 

Automobiles are not Starbucks, which, by the way, is reducing its 

profile, and automobiles are not yogurt. 

Mr. SHERMAN. Starbucks is reducing because they have to pay 

the people behind the counter. You had this dealer network at no 

cost. 

Mr. ORR. But understandably, Congressman, respectfully, the efficiencies involved in having too many outlets actually at some 

level can reduce your ability to sell cars. The analysis for us, meanVerDate Aug 31 2005 13:53 Feb 23, 2010 Jkt 000000 PO 00000 Frm 00060 Fmt 6633 Sfmt 6601 H:\WORK\COMM\072209\51225.000 HJUD1 PsN: 51225
57 

ing Chrysler, in terms of making its decision, was that in order for 

the company to go forward, saving 75 percent of its dealer network 

and reducing 25 percent of its dealer network would yield greater 

efficiencies to the dealers, allow those dealers to sell more car 

themselves, and thereby increase their capital profile and survivability, and allow the company to sell more cars through those 

dealers because of overarching marketing concerns in specific marketing pools. 

Mr. SHERMAN. What particularly concerns me is the statements 

made, if not by Chrysler then by GM, is that one of the things you 

are seeking is a larger margin, a bigger gap between the manufacturer’s price and what the consumer pays. And it is quite possible 

that if consumers pay an extra 100 or 200 bucks, because they 

can’t play one dealer off against another, that that will be to the 

benefit of the manufacturer of—maybe it works better, but it does 

mean that people in my district and all our districts are paying a 

few hundred bucks more for a car because you can’t pit one dealer 

off against another. 

Shifting to the legal issue, though. It is my understanding that 

in bankruptcy the claims of general creditors can be wiped out and 

the claim of these dealers to a franchise was just such a general 

claim. And, that in fact it would have been legal in bankruptcy for 

you to have voided all the franchises, and then—I don’t know who 

would have paid for them, but then you could have sold them 

again. I don’t know who would have paid you for them. 

But would that have been legal under bankruptcy, instead of just 

voiding some franchises, voiding them all? 

Mr. ORR. Mr. Sherman, section 365 of the Bankruptcy Code does 

allow you to terminate burdensome contract leases. It is a requirement of that code that in exercising that judgment, there is a benefit to the debtor. In exercising the judgment—— 

Mr. SHERMAN. Well, clearly, there are some good franchises. If 

you could have canceled the one on Van Nuys Boulevard and then 

sold it, you would have made some money. 

Mr. ORR. Well, perhaps, Mr. Sherman. But we made the decision 

not to cancel all the franchises; 75 percent, comprising almost 85 

percent of our sales, we retained, recognizing that we needed our 

dealerships under the existing agreements. 

The concept is you have to balance the potential benefit to the 

debtor against the potential—not the harm to the dealer, but the 

potential harm to the debtor. We don’t sell our franchise agreements. That is somewhat of a misperception. Dealers are awarded 

contracts and they capitalize their businesses, but we do not sell 

franchises. 

Mr. SHERMAN. So you just awarded franchises to those you 

thought could do a good job, and they didn’t write you a check as 

part of that award? 

Mr. ORR. They do not write the company a check, but they do 

have to capitalize the business. They have marketing, they have finance, so on and so forth. 

Mr. SHERMAN. Needless to say, good to explore the law with you, 

was once a summer associate with your firm. But the idea—— 

Mr. ORR. Glad you remember us, Congressman. 

58 

Mr. SHERMAN. But the idea of canceling dealer franchises was 

more an exploration of what the law is or could be, not any business advice for you. I yield back. 

Mr. COHEN. Thank you. We are almost at the slosh and cutoff. 

But before we get there, we are going to give the Ranking Member 

a minute for mea culpas. 

Mr. FRANKS. I just wanted to point out, Mr. Chairman, I have 

been pretty hard on these guys here today. And while I believe everything I have said, I think it is important to realize that there 

were two giant things that caused the bankruptcies to occur. One 

was an increase in the gasoline prices that had an impact on your 

markets, and of course the dry-up of the capital market. You would 

essentially agree with that; correct? That was the big things that 

impacted? And those things weren’t your fault. Those things I believe were catalyzed ultimately by government policy. I won’t get 

into the details. 

But I just wanted to say that to you, even though in my criticisms here I have been sincere. I do know that these things have 

happened, and I think that ultimately government is to blame here 

more than you are. 

So, with that, I yield back. Thank you, Mr. Chairman. 

Mr. COHEN. Thank you, Mr. Ranking Member. And implicit within that, it wasn’t the UAW’s fault either. 

We are now at a time when we are going to be taking some 

votes. The votes should take approximately 45 minutes, and then 

we will resume with the second panel. We have concluded this first 

panel. 

I would reiterate the Chairmanof the full Committee’s suggestion—and mine, also—that if you can stay, we would appreciate it. 

The four of you, can you all stay to listen to the next panel and 

possibly have a cup of coffee? It seems reasonable. I am sure you 

are on the clock. This is part of the stimulus package. 

So thank you, and I appreciate it. Mr. Chrisie is the only person 

who hasn’t accepted that offer, and he is on television about not 

staying, so you don’t want to leave. So we accept that. 

We will be back in about 50 minutes, and in the interim we are 

in recess. 

[Recess.] 

Mr. COHEN. This hearing of the Committee on the Judiciary, 

Subcommittee of Commercial and Administrative Law will now 

come to order. Without objection, the Chair will be authorized to 

declare a recess of the hearing. 

I am now pleased to introduce our witnesses. Our first witness 

is Douglas Baird, whose name was mentioned earlier. Mr. Baird is 

the Harry Bigelow Distinguished Service Professor of Law at the 

University of Chicago. His research and teaching interests focus on 

corporate reorganizations and contracts. He served as dean of the 

law school from 1994 to 1999. Before joining the faculty in 1980, 

he was a law clerk for the Court of Appeals for the Ninth Circuit. 

Professor Baird, will you please proceed with your testimony? We 

welcome you. 

59 

TESTIMONY OF DOUGLAS G. BAIRD, HARRY A. BIGELOW DISTINGUISHED SERVICE PROFESSOR OF LAW, UNIVERSITY OF 

CHICAGO LAW SCHOOL 

Mr. BAIRD. Mr. Chairman, Ranking Member Franks, Members of 

the Committee, I want to thank you for the chance to speak to you 

today about the recent automobile bankruptcies. 

The willingness of the Federal Government to contribute substantial resources was a necessary but not sufficient condition to 

the survival of General Motors and Chrysler. Without Chapter 11 

or some similar process, General Motors and Chrysler would likely 

have gone out of business. In this respect, these cases show the 

good that modern bankruptcy judges and lawyers are able to do, 

especially in troubled economic times. 

Bankruptcy law, however, provides no panacea. The challenges 

General Motors and Chrysler face are far from over. There is no 

guarantee either will survive. Much depends upon whether domestic automobile consumption rebounds significantly over the next 

several years, and whether these companies can transform their 

corporate culture quickly enough in a highly competitive marketplace. 

These two cases also underscore the limitations of bankruptcy 

law in another way. Companies that are insolvent—and Chrysler 

and General Motors were hopelessly insolvent—are unable to meet 

all their obligations. Bankruptcy law can do nothing to change this. 

No matter what bankruptcy provides, many worthy stakeholders, 

tort victims, unpaid suppliers, pension funds, dealers, workers, will 

not be paid in full or will not be paid at all. 

One can try to protect some stakeholders by favoring one group, 

but favoring one group necessarily comes at the expense of another. 

Moreover, there are sharp limits on the ability of bankruptcy law 

to do even this. 

First, most firms that fail never file bankruptcy petitions. Indeed, fewer than 1 percent of all financially distressed firms file for 

Chapter 11; and those that do are typically encumbered by liens 

that at the time of the bankruptcy filing have the status of constitutionally protected property interests. 

If you decide to protect some stakeholders of failed firms—which 

you can do—such as tort victims, the best way to do this is by giving a super priority lien to those stakeholders. But it has to be a 

lien that is good both inside of bankruptcy and outside of bankruptcy. And that is possible. Some environmental claims have this 

feature, but it comes at a cost. 

Now, in my own view, tort claims are among those that should 

be protected with a super priority lien. But I should emphasize 

that this view is both controversial and not in the first instance a 

question of bankruptcy policy. Again, only a law that trumps liens 

and applies generally, regardless of whether the assets are sold 

and regardless of whether the firm is in bankruptcy, will work in 

this environment. 

Next, I want to focus on the particular lessons we can draw from 

the bankruptcies of General Motors and Chrysler. The active participation of the Federal Government dramatically altered the dynamics of these bankruptcy cases, and not always for the better. 

The most striking feature of these Chapter 11s was their speed, 

60 

particularly in the use of section 363 to sell these firms as going 

concerns. Now, going concern sales are very common in large Chapter 11 cases. Perhaps half or more of all Chapter 11 cases now are 

now sales. 

Now, in principle, the ability to sell a firm as a going concern 

and take advantage of the marketplace is a salutary development. 

In principle it is a good thing. The stakeholders get the maximum 

value and the company gets the best shot at reinventing itself and 

competing in the marketplace. But we need to ensure the sales 

process is conducted in such a way that the firm is in fact sold for 

top dollar. Without appropriate procedures, there is a risk that too 

many 363 sales and other going concern sales are firesales. These 

firesales work to the advantage of those in control, not the stakeholders as a group. Over this dimension, the sales in Chrysler and 

GM may have been conducted too quickly. 

There is another danger to which attention needs to be given. 

The sale itself should not dictate the way in which the proceeds of 

the sale are distributed. The sales that were conducted in Chrysler 

and General Motors were troubling over this dimension as well. In 

both Chrysler and General Motors, the bankruptcy judge approved 

sales procedures that narrowly limited the form of the bid. It insisted that everyone who bid, not just the Federal Government, pay 

specified amounts to specified claimants. The sales procedures approved by the bankruptcy judge effectively dictated the distribution 

of assets. The bankruptcy courts in these cases may have tolerated 

these highly unusual and highly restrictive sales procedures in 

large part because they thought it wouldn’t make a difference. It 

seemed to them unlikely another bidder would merge, even if more 

time were taken or different or better rules were put in place. 

The conditions of the companies, the illiquidity of the current 

markets, and the strong desire of the Federal Government to dictate the outcome were sufficient to chill competing bids regardless 

of the procedures. 

Nevertheless, the question of whether other bidders might appear and provide different alternatives is one the marketplace is 

supposed to answer. The judges could have done more to test the 

waters, and there may have been little cost in opening up the process more, as for example the bankruptcy judge in the Delphi bankruptcy has done. When process is neglected, as it was in these 

cases, rights of stakeholders are inevitably compromised, as is their 

ability to sit at the negotiating table and be heard. 

Now, the special circumstance to the automobile cases may mean 

that these circumstances are not likely to be repeated and no special legislation is required. But the procedures followed in these 

cases should not become the norm, and legislative reform would be 

appropriate if they did. But reform should be limited. It would be 

a mistake, again, to limit the ability of bankruptcy judges to conduct sales and thereby give buyers clean title. 

In summary, the bankruptcies of General Motors and Chrysler 

raise a number of problems. At the same time, however, it should 

be recognized they arose because of the large role the government 

played. And this may not have been inappropriate, as the government acted in this way only because of its perception—of correct, 

61 

in my view—that aggressive use of the bankruptcy process was 

necessary to save these companies. 

Thank you, Mr. Chairman. 

Mr. COHEN. Thank you, Professor Baird. 

[The prepared statement of Mr. Baird follows:] 

PREPARED STATEMENT OF DOUGLAS G. BAIRD

I am the Harry A. Bigelow Distinguished Service Professor at the University of 

Chicago Law School where I teach bankruptcy law. I joined its faculty in 1980 and 

was its Dean from 1994 to 1999. I have also been a visiting professor at Stanford, 

Harvard, and Yale. I am a fellow of the American Academy of Arts and Sciences, 

I have served as the Vice Chair of the National Bankruptcy Conference, and I am 

currently the scholar-in-residence at the American College of Bankruptcy. I have 

written several dozen articles on bankruptcy and related subjects, and my one-volume overview of U.S. bankruptcy law, Elements of Bankruptcy, is now in its fourth 

edition. I appear at your invitation today to try to draw some general lessons from 

the recent automobile bankruptcies. I speak as a scholar committed to the effective 

operation of our bankruptcy system and not on behalf of any individual or group. 

The General Motors and Chrysler bankruptcies provide powerful illustrations of 

how Chapter 11 can give financially distressed companies a second chance. Without 

Chapter 11 or some similar process, General Motors and Chrysler would likely have 

gone out of business. The willingness of the federal government to contribute substantial resources was necessary, but not sufficient. In this respect, these cases 

show the good that modern bankruptcy judges and lawyers are able to do, especially 

in troubled economic times. Bankruptcy law, however, provides no panacea, only a 

fighting chance. 

Even with a substantially reduced debt burden, the challenges General Motors 

and Chrysler face are far from over. They have been mismanaged for decades and 

find themselves in an industry in which there is massive overcapacity. There is no 

guarantee that either will survive. Much depends on whether domestic automobile 

consumption rebounds significantly over the next several years and whether these 

two companies can transform their corporate culture quickly enough in a highly 

competitive marketplace. 

These two cases also underscore the limitations of bankruptcy law in another way. 

Companies that are insolvent—and General Motors and Chrysler were hopelessly 

insolvent—cannot meet all of their existing obligations. Bankruptcy can do nothing 

to change this. No matter what bankruptcy provides, many worthy stakeholders— 

tort victims, unpaid suppliers, pension funds, dealers, workers—will not be paid in 

full or at all. 

One can try to protect some stakeholders, but this is not without major consequences. Favoring one group necessarily comes at the expense of another, and legitimate questions can be raised about when it is justified to favor one group over 

another. Moreover, there are sharp limits on the ability of bankruptcy law to do 

even this. Most of the firms that fail never file bankruptcy petitions. Indeed, fewer 

than one percent of financially distressed businesses end up in Chapter 11. Even 

for companies reorganizing in Chapter 11, merely giving a priority claim is likely 

to be ineffective. Businesses today have multiple layers of secured debt. The secured 

creditor enjoys a nonbankruptcy property right that has to be paid first. For these 

reasons, the best way to protect particular stakeholders is to give them a superpriority lien over other existing stakeholders across the board, inside of bankruptcy 

and out. Some environmental claims have this feature. 

In my own view, tort claims are among those that should be protected with a 

superpriority lien, but I should emphasize that this view is both controversial and 

not in the first instance a question of bankruptcy policy. Again, only a law that applies generally whenever the question of priority arises will work. Alternatively, a 

law, again of general applicability, could require companies to carry sufficient insurance. 

Another problem arises with respect to the obligations of a reorganized company 

to those who suffer harm in the future as a result of products the company made 

before bankruptcy. On the one hand, it is important to give companies a fresh start, 

but on the other, tort victims need to have their day in court. These problems have 

arisen in cases involving everything from asbestos to airplanes. They have been 

carefully studied and there are sensible, concrete proposals for the treatment of future tort victims that have been put forward by the National Bankruptcy Conference and others. These provide a sensible starting place for legislative reform. 

62 

1 In Chrysler, the court did provide that the debtor could deem other bids qualified after consultation with the UAW, but the debtor had neither the obligation nor the incentive to do so. 

In the balance of my testimony, I want to focus on the particular lessons we can 

draw from the bankruptcies of General Motors and Chrysler. One must recognize 

that only massive intervention by the federal government made it possible for the 

bankruptcy process to give these companies another chance. Both General Motors 

and Chrysler were experiencing massive and ongoing operating losses. When companies are hemorrhaging cash to this extent, it is generally too late for Chapter 11 

to save them in the absence of an extraordinary infusion of outside capital and it 

is only rarely available. The active participation of the government fundamentally 

altered the dynamics of these bankruptcy cases—and not always for the better. 

The most striking feature of these Chapter 11s was their speed. Section 363 of 

the Bankruptcy Code allows the judge to approve the sale of a business’s assets outside of the ordinary course of business. In General Motors and Chrysler, this mechanism was used to sell the businesses as going concerns to a new entity created by, 

or, in the case of Chrysler, with the cooperation of, the federal government within 

the course of a few weeks. 

Going-concern sales are common in large Chapter 11 cases. Over half of all large 

Chapter 11 cases now involve sales of one kind or another. In principle, this is a 

salutary development. A sale often converts an unwieldy and illiquid asset into cash 

that can be readily divided among the various stakeholders according to their legal 

entitlements. A sale can provide the best way to maximize the value of the assets. 

Even when a reorganization provides a better alternative, the possibility of a sale 

improves the process as it tends to keep everyone honest. A cash bid of a company 

for $100 makes it impossible for one of the competing claimants to argue that it is 

worth less. 

But we need to ensure that the sale process is conducted in such a way that ensures that the firm is sold for top dollar. Companies that are put up for sale are 

often in severe financial distress. They are melting ice cubes, and those in control 

of the process assert that they are willing to pump new money into the company 

to keep it alive only if the sale is done quickly to a buyer they have already identified. The danger that the business will not have enough cash to stay open puts enormous pressure on the judge to move the case quickly. 

Without appropriate procedures, there is a risk that too many § 363 sales are fire 

sales that work to the advantage of those in control, not to the stakeholders as a 

group. The Bankruptcy Code itself offers no guidelines beyond a general requirement of notice and a hearing. Courts have begun to develop procedures. These, in 

conjunction with the rule-making process, might be sufficient to create procedures 

that ensure that these sales do in fact yield top dollar. If they do not, it may make 

sense for Congress to revisit this issue and ask whether procedures and protections 

for going concern sales should be explicitly addressed in the Bankruptcy Code. 

There is another danger to which attention needs to be given. The sale itself 

should not dictate the distribution of the proceeds of the sale. The distribution of 

proceeds should recognize the existing rights of the various stakeholders. The procedures for the confirmation of a Chapter 11 plan of reorganization set out in § 1129 

are designed to do this. The sale should not short-circuit them. The sales that were 

conducted in both Chrysler and General Motors, however, were troubling over this 

dimension. 

The newly created entities that bid on the assets of Chrysler and General Motors 

agreed to take on some obligations of the old company. This itself seems 

unobjectionable in theory. If a new buyer decides to pay some obligations and not 

others, it should be free to do so. As a buyer, the assets belong to it, and it should 

be free to do whatever it wants with them. All that matters is that this buyer has 

produced the top bid after the company has been fully marketed. But the plan of 

a buyer to pay existing obligations becomes problematic if, at the same time, the 

freedom of action of other bidders is limited. For this reason, a buyer’s decision to 

continue the debtor’s relationship with some stakeholders, but not with others, has 

always been treated with suspicion. 

In both Chrysler and General Motors, the bankruptcy judge approved sale procedures that narrowly limited the form of the bid. They required that the bidder agree 

to assume the same burdens the government-created entity was willing to assume.1

By insisting that each bidder commit to pay specified claimants specified amounts, 

the sale procedures effectively dictated the distribution of assets. A buyer who takes 

a $10 company free and clear will bid $10 for it. But a buyer of the same company 

who is required to assume $6 in obligations will bid only $4. If the $6 goes to a 

different stakeholder, then the process not merely converts the assets into cash, but 

also dictates how the cash is distributed. It becomes both a sale and a sub rosa plan. 

63 

Those who lose out (those forced to share in proceeds of $4 instead of $10) enjoy 

none of the protections of Chapter 11 plan process. 

In both the Chrysler and General Motors bankruptcies, the courts tolerated highly 

restrictive sales procedures in large part because they did not think it made a difference. It seemed to them unlikely another bidder would emerge even if different 

rules were in place. The sorry condition of the companies, the illiquidity of the current credit markets, and the strong desire of the federal government to dictate the 

outcome were sufficient to chill competing bids, regardless of the procedures. Importantly, the judges found that, in the absence of the proposed sale, a liquidation was 

inevitable and objecting creditors would do worse in a liquidation than they were 

doing in connection with the proposed sale. 

Nevertheless, the question of whether other bidders might appear and provide different alternatives is one that the marketplace is supposed to answer. The judges 

could have done more to test the waters and there would have been little cost in 

opening up the process more, as the judge in Delphi has been willing to do. When 

process is neglected, rights of stakeholders are inevitably compromised, as is their 

ability to a sit at the negotiating table and be heard. The special circumstances of 

the automobile cases may mean that these circumstances are not likely to be repeated and no special legislation is required, but the procedures followed in these 

cases should not become the norm. Reform of Section 363 is appropriate should such 

practices persist. 

In thinking about legislation affecting going-concern sales, however, it is important to distinguish between the procedures designed to maximize asset value and 

restrictions on the ability of firms in bankruptcy to give buyers good title. Granting 

a buyer clean title is the principal virtue of having the sale in the first place, and 

it is the device that ensures that the company is sold for top dollar. Those who buy 

in bankruptcy auctions will not pay for the same asset twice. If a firm is worth $10 

when sold free and clear, it will bring the creditors as a group $10 only if the proper 

procedures are in place. If the law were changed to require that the buyer assume 

a $3 obligation, then the sale proceeds will be only $7. The effect of imposing limits 

on the title that can be conveyed is not to benefit the creditors as a group, but merely to alter the way in which the value of the underlying assets is divided among 

them. Allocating the sale proceeds is utterly different from ensuring that they are 

as large as possible. One should not confuse the size of the slices with the size of 

the pie. 

Limiting the ability of the debtor to convey good title will also make sales relatively less attractive and hence less likely. The effect in the end may not even be 

to alter priorities, but simply to leave everyone with less. 

By the conventional understanding, debtors in bankruptcy can reject franchise 

agreements just as they can reject other executory contracts. The effect is to put 

dealers in the same position as other stakeholders—such as investors, tort victims, 

and suppliers. This rule likely works to the advantage of the debtor going forward. 

To compete in any market, manufacturers must have an effective way of distributing their products. Regardless of whether a manufacturer distributes a product 

itself or outsources distribution to a third party, the less efficient the distribution 

system, the harder it will be for the manufacturer to compete. If a distributor is 

located in the wrong place, is the wrong size, or provides an inferior package of services, the manufacturer’s position in the marketplace suffers. It does not matter 

whether the manufacturer pays the distributor or the distributor pays the manufacturer. 

The distribution system in place for the automobile industry has remained essentially unchanged for decades. Even if it made sense in the 1950s when the industry 

was far less competitive and these firms enjoyed far larger market shares, it would 

be surprising if it still made sense today. 

One can argue, however, that this understanding of the law governing franchisees 

is wrong as a matter of bankruptcy policy. Unlike other claimants, auto dealers are 

protected by specific state and federal laws. These make their rights different from 

those who enter ordinary contracts with the debtor. That these laws came into being 

in an utterly different and far less competitive market is, under this view, irrelevant. These dealership laws must be obeyed until they are changed. In principle, 

bankruptcy should provide no special break from government regulations, no matter 

how ill-advised they might be or how much they undermine a company’s ability to 

survive as a going concern. Under this argument, debtors in bankruptcy must play 

by the same rules as everyone else. 

Whether this argument justifies a fundamental shift in the treatment of executory 

contracts under the Bankruptcy Code outside the context of these cases is best left 

to another day. The involvement of the federal government in these two cases alters 

the dynamic significantly. While providing special protection for the dealers will 

64 

likely decrease somewhat the chances that the companies will survive, its principal 

effect is merely to reduce the value of the government’s stake in the companies as 

restructured. Put differently, a law protecting automobile dealers in these cases is, 

in the main, an indirect subsidy of the dealers by the federal government. It may 

or may not be a good idea, but it is quite different from what goes on in other bankruptcies. 

In summary, these two cases raise a number of problems, most arising by virtue 

of the role the government played. One can fault the particulars and one must ensure that the infirmities that existed in these cases—principally the procedures used 

in conducting the § 363 sale—are not replicated elsewhere. At the same time, however, it should be recognized that the large role that the government played was 

the result of its perception—correct in my view—that only aggressive use of the 

bankruptcy process on its part would allow either of these companies to survive in 

a form that would minimize the cost to the U.S. taxpayer of keeping them alive. 

Mr. COHEN. Our second witness is Mr. Dan Ikenson, Associate 

Director of the Cato Center for Trade Policy Studies focusing on 

WTO disputes, other trade agreements, U.S.-China issues, steel 

and textile trade issues, antidumping reform, and capitalism in 

general. 

Before joining Cato in 2000, Mr. Ikenson was Director of International Trade Planning for an international accounting and business advisory firm, co-founded the Library of International Trade 

Resources. 

And we welcome him today. And you may begin your testimony. 

TESTIMONY OF DANIEL J. IKENSON, ASSOCIATE DIRECTOR, 

CENTER FOR TRADE POLICY STUDIES, CATO INSTITUTE 

Mr. IKENSON. Thank you, Chairman Cohen, Ranking Member 

Franks, and Members of the Subcommittee. I am Dan Ikenson 

from the Cato Institute. Today I would like to share some general 

concerns about the ramifications of the auto industry bankruptcies. 

I have been analyzing closely developments in the auto industry 

since last November when Detroit’s public relations blitz took form 

and the companies sought a Federal bailout. Eight months later, 

the emergence of Chrysler and then General Motors from bankruptcy marked the end of the first chapter of what is a cautionary 

tale about the triumph of politics over markets and the rule of law. 

As the next chapter unfolds, we are likely to witness the consequences of what were extremely politicized bankruptcy prophecies. 

Bankruptcy was always the best option for both of these companies; indeed, both should have been in bankruptcy before last November, long before President Bush circumvented the wishes of 

Congress and lent Chrysler and GM $13.4 billion from the Troubled Assets Relief Program; long before President Obama had the 

chance to provide billions more and assume a larger role for the 

U.S. Government in Chrysler’s and GM’s restructuring operations; 

long before President Obama created a huge moral hazard by 

strong-arming Chrysler’s and GM’s preferred lenders into pennies 

on their dollars, while giving preference to claimants of lesser priority. 

Instead, on account of the so-called prepackaged surgical bankruptcies, taxpayers are now majority shareholders in a company 

whose success depends on stewardship from 536 CEOs with disparate ideas of GM’s mission. 

65 

Meanwhile, the United Auto Workers, typically more concerned 

about how corporate profits are carved up rather than how they attained, is majority owner of Chrysler. Perhaps most troubling, particularly in the case of GM, is the fundamental conflict inherent 

when operating and regulating a company falls to one entity. 

The pursuit of profits and political objectives often work at cross 

purposes. The dealerships issue is a case in point. Notwithstanding 

the possibility that the choice of dealership closings was made arbitrarily if not politically, the fact remains that the companies must 

cut costs to survive. 

Excessive dealership networks are an area that is ripe for cutting. The plan in effect as of this moment could save GM hundreds 

of millions of dollars per year according to Fritz Henderson. That 

the companies might be forced to abandon the plan because a majority of its 536 CEOs have political reasons for opposing it doesn’t 

inspire much confidence that GM will be allowed to succeed. Successful companies are not run through referendum. 

The dealership issue elevates doubts that politics will not infect 

operational decisions at GM in particular, and it portends highly 

erratic management as the President and Congress wrestle for primacy in formulating policy of this majority taxpayer-owned entity. 

There are many other potential conflicts. For instance, has the 

President been endorsing people for key executive positions who 

are best qualified to run a profitable enterprise or who might be 

more amenable to the Administration’s plans for converting the 

economy from a carbon-based to a renewables-based one? Has he 

decided that had GM won’t supplement its fleets with cars produced at its plants in Mexico and China because it is bad for the 

bottom line or because it bothers the UAW? And how does Congress feel? Where does this Committee stand? Where does that caucus stand on this operational issue or that one? 

Returning GM to profitability will require higher revenues and 

lower costs, neither of which was made easier by imposing more 

rigid CAFE standards on the automakers GM will be forced to sell 

fewer high-profit vehicles, its trucks, SUVs, muscle cars and luxury 

cars, and more low-profit or no-profit vehicles of small cars to 

achieve a 35.5 mile per gallon fleet average, all at a time when demand for small cars is falling. 

Forcing automakers to produce vehicles that Americans demand 

only when fuel prices are in the $4 range might appease the Sierra 

Club, but it won’t help GM or Chrysler. 

Between the congressional pushback over the dealerships issue 

and the insistence on higher fuel efficiency standards, we see the 

objectives of two broad groups of policymakers: those who want 

green production and treat the costs of that goal as immaterial, 

and those who want the auto industry to remain a jobs program 

regardless of the imperative of shedding workers to become more 

competitive. 

Let us not lose sight of the fact that $65 billion in taxpayer funds 

have been directed to GM and Chrysler over the past 8 months. In 

the case of GM, for taxpayers to get back their investment, the 

company would have to be worth about $83 billion. At its historic 

high value in 2000, GM’s worth, based on its market capitalization, 

stood at $60 billion. Thus the company’s value must increase by 

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about 38 percent from its historic high achieved in the year 2000, 

when Americans were purchasing 16 million vehicles per year, just 

to return principal to the taxpayer. But U.S. demand projections 

for the next few years come in really at around 10 million. 

So as the Administration seeks to justify its wisdom in intervening and taking ownership of GM, I worry it will be tempted to 

use public policy and the Tax Code to tip the scales further in GM’s 

favor, increasing the likelihood that the public outlay will grow 

larger, and dimming prospects that taxpayers will ever be made 

whole on their $50 billion coerced investment. 

So what will happen to Ford if lawmakers and the Administration have a favored horse in the race? Ford is relatively healthy 

now, but continued support for GM and Chrysler could well drive 

Ford to the trough, too, presenting the specter of another taxpayer 

bailout to the tune of tens of billions of dollars and another government-run auto company. 

In closing, I would like to make one last point. The recent misfortune to Chrysler and GM and the government’s assumption of responsibility for their rehabilitation occasioned a direct appeal from 

President Obama to American economic patriotism a few months 

ago. The President said: If you are considering buying a car, I hope 

it will be an American car. 

But even if one were inclined to buy an American car, the tricky 

question remains: What constitutes an American car? 

In 2008, the Big Three accounted for roughly 55 percent of the 

U.S. fleet vehicle production and 50 percent of sales. To speak of 

the U.S. auto industry these days, one must include Honda, Toyota, 

Nissan, Kia, Hyundai, BMW, and other foreign-nameplate producers who manufacture vehicles in the U.S. They are the other 

half of the auto industry. They employ Americans, they pay U.S. 

Taxes, support other U.S. businesses, contribute to local charities, 

have genuine stakes in their local communities, and face the same 

difficult economy as do GM, Chrysler, and Ford. 

In a properly functioning market economy, the better firms, the 

ones that are more innovative, more efficient, more popular among 

consumers, gain market share or increase profits while the lesser 

firms contract. Efforts to pick winners disrupt that process and can 

only weaken the entire lot. 

Thank you for your time and attention. 

Mr. COHEN. Thank you, Mr. Ikenson. 

[The prepared statement of Mr. Ikenson follows:] 

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Mr. COHEN. Our third witness is Mr. Richard Mourdock, Indiana 

State Treasurer, elected as 53rd Treasurer of the State of Indiana 

in November 2006, who is the chief investment officer for the State 

of Indiana, and, in that capacity, seeks to maximize a return of the 

State’s investment portfolio. He serves on 13 boards or commissions 

in his official capacity. 

Recently, he was in the center of the national automobile industry bailout as he pursued a case all the way to the United States 

Supreme Court on behalf of Indiana pensioners and taxpayers. I 

presume you know Steve Adams? 

Mr. MOURDOCK. No, sir, I do not. 

Mr. COHEN. All right. Prior to his appointment, he served two 

terms as county commissioner of Vandenberg County. 

Mr. Mourdock, please proceed with your testimony. 

TESTIMONY OF RICHARD E. MOURDOCK, 

INDIANA TREASURER OF STATE 

Mr. MOURDOCK. Thank you, Chairman Cohen, Mr. Franks, honorable Members of the Committee. Let me first say that it is a true 

honor to be before you today. I have always had great reverence 

for our government and its systems, and frankly never imagined 

that I would be testifying to a congressional committee. I truly do 

consider this an honor to be invited. 

Mr. COHEN. I never thought I would ever be the Chairman of the 

Committee. So we are both here. 

Mr. MOURDOCK. I understand. 

In being here today, I guess I am the only person who is a witness in either this panel or the previous panel who, like the Members of the Committee, has a political constituency. As you just 

stated, I represent a number of different funds including pension 

funds for Indiana State Police Officers, the Teachers Retirement 

Fund of Indiana, and also an infrastructure fund called the Major 

Moves Construction Funds. 

Those three funds a year ago this month bought the secured debt 

of Chrysler Corporation. We bought that debt at a discount, and we 

did that for two reasons: 

Number one, because it was secured debt. We saw it as a good 

investment. We bought it at 43 cents on the dollar. 

And secondarily—and this is not an unimportant point. Secondarily, we purchased it because Chrysler Corporation has a very 

large footprint in the State of Indiana, as we have some 6,000 employees for Chrysler that work in the area of Kokomo. 

When we made that investment decision, we never imagined that 

as secured creditors, the pension funds that I have mentioned 

would be ripped off and see their values greatly diminished, in 

what is an unprecedented act, through the bankruptcy process. 

I come here today to tell you that I have been asked dozens of 

times: You took this case all the way to the United States Supreme 

Court, Richard. What was this about? Was it about the money? 

Was it about the law? Was it about the principle? Was it about the 

precedent? 

And the answer is yes, it was about all those things because they 

are truly indivisible. They are indivisible when we consider the fact 

81 

of law and the precedents that we have seen now set for our financial markets. 

I will not rehash the entire case for you. I will simply say that 

as a fiduciary of those funds, it is my utmost responsibility to not 

leave any stone unturned in trying to find the remuneration that 

our pensioners are due. I will continue to do that, hopefully, back 

to the United States Supreme Court. 

We realize, even as I say that, that we cannot unring the bell. 

The sale of Chrysler will not be undone. The rights of all the other 

secured creditors have been vaporized by that sale. However, because the Supreme Court did choose to hear our case briefly, issued 

us a short stay, we have 90 days to go back to the Court to again 

seek redress. We are considering how we might best do that. 

Questions that we could put before that Court, and I expect we 

will, are about the valuation of Chrysler. Clearly there is item after 

item that shows the valuation method that was done on a liquidation basis was not appropriate. It was said here this morning that 

liquidation was the only option. We do not agree. Once the United 

States Government agreed to partner up with Chrysler, it might 

have found some other partners and might have found a more reasoned and historically precedented decision and basis upon which 

a bankruptcy could have occurred. The reason that didn’t happen 

was, along with it, came the date that this deal had to be done by 

June 15th. The big question became: Where did that date come 

from? 

Ultimately, even the president of Fiat, upon whom it was continually said he would walk away from the deal if it didn’t happen by 

June 15, on the day the sale took place he said, ‘‘No, that was 

never my date. I don’t know where that date came from.’’ In fact, 

that date also was derived by the government in making the sale 

happen very quickly. 

There are a whole series of questions I might ask rather than answer here today. One of those questions is if the word ‘‘secured’’ 

creditor no longer has meaning, we need in the world of finance 

new definitions. Do the words ‘‘good faith and credit of the United 

States Government’’ still have meaning? Do the letters FDIC still 

have meaning? 

Those are government entities. We need to make sure the bond 

market is secure. 

You know, in June of this year, Secretary of the Treasury Timothy Geithner went to China, tried to convince the Chinese to keep 

buying our bonds. And let’s all hope they do so. When he completed 

his official business, he spoke at the University of Beijing to a 

group of business students. He told them the American dollar was 

sound because of the sound and consistent practices of the American government and Administration. The room erupted in laughter. Chinese business students understand we must have consistency in the financial markets. 

I could not agree more with the Obama administration on the 

point that we need more investment in American manufacturing if 

we again hope to be globally competitive. I hope we all see that. 

But this act, in stripping away the rights of secured creditors, is 

antithetical to good investing. 

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Investors, institutional investors especially, are changing the way 

they look at the world, and that is because of Chrysler. That is not 

a good precedent that we have before us. 

I look forward to any questions you have to ask. I come here not 

as a lawyer. I am actually a geologist by training, as I was sharing 

with Mr. Franks, but I learned in 30 years of business a lot about 

the business world, and I know in that world there must be consistency if you hope to succeed. And that is what we have lost here 

in this process. 

Mr. COHEN. Thank you, Mr. Mourdock. The man I was referencing was a State treasurer, but way before you were elected. 

So I missed your year in Tennessee. 

[The prepared statement of Mr. Mourdock follows:] 

PREPARED STATEMENT OF RICHARD E. MOURDOCK


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Mr. COHEN. Our fourth witness is Jeremy Warriner. Mr. 

Warriner has brought a claim against Chrysler regarding an accident he was involved in driving a Jeep Wrangler that he owned. 

As a result of injuries suffered during the accident, Mr. Warriner 

spent over a year in and out of hospitals and has had 38 surgeries 

since the accident. His medical bills are over $1 million. His case 

against Chrysler was scheduled for mediation on May 5, but it was 

canceled due to Chrysler filing for bankruptcy on April 30. 

Mr. Warriner, we ask you to begin your testimony. We appreciate 

your coming here. 

TESTIMONY OF JEREMY WARRINER, INDIANAPOLIS, IN 

Mr. WARRINER. Thank you. Thank you, Mr. Chairman and Members of the Committee, for giving me the opportunity to speak 

today. 

As you listen to my testimony, I ask that you think about your 

friends, your family, your loved ones, your constituents, and yourselves. Please understand that the safety risks created by the auto 

industry bankruptcies have the potential to affect all of us. 

In October of 2005 I was in a car accident. The damage left me 

trapped, pinned between the dash and the seat, and suspended in 

my 2005 Jeep Wrangler Unlimited which had rolled onto its passenger side. I had several severe injuries, all of which would have 

healed. Then, a fire ignited in the engine compartment that burned 

through the firewall into the passenger compartment. 

Somehow I was rescued. But when you look at the wreckage, 

which is pictured in my written statement, the fact that I am here 

alive to speak to you today is unbelievable. 

Five and a half weeks later, I awoke from a medically induced 

coma to learn that my legs had been amputated from above each 

knee. My lower legs had sustained fourth-degree burns. The burns 

had caused my body to become deathly ill from infection. My kidneys failed, my lungs failed, and the only chance that the doctors 

had to save my life was to amputate both of my legs. My parents 

had to make that decision without being able to speak with me, 

without knowing what my wishes were. 

Expert engineers determined that a plastic reservoir that held 

my Jeep’s brake fluid shattered during the accident and caused the 

fire. The reservoir was not protected from impact, and Chrysler 

had used a safer metal reservoir in prior Jeep Wrangler models. I 

believe that this was a defective design. 

In July of 2006 I filed a lawsuit against Chrysler. In November 

of 2008 Chrysler delayed the court-ordered mediation, based on its 

financial instability, until May 5th. And then they declared bankruptcy on April 30th. 

Through the bankruptcy process, Chrysler was relieved of responsibility for approximately 300 pending claims, including my 

own, and any future claims resulting from vehicle defects in any 

of the approximately 10 million pre-bankruptcy vehicles on the 

road today. 

GM was relieved of responsibility for approximately 1,000 pending claims, as well as any injuries or deaths caused by GM vehicles 

before or during the bankruptcy process that have not been filed 

yet. 

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Each of the approximately 1,300 pending claims against these 

auto manufacturers represent potential defects that could lead to 

immediate safety recalls. If these cases are not heard in court, 

these defects will not get tracked by the National Highway Traffic 

Safety Administration, Chrysler and GM will not admit these defects exist, recalls will not be issued, and more injuries and deaths 

will occur. Ignoring the pending claims and the safety data from 

over 10 million pre-bankruptcy Chrysler vehicles will lead to tens 

of thousands of needless disabling injuries or deaths. I have submitted a study published by Safety Research Strategies to support 

that statement. 

In an effort to stabilize these companies, our tax dollars have 

been used in a manner that prevents injured taxpayers from exercising their right to hold these companies accountable. In the case 

of Chrysler consumers, that right has been taken away from any 

taxpayer who was injured by a pre-bankruptcy vehicle in the future 

as well. 

The fact that we are stabilizing these companies with our tax 

dollars should require them to have greater responsibility to the 

taxpayers, not less. 

If our laws allow that, then the laws must be changed and new 

ones must be written. Legislation must be passed that holds Chrysler to the same level of accountability that every other automobile 

manufacturer in this country has. 

The pending cases of current victims of Chrysler and GM must 

also be heard. As I said, they represent dozens of dangerous defects 

that need to be tracked by the NHTSA to determine if and when 

recalls need to be issued which will make our roads and our future 

vehicles safer. 

I also want to lend my support to the effort by the auto dealers 

to have their original franchise agreements restored. Under those 

agreements, Chrysler and GM agreed to indemnify auto dealers for 

product liability lawsuits, which would help a lot of people against 

Chrysler and GM get compensated. Settlements in these cases 

would benefit our economy by allowing many of the victims to, once 

again, become functional taxpaying members of society. Settlements would also provide immediate financial relief to the government by allowing victims like me to stop relying on Social Security 

Disability, Medicare, and other government-funded assistance programs. 

Congressman Carson’s bill, H.R. 3088, the Jeremy Warriner Consumer Protection Act, addresses these issues and will provide these 

benefits. 

At the end of the day, the sanctity of human life, our safety and 

the safety of our loved ones must come first, before anything else. 

There is not a single person in this room who wouldn’t drop what 

they were doing and rush to the hospital if they learned that their 

loved one had been injured and was laying in the hospital bed in 

the state that I was. There is not a single person in this room who 

would not hold the manufacturer accountable if they learned that 

it was because of a defect that they were injured or one of their 

loved ones lost their life. 

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A defective vehicle does not care whether you are a Democrat or 

a Republican, if you are a member of the UAW, if you work for 

Chrysler or GM, or where your money comes from. 

I trust the Members of this Committee to act quickly, because 

doing nothing increases the risk that you, your loved ones, and 

your constituents will be severely injured or killed by a defective 

vehicle. After you have experienced something like I have, you 

learn that the theory of ‘‘It won’t happen to me’’ doesn’t really protect you or those you love. You also learn to see what can’t be 

changed and what can. I can never regain my legs or the subsequent loss that has come from that, but we can regain our right 

to hold Chrysler and GM accountable in court for the injuries 

caused by their vehicles. 

It is time for Congress to take action to restore that right and 

to ensure our safety. This is a tremendous opportunity for the 

Members of Congress and for our President. By taking action to 

right this wrong, our government can clearly prove that it is still 

a government for the people. Thank you. 

Mr. COHEN. Thank you, Mr. Warriner. 

[The prepared statement of Mr. Warriner follows:] 

PREPARED STATEMENT OF JEREMY K. WARRINER


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Mr. COHEN. Our fifth witness is Mr. Jack Fitzgerald. His automobile businesses started with Bethesda Dodge dealerships some 

years ago, and had grown into 9 locations and 35 franchises before 

the recent attenuation of those there in the States of Maryland, 

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New Car and Truck Dealers Association, the Washington Area New 

Automobile Dealers Association, and the National Automobile Dealers Association since 1967. He served on different councils and 

committees as an officer and director for WANADA, an organization called WANADA. I think you have a fish called Wanda. It’s 

close. 

Mr. Fitzgerald, would you begin your testimony. 

TESTIMONY OF JOHN J. FITZGERALD, PRESIDENT, 

FITZGERALD AUTO MALLS 

Mr. FITZGERALD. You have a great sense of humor. And thank 

you very much for allowing me to be here. I agree it is the highest 

honor for a citizen to be allowed to appear before Congress. You 

know, I was born on North Capitol Street and I have always lived 

in the shadow of the Capitol. When I was young, I lived in the 

shadow of the Capitol. I never thought I would be in here talking 

to you, though. 

I represent the Committee to Restore Dealer Rights, CRDR. We 

are the dealers that got dumped. We are the losers. There are 

169,000 jobs that you could recreate by just passing our bill; 

169,000. Plus, you would give all of your constituents better service 

than they are going to get. 

And I see you walked in. I would love to have a cup of coffee with 

Chairman Conyers. We are all here. We will go in the back room, 

and the two of you can work us over. We are here and we are 

ready. 

We have not been able to talk to anybody. But our cause is just. 

And the reason we have so much support here on the Hill is because, you know, Americans fundamentally want to do what is 

right. They are going to want to do what is right for Mr. Warriner 

too. It is the right thing to do. That is what our country is all 

about. That is what we are all about. You know, you do the right 

thing. Do the honorable thing. It is the American way. Now, we 

have coined the phrase—we coined the phrase. We copied the 

phrase ‘‘the big lie.’’ 

I want to tell you about the big lie. The big lie involves there are 

too many dealers. Well, when I started selling cars, there were 

40,000 car dealers that just sold domestic cars, and there were only 

50 million cars on the road. Now you have got 150 million cars on 

the road, and last year, there were only 13,000 domestic dealers 

left. When GM and Chrysler get finished with us, there will be 

about 9,600, 9,400, I guess, left. So 50 million cars, 40,000 dealers; 

150 million cars; 9,600, 9,400 dealers. It doesn’t compute. 

There are 10,000 import dealers and they have only got 87 million on the road. The problem is the task force looked at Toyota 

and said that is a great company, let’s copy what they are doing. 

Well, for your information, General Motors was a great company 

before Toyota ever got here. General Motors was one of the truly 

great companies of all time and Chrysler too. And I agree with the 

President, they can rise again. Their problem is they have had 

some bad managers for the last 28 years or the early ’80’s is when 

this began, when the finance guys got ahold of both those companies. And for your information, UAW builds cars, or UAW workers 

build cars, in California, and they build Corollas there. Ever heard 

147 

of a bad Corolla? I haven’t. I am a Toyota dealer. I will confess to 

that. That is a little commercial maybe. 

But those are UAW workers in California building Toyotas under 

Toyota management. The difference is the management. The difference in all business is the management. The difference is always 

the management. 

Now, I am not going to say the UAW hasn’t been twisted arms 

and beating on them and work rules and a lot of bad things. But 

management is responsible. When you diss your employees, they 

have got a right to take it out on you, and they do. This is America. 

That is the American way. We don’t get pushed around. Nobody 

treads on us. That is not the way we are. And that is why we dealers are here. We are getting ripped off. 

But the consumer is suffering even more. If you do the math and 

think about the numbers, there are too few dealers and there is 

going to be a lot too few. These dealers that were cancelled were 

profitable, sustaining businesses. They were employing people, paying taxes, doing the right thing, and they don’t get any money from 

the government or the manufacturers. We pay them—if we never 

sell a single car we have got to pay them at least 40 grand a year, 

$40,000 in my smallest store, which sells 100 new cars a year, 100 

new cars a year, sells about 400 or 500 used. 

And that is another thing. We didn’t talk about used cars. I will get back to that. We pay $40,000 plus in that small store. Now I 

have got stores, I have got one that sells 6,000 a years. Does it 

make me wonderful? No. Part of them were Toyotas. That is why 

I am so wonderful. When Jim Press was selling Toyotas, he was 

pretty wonderful, wasn’t he? He hasn’t done so well at Chrysler. 

Failed at Chrysler. Chrysler management failed. General Motors 

management failed. And yet they are in place getting paid bonuses 

to stay and I am here talking to you. What is wrong with that picture? It makes no sense, does it? 

Management should be held accountable. Management must 

manage. That is the oldest rule in the book. And they didn’t manage; so they shouldn’t keep their jobs. They should not be there. 

But they are expert on handling outside directors, and they handled the task force like they have always handled outside directors: 

They manipulated them. The guys on the task force told you yesterday they had never run a business. They don’t run businesses. 

They buy and sell them. So they didn’t know the difference. And 

I think that is really what happened to the task force. We haven’t 

heard consumer reports mentioned once in this room, and yet GM 

and Chrysler, if it weren’t for Chrysler, GM would be dead last in 

Consumer Reports’ rankings. 

That is what your customers think of you. That is what really 

matters. It doesn’t matter what Wall Street thinks; it matters what 

the consumers think because that is who writes the check to buy 

the car. And I have got 43 years of data at Consumer Reports and 

I can show you when Chrysler and GM made the best cars in the 

world, the best cars in the world, and they also made a lot of 

money, and they put a lot of people to work. The union was three 

times, four times, five times the size it is now. We could put the 

people in the Midwest back to work. We could put the whole country back to work. There were 55 million cars sold last year around 

148 

the world. We should be getting a piece of that. We are the best 

industrial country in the world. We have four or five generations 

of people that know how to build cars. In my lifetime I sold those 

cars. I know what they can do, before the finance guys came along 

and took over those companies and ruined them. 

This is America and we should be building American cars the 

American way in Detroit and every place else. We can put those 

people back to work. But you have got a board of directors on these 

two new companies, none of them ever built a car before. There is 

not one experienced manufacturer—car manufacturer on that 

board and there is nobody running one. The guy who used to make 

telephones is running one of them and another guy who used to 

make batteries. Now, how is that going to get us a great car again? 

We need our car manufacturing to go hire some of the Toyota—retired Toyota executives. They are available. 

Mr. COHEN. You have gone a little over the—— 

Mr. FITZGERALD. Oh, I am sorry. 

Mr. COHEN. That is all right. 

Mr. FITZGERALD. Maybe you can ask me some questions. 

Mr. COHEN. Thank you, Mr. Fitzgerald. 

[The prepared statement of Mr. Fitzgerald follows:] 

PREPARED STATEMENT OF JOHN J. FITZGERALD


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Mr. COHEN. Our sixth witness is Mr. Jim Tarbox. He is a native 

of Rhode Island car dealership owner and operator. As part of the 

Chrysler bankruptcy and restructuring, he has spent much of his 

personal time in D.C. representing many independently owned 

dealerships along with NADA. Born and raised in North 

Kingstown, Mr. Tarbox studied management and automotive marketing at Northwood University in Michigan. The closing of his two 

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Mr. Tarbox we appreciate your coming to testify and will you 

proceed with your testimony. 

TESTIMONY OF JIM TARBOX, PRESIDENT, 

TARBOX MOTORS, INC. 

Mr. TARBOX. Good morning, Mr. Chairman and Members of the 

Committee. My name is Jim Tarbox and I am a former Chrysler 

new car dealer from North Kingstown, Rhode Island. Thank you for 

the opportunity to testify before you today on legislation that could 

change the course of my life and the lives of many other dealers 

across the Nation. 

I introduced myself as a former Chrysler dealer because just over 

a month ago, my two dealerships were taken from me. I was 

stripped of my right to operate under this car maker. Despite my 

franchise agreement, I was told there would be no more new cars 

to sell, no more parts to ship, no more inventory to keep or sales 

goals to meet and beat. I was told I was closing. I was not given 

any justification for my selection, and worst of all, I had less than 

a month to make it happen. All I had worked for, all I built, all 

I had achieved was gone within a few seconds. 

When I read the letter, my first thoughts were not about the 

property I would lose, the cars still on my lot, or the hundreds of 

thousands of dollars in machines I had purchased for car repairs. 

All that came later. My first thought and those that plague me as 

I sit here today were about my employees, their families, and as 

you might expect, my family. How do you tell your employees they 

are headed for the unemployment line and how do you tell your 

wife that all you worked for may be gone, especially when your success was well known? It is not easy. I am 42 years old. I have a 

wife, Kim, who is here with me today, and I have three young girls. 

If my dealership is not restored, we will lose everything, including college savings for my children and my home. I am at a loss 

as to how a small business person like me found myself in this position. If it weren’t for some damaging testimony at the Chrysler 

bankruptcy hearing, I might have never known. During that hearing, a witness had read out loud some e-mail exchanges. Chrysler 

executives said in an e-mail discussing closures that I was a belligerent and combative dealer. Why would they say this? They said 

this because I opposed, and was able to stop, the allowance of another Jeep dealership within miles of my facility. I knew after 

hearing this that Chrysler targeted me for closure. 

To give you some background, due to my success with Chrysler, 

they urged me to purchase another dealership in neighboring Massachusetts in 2007. They made promises of getting me Dodge and 

were negotiating site control. Once I closed, they attempted to use 

their promises as leverage. They tried to put another Jeep franchise in my market in Rhode Island. I protested under State franchise laws. They withdrew their intent and went bankrupt. They 

chose to reject both my dealerships because of the protest. This 

protest put me in their line of fire for closure. Chrysler executives 

wrote in the e-mail, This is going to be a tough one. His dealerships are performing fine with good score cards. And the reply was 

from Phil Scroggins, the northeast business center director: ‘‘He is 

a belligerent, combative dealer to litigates and protests any new 

161 

Jeep franchise in Providence, Rhode Island. Management made decision to cut him. He has not operated in good faith.’’ 

There is no criteria, no data-driven criteria here. This e-mail 

makes it quite evident that the selection process was arbitrary, unfair, and inappropriate. I was targeted. I am sure many others 

were randomly selected as well. Everything I have worked for, all 

my success, my businesses, and my rights gone in seconds and, 

even worse, given to the competitor up the road. And despite their 

claim I was closed because I was a stand-alone Jeep dealer. Fortyfour stand-alone Jeep dealers and more than 100 stand-alone 

Dodge dealers remain in business. There is no criteria and I would 

request that Congress look closely at this issue and work to save 

our businesses, restore them, and restore our rights. 

My family has been in the car business for three generations. My 

dealership was founded in 1935. And as in the case with many 

dealers, my family name Tarbox is well known and respected in my 

home State and beyond. This is the industry I grew up in, the industry I know, and the industry I love. I am proud to say I helped 

build a well-regarded and high-performing Jeep dealership in 

Rhode Island. I was one of the highest volume Jeep dealers in the 

northeast. I have maintained a volume of 450 percent planning potential. I have sold 750 new Jeeps a year, and I am in the top 10 

percent nationally with Chrysler. My dealership exceeded sales 

goals and performed above and beyond any expectation set by 

Chrysler. They have indicated that they value high-performance 

top-notch employees and those dedicated to aggressive marketing 

their product. Including the millions I have spent branding Tarbox 

with Jeep, we are on top in all categories. But Chrysler is refusing 

to release their specific criteria. It certainly begs the question, if 

not for performance, what was the criteria for closure? 

In fact, it seems closure was decided based on personality and relationships, not performance. This is not fair and sound business 

practice. This is not in the best interest of the taxpayer, who suddenly has a stake. This company is playing with our lives. 

As you have seen likely right in your districts, there are dealers 

or should I say former dealers suffering. These closures may result 

in the bankruptcy of many productive small businesses, foreclosures of their homes and filling up the unemployment rolls when 

our country is experiencing the highest unemployment rate in decades. In fact, my State boasts the second highest rate in the Nation 

at 12.4 percent. My employee count alone has dwindled from 60 to 

15. In my case, my businesses will go bankrupt and I may have to 

go personally bankrupt as well. There is no fallback plan. This 

dealership was my plan. It is my livelihood. 

As dealers, our property rights have been violated. Our contractual rights have been violated. And our faith and trust in the system of good business practice have been violated. We have invested 

in everything and they are leaving us with nothing. As entrepreneurs, as successful business operators, as employers, and as 

Americans, we deserve to retain our rights and protections. 

I ask you on behalf of dealers across the country and our communities to support this legislation, support the restoration of our 

dealerships and our rights. Thank you. 

Mr. COHEN. Thank you for your testimony, Mr. Tarbox. 

162 

[The prepared statement of Mr. Tarbox follows:] 

PREPARED STATEMENT OF JIM TARBOX

Good morning, Mr. Chairman and esteemed members of the committee. 

My name is Jim Tarbox and I am a former Chrysler new car dealer from North 

Kingstown, Rhode Island. I thank you for the opportunity to testify before you here 

today on legislation that could change the course of my life and the lives of many 

other dealers across the nation. 

I introduced myself as a former Chrysler dealer because, just over a month ago, 

my two dealerships were taken from me. I was stripped of my right to operate under 

this carmaker. Despite my franchise agreement, I was told there would be no more 

new cars to sell. No more parts to ship. No more inventory to keep, or sales goals 

to meet and beat. 

I was told I was closing. I was not given any justification for my selection and 

best of all, I had less than a month to make it happen. 

All I worked for. All I had built. All I had achieved was gone within the few seconds it took me to open a letter from the Chrysler home office. 

When I read this letter my first thoughts were not about the property I would 

lose, the cars still on my lot or the hundreds of thousands in machines I had purchased for car repairs . . . all that came later. My first thoughts, and those that 

plague me as I sit here today, were about my employees, their families and as you 

might expect, my family. 

How do you tell your employees they’re headed for the unemployment line? And 

how do you tell your wife all you’ve worked for may be gone? Especially when your 

success was well-known? 

I’ll tell you: It’s not easy. 

I am 42 years old and my wife, Kim—who is here with me today—and I have 

three young girls. 

If my dealership is not restored, we will lose everything—including college savings 

for my children and my home. 

I am at a loss as to how a small businessperson like me found himself in this 

position. If it weren’t for some damaging testimony at the Chrysler bankruptcy 

hearing, we might never know. But, during that hearing, a witness had to read out 

loud some e-mail exchanges. . . . 

Chrysler executives said in an e-mail discussing closures that I was a ‘‘belligerent’’ 

and ‘‘combative dealer.’’ 

Why would they say this? 

They said this because I opposed, and was able to stop, the allowance of another 

Jeep dealership within miles of my facility. 

I knew after seeing this, that Chrysler targeted me for closure. 

To give you some background: due to my success, Chrysler had urged me to purchase a dealership in neighboring Mass. They made promises of getting me Dodge 

and were negotiating site control. 

Once I closed, they attempted to use their promises as leverage. They tried to put 

another Jeep franchise in my market in RI. 

I protested under state franchise laws. They withdrew their intent and went 

bankrupt. 

They chose to reject BOTH my dealerships because of the protest. 

This protest put me in their line of fire for closure. 

Chrysler executives wrote in the e-mail: ‘‘This is going to be a tough one—His 

dealerships are performing fine with good scorecards.’’ 

And the reply from Phil Scroggins—the northeast business center director? ‘‘He’s 

a belligerent, combative dealer who litigates & protests any new Jeep franchise in 

the Providence, RI area . . . Management made decision to cut him—He has not 

operated in good faith.’’ 

There is NO data driven criteria here. 

This e-mail makes it quite evident that the selection process was arbitrary. It is 

arbitrary, unfair and inappropriate. I was targeted and I am sure many others were 

randomly selected as well. 

Everything I have worked for, all my success, my businesses and my rights—gone 

in seconds. And even worse—given to my competitors on a silver platter. 

And despite their claim I was closed because I was a stand alone Jeep dealer, 44 

stand alone Jeep dealers and more than 100 stand alone Chrysler dealers remain 

in business. There was no criteria and I request that Congress look closely at this 

issue and work to save our businesses. Restore them and restore our rights. 

163 

My family has been in the car business for three generations. My dealership was 

founded in 1935. And, as is the case with many dealers, my family name, Tarbox, 

is well-known and respected in my home state and beyond. 

This is the industry I grew up in, the industry I know and the industry I love. 

I am proud to say, I helped build a well-regarded and high-performing Jeep dealership in Rhode Island. We: 

• Are one of the highest volume Jeep dealers in the northeast 

• Have maintained a sales volume at 450 percent of planning potential 

• Have sold over 750 new jeeps a year 

• and, are in the top 10 percent nationally with Chrysler 

My dealership has exceeded sales goals and performed above and beyond any expectations set by Chrysler. 

They have indicated they value high performance, top-notch employees and those 

dedicated to aggressively marketing their product. Including the millions I have 

spent branding Tarbox with Jeep, we are top in all categories. But Chrysler is refusing to release their specific criteria. 

It certainly begs the question, if not for performance, what was the criteria for 

closure? 

In fact, it seems closure was decided based on personality and relationships, not 

performance. This is not a fair or sound business practice. This is not in the best 

interest of the taxpayer who suddenly has a stake. And this company is playing 

with our lives. 

As you have seen, likely right in your districts, there are dealers—or I should say 

former dealers—suffering. Sure there are those dealers who own dozens of dealerships or more and maybe these closures, although having an impact, will not put 

them out of business. 

But let me be clear in saying, for small dealers with one or two dealerships—the 

dealers I represent here today—this action by Chrysler and the Task Force will 

produce grave consequences. 

These closures may result in the bankruptcy of many productive small businesses, 

foreclosures of their homes, and filling of the unemployment rolls when our country 

is experiencing the highest unemployment rate in decades. In my state in fact, we 

boast the second highest rate in the nation at 12.4 percent. 

My employee count alone has dwindled from 60 to 15. 

In my case, my businesses will go bankrupt and I may have to go bankrupt personally as well. There is no fall back plan—this dealership was my plan. It is my 

livelihood. 

As dealers, our property rights have been violated. Our contractual rights have 

been violated. And our faith and trust is the system of good business practice and 

good faith have been violated. 

We have invested in everything and they are leaving us with nothing: not even 

answers to back up their closures. 

As entrepreneurs. As successful business operators. As employers. And as Americans. We deserve to retain our protections. And I ask you, on behalf of dealers 

across the country, and our communities, to support this legislation. Support the 

restoration of our dealerships and our rights. It WILL change the lives of so many. 

Thank you. 

Mr. COHEN. Our seventh witness is Gregory Williams. Mr. Williams is the former President of Huntington Chevrolet located in 

Huntington Station, New York. A veteran of the automotive business industry for more than 30 years, he has appeared on the 

Black Enterprise list every year since 1979. A founding member of 

both General Motors Minority Dealers Association and the General 

Motors Minority Dealer Advisory Council, elected two times chairman of the Minority Dealer Advisory Council and held board seats 

with both organizations and was recently a board member of the 

National Association of Minority Automobile Dealers and the GM 

Northeast and GMC central dealer councils. 

Mr. Williams, will you proceed with your testimony. 

164 

TESTIMONY OF GREG WILLIAMS, PRESIDENT, 

HUNTINGTON CHEVROLET, INC. 

Mr. WILLIAMS. Thank you, Mr. Chairman. I would like to thank 

the Chairman and the Members of the Committee for inviting me 

here to speak. My name is Gregory Williams, and I have worked 

for over 30 years as a dedicated and faithful GM dealer. I am a 

former dealer at Huntington Chevrolet. While I am here today representing the numerous minority GM and Chrysler terminated and 

rejected dealers, I would like to share my personal and tragic story 

with you regarding the disparate treatment that I suffered at the 

hands of GM and GMAC. 

In 1999, GM asked me to go to Long Island and investigate the 

purchase of Huntington Chevrolet. After performing due diligence 

on the store, I told GM that the potential was there but the location was wrong and the facility was too outdated. GM informed me 

that they would take care of these problems and find a new location and build a new facility. Based on these assurances, I purchased the dealership, paying the former dealer $1.3 million in 

goodwill. I put in $500,000 of my own and the remaining $2.75 million went into investment with Motors Holding Division of General 

Motors. From the date of the purchase to 2005, the dealership was 

profitable. All the profits went toward paying dividends and purchasing stock from General Motors. During this period, over $1.5 

million was paid to them. At the same time, we were still looking 

to relocate the dealership. 

In 2003, as a result of hard work and the dealership’s performance, I was presented with GM’s most prestigious award, the GM 

Dealer of the Year. This award is presented annually to the top 100 

performing dealers out of 7,000 dealers nationwide. It is one of the 

accomplishments that I am most proud of. In 2005, I, along with 

most of the Motors Holding dealers were asked if we would consider an early buyout from Motors Holding. GM needed to raise additional capital at this time. I was informed by Motors Holding that 

I owed $1.9 million to buy them out and that they had spoken to 

GMAC and that GMAC would take care of making the loans with 

us. I contacted GMAC and got approval for loan but was told by 

Motors Holding that I could not buy them out for $1.9 million because they would miss the dividends that I had been paying. So 

they told me I would have to pay $2.5 million to buy the store out. 

In effect, GM got a $600,000 goodwill from me when I bought them 

out of my store. 

During the financing process, I was told by GMAC that I had to 

personally guarantee the loan and also personally guarantee the 

floor plan line of credit. This had never been asked of me before 

and, you know, I went with it. GM gave me a note of $20,000 a 

month and increased my expenses by that much. 

The dealership struggled over the next few years as GM lost 

market share year after year. We made a little and we lost a little, 

but we were profitable for most of the time. And through the 

month—through the year of 2008 we were profitable until October 

when the bottom fell out. It was, at this time, stated that both GM 

and GMAC stated that they would need bailout money to survive 

and GM was openly questioning whether they would make it to December without the immediate infusion of cash. Needless to say, 

165 

business was terrible. At the end of November I received a notice 

from GMAC that stated that I did not have enough cash in the 

business largely due to the drastic drop in business at the end of 

2008. They stated that I must infuse $1.5 million into the business 

or lose my floor plan loan with them. 

On May 17, I received a letter from GM stating that my location 

would be closed and I would not be moving forward as a GM dealer. It should be noted that there are 19 Chevrolet dealers on the 

Long Island metro New York City area and for the year 2008 my 

dealership was number three in retail sales and number one in 

customer satisfaction. On May 24 GMAC notified me that I no 

longer qualified for a floor plan loan with them because I was not 

able to invest $1.5 million in additional capital. 

Feeling that I had no options, I sent a voluntary termination letter to General Motors on May 25 because based on voluntary termination with the New York State franchise law, GM would be required to repurchase my inventory and the parts. That would have 

amounted to approximately $6.6 million. GMAC would have gotten 

that $6.6 million and the only thing I would have to negotiate with 

them on is what was left on my loan to pay off General Motors. 

GMAC gave me 90 days to find another floor plan and to comply 

with a number of unreasonable demands, including signing a confession of judgment for $8.1 million. This confession of judgment 

was basically the total of my inventory along with the $1.4 million 

that I still had left of the loan that I paid General Motors. These 

demands were both unreasonable and impossible and GMAC’s demand that I find a floor plan in 90 days was equally impossible. 

On June 1 when GM filed for bankruptcy, I was advised that 

they also decided not to honor my voluntary termination letter. GM 

ultimately determined in 2005 when I was buying them out that 

the dealership was worth well over $2.5 million in addition to the 

$1.5 million that I had already paid. Now they have unilaterally 

determined that the dealership is worthless, making it impossible 

to sell or repay this massive debt. On June 2, I received GM’s 

wind-down agreement. The agreement provided a deadline date of 

June 11 to sign the agreement or be rejected in the bankruptcy 

proceeding. I reluctantly signed the agreement, although I strongly 

objected to the terms of the agreement and felt enormous pressure 

to sign it knowing that if I did not, I would lose the right to receive 

the proposed wind-down payment, which is the only form of financial support that I was to receive from GM. 

It should be noted that the debt I owed to GM and GMAC far 

exceeded the amount of the proposed wind-down payment, and yet 

I am being held personally liable of the entire debt because of the 

personal guarantees. 

Huntington Chevrolet was my only dealership. I have no other 

source of income as I used most of my life savings to reinvest in 

the dealership. I have no health insurance. I had to lay off all my 

employees and walk away from a business that I owned for 11 

years and an industry that I have had for over 30 years—that I 

had been in for over 30 years. All of this occurred while I was still 

paying for the loan to buy out General Motors. I now owe $1.4 million, and without the dealership, I have no way to pay it. 

166 

The only people who made money off my dealership was GM and 

GMAC. GM received all of its investment that they had in the dealership including a healthy profit, a minimum of 15 percent dividends plus $600,000 goodwill at their buyout. GMAC also made 

millions of dollars on my inventory floor plan over the 11 years 

that I owned and operated the dealership. GMAC has now confiscated my entire inventory of vehicles along with all the parts 

and company assets and they have said that they will liquidate the 

inventory, parts, and assets, and will come after me personally for 

any shortfall since I signed the personal guarantee for the inventory and the loan. 

Mr. COHEN. Mr. Williams, if you could start to wrap up, we are 

a little bit—2, 21⁄2 minutes over. 

Mr. WILLIAMS. Okay. I will go to the final page here. 

We need your help not only to walk away from this tremendous 

debt that we have acquired while attempting to play by the rules, 

but to leave with financial stability to restart our lives all over 

again. At 60 years old, I am forced to face the reality that my employment future is limited. I was always of the opinion that my investment was my retirement and that when I decided to retire, I 

would sell my business and live off the proceeds. I had no idea that 

at this stage of my life, GM and GMAC would wreck my world as 

I knew it. 

Thank you for the opportunity to share my personal story with 

you today. I plead for this Committee and all the Members of Congress who are listening to my testimony to please help us. We need 

your help to ensure that the auto manufacturers are required to 

treat us fairly and equitably as we watch our lives disappear without fairness, transparency, or due process of law. Thank you. 

Mr. COHEN. Thank you, Mr. Williams. 

[The prepared statement of Mr. Williams follows:] 

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PREPARED STATEMENT OF GREGORY WILLIAMS


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Mr. COHEN. Our final witness will be Mr. Knapp, and he will be 

introduced by agreement with the lead Member here on the minority side by our distinguished Member from Houston, Texas, Ms. 

Sheila Jackson Lee. Ms. Jackson Lee, a Member of this Committee 

but not the Subcommittee, is recognized for the purpose of introduction. 

Ms. JACKSON LEE. Let me thank Chairman Cohen and Ranking 

Member Franks for their courtesies extended, and let me also 

thank them for allowing me to introduce Mr. Knapp and as well 

thank them for allowing the National Association of Minority Automobile Dealers to be present here because I believe these are the 

tragic stories that we need to hear. 

Mr. Knapp is symbolic of many Americans, and he is an heir, if 

you will, of hard work. Some people might say of money. He is of 

hard work. Born in Harlingen, Texas where he attended Harlingen 

High School and graduated in 1976. That means he is from the valley, from South Texas, and he is proud of it. He married in 1979 

to Debbie Knapp, graduated from Texas A&M University in 1980, 

and the rest of the State won’t hold that against him, with a degree 

in finance and moved to Houston, Texas, where he immediately 

went to work for Knapp Chevrolet. And I think it is important to 

note his grandfather organized and built that company and started 

it in 1939. 

He is a third-generation dealer in the heart of Houston, and he 

has been active in so many local community activities such as his 

good friends to his left, I believe, and he too has supported high 

schools, been active in his church, served as a civic leader, as a 

board member of the Greater Heights Area Chamber of Commerce, 

which I remember seeing him as we interacted as community and 

business and we worked together. He also has his district, has his 

particular dealership in the heart of the fourth largest city in the 

Nation, which has been known to be call a ‘‘little United Nations.’’ 

Robert Knapp has reflected that by 43 percent plus of his employees being diverse, representing many families in my constituency. 

Bob Knapp is in appeal. He is one of the 900 appeals for GM, unlike Chrysler, which was recorded to have one because they have 

no administrative appeal, they only have bankruptcy. He is only 

symbolic of the pain, as he told me in my office, of so many who 

are suffering like him. 

So I am hopeful that as he proceeds, he will be able to tell us 

how urgent it is for us to move forward. He will be able to tell us 

that the action is necessary now, that GM and Chrysler and the 

new CEOs that feel good and can be out on their patios or be at 

the beach right now because they are out of bankruptcy, how they 

can do this together with the Administration, together with Congress, and I hope that he will tell us how lost dealerships—because 

that means my community, for 50 miles around, will not have a 

dealership. My city of Houston will not have a dealership to buy 

discounted vehicles, how this will impact the competitive nature of 

our American automobile dealers by these dealerships being cut 

down or shut down. I would like to say cut down because they are. 

He will be able to share those thoughts with us. 

Mr. Chairman, I am very pleased to introduce a gentleman who 

is symbolically representative of the true grit of America, raising 

176 

himself up by his bootstraps and working hard every day, and this 

is Robert Knapp of Knapp Chevrolet in Houston, Texas. 

TESTIMONY OF ROBERT G. KNAPP, PRESIDENT, 

KNAPP CHEVROLET 

Mr. KNAPP. Thank you for your kind words. 

Mr. Chairman and Members of the Committee, my name is 

Bobby Knapp, and I am president of Knapp Chevrolet in Houston, 

Texas. Thank you very much for giving me this opportunity to testify at this hearing. I would also like to take the opportunity to 

give a special thanks to my congresswoman, the Honorable Sheila 

Jackson Lee of the 18th District of Texas for her support in facilitating my testimony here today. 

The focus of my testimony is GM’s decision to terminate Knapp 

Chevy franchise. The testimony regarding my dealership will relate 

to circumstances regarding other dealerships throughout the country. 

Fact: Knapp Chevrolet sold over 1,000 new units in 2008. Fact: 

In Houston, the loss of Chevy dealers results in the loss of GM 

market share. Terminating Knapp will cause GM to lose more 

Houston market share than it has already lost. I included a graph 

in my package that kind of highlights this, but let me just go over 

some numbers. 

Our district—at the beginning of 2008 our district in Houston 

contained 12 dealers. The first 8 months of the year those dealers 

sold an average of just over 1,200 units a month. At that time 

three dealers, including two very large ones in Houston, went out 

of business. The last 3 months of 2008, those dealers that were left 

sold an average of just over 500 units a month. That trend has continued through 2009. It shows that closing dealerships in our market will reduce market share. 

Fact: Looking at the last 12 months including June, Knapp 

Chevy was operating at a profit in 11 months. The only down 

month being last September when we were without electrical 

power for 15 days due to Hurricane Ike. Fact: By terminating 

Knapp, GM is a abandoning areas in and around downtown Houston. GM has documented the growth and potential of this market. 

I included a map that GM created showing our market share and 

neighborhood and the increase in households. In our actual neighborhood and not necessarily our whole market area but in our 

neighborhood, the increase in households is astounding. Why GM 

would want to abandon this market is beyond me. 

Fact: GM is forcing us to take an agreement that essentially 

gives all rights to GM and all obligations to Knapp. Fact: GM references termination assistance as part of the wind-down process, 

but this proposal does not cover Knapp’s losses associated with the 

forced closing. What GM is offering will not satisfy our third-party 

contractual obligations which total over 600,000 from things like 

computers and phone systems and other things. Although the termination process would not be complete until October 2010, GM is 

strangling our business by preventing us from ordering new vehicles thus eliminating one of our primary income strains. 

Fact: At the time we received notice that GM would not renew 

our franchise agreement, we had over 40 sold orders on order inVerDate Aug 31 2005 13:53 Feb 23, 2010 Jkt 000000 PO 00000 Frm 00180 Fmt 6633 Sfmt 6601 H:\WORK\COMM\072209\51225.000 HJUD1 PsN: 51225
177 

cluding a number of ambulances for the City of Houston. At that 

time, we were told by GM that these orders would not be honored. 

Fact: Knapp moved into its facility December 6, 1941, 1 day before the bombing of Pearl Harbor and over the past 10 years, we 

have invested 3.75 million in these historic facilities and equipment 

upgrades. 

Fact: The estimated job loss in the State of Texas with these proposed closed dealerships is over 10,000. Eighty-two of these hardworking people are Knapp employees whom we consider family. We 

offer substantially better benefit packages than others in the industry and our average employee tenure is 7 years with many employees having been with us for over 10 years. All will lose their jobs 

and livelihoods because of GM’s termination. Since receiving GM’s 

May 15 termination notice, we have been frustrated at every turn 

and trying to get a fair and just resolution of this matter. But because the government is now so deeply involved in keeping GM 

going, we feel we had no option but to appeal to you, our elected 

representatives to intervene. We have been very thankful for the 

support we have received from Congresswoman Sheila Jackson Lee 

and other members of the Houston delegation, in particular, Gene 

Green in the House, as well as Mr. Maffei of this Committee, who 

introduced H.R. 2743. 

We—it is very important to say that we need action now. Dealers, thousands of them, are hanging by a thread. We need to pursue this legislation, but we also need to pursue an administrative 

solution to this situation, which is very possible. GM and the White 

House, along with Congress and dealers, need to sit down and work 

for an administrative solution to the matter, and I stress time is 

of the essence, because every day, guys like these are going out of 

business and when they are gone there is no way to bring them 

back. A few things I would like to share at the end of this is that 

in our—— 

Mr. COHEN. We need to wind up. 

Mr. KNAPP. Okay. In our market—people buy their cars where 

they live and they service them where they work. The population 

of our area is experiencing phenomenal growth and GM needs to 

retain that. Almost 200,000 people work in the downtown area. GM 

needs to satisfy the service needs of the market created by this 

downtown group. The retention of Knapp Chevrolet in downtown 

Houston will allow GM to continue and increase their market share 

and their growing and vibrant downtown area. Since the government is bailing out GM, Members of Congress have the right to intervene to avoid destruction of viable dealerships. There are two 

things Congress can do: Force GM to negotiate fairly or if that 

doesn’t work, it can attain final enactment of the Automobile Dealers Economic Rights Restoration Act of 2009 which by statute will 

preserve dealers’ rights. I urge you to choose one of those two options. To take the third option would change the current crisis into 

a permanent disaster. 

I will be pleased to answer your questions and just appreciate 

the chance to be here. Thank you. 

Mr. COHEN. Thank you, Mr. Knapp. 

[The prepared statement of Mr. Knapp follows:] 

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PREPARED STATEMENT OF ROBERT G. KNAPP


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Mr. COHEN. We have included in our panel—it is a large panel, 

but we have taken two and made it into one. I appreciate your testimony and I will first recognize myself for questions. Each Member will have 5 minutes to ask questions. 


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Mr. Warriner, let me ask you this: Your case against Chrysler 

how much were you seeking or are you seeking in damages from 

Chrysler? 

Mr. WARRINER. We are seeking damages. Honestly, I don’t have 

a total, but I can tell you that the amount of liens against any kind 

of settlement at this point are well over a million, which means 

that I would see not a dime. And the costs of my prosthetics, which 

insurance did not want to cover—it took me quite a while to fight 

that—was roughly over 60,000 per leg, and they are not expected 

to last as long as hopefully I am, which means I will incur that expense and continued expense throughout the course of my life. 

Mr. COHEN. I presume you had discovery in litigation? 

Mr. WARRINER. Yes. 

Mr. COHEN. Did Chrysler ever admit any liability? 

Mr. WARRINER. Chrysler has not admitted liability and they have 

not spoken with me across the table. 

Mr. COHEN. Is this the case of first impression or have there 

been other cases with the same—— 

Mr. WARRINER. I am sorry? 

Mr. COHEN. Have there been other cases that you know of where 

the same defect was alleged to cause the injury? 

Mr. WARRINER. Not that I am aware of. 

Mr. COHEN. So when you got to mediation level, had they made 

you an offer of any kind? 

Mr. WARRINER. Mediation originally was supposed to happen on 

November 17 of 2008. They delayed it to May 5 and declared bankruptcy 5 days before that. 

Mr. COHEN. But they never made any offers or—— 

Mr. WARRINER. No, never made an offer. They did contact us and 

wanted to know what we were asking, and I believe at that point, 

the demand was $11 million. 

Mr. COHEN. Thank you. 

Professor Baird, you talked about some of these super priority 

liens and obviously you think this is one that should be one? 

Mr. BAIRD. I don’t know the facts and circumstances of this 

case—— 

Mr. COHEN. I mean tort liability. 

Mr. BAIRD. Tort liability generally, because if tort law is working 

correctly, it forces the firm to internalize all the harm that it is 

causing to other people. If you give it to a super priority over secured creditors, I am sure you will have a bunch of banks in here 

saying well, wait a second, if that happens, we are going to have 

to look at these firms closely and make sure they don’t do stuff like 

that to which the answer is, well, that is the point. Other people 

may say look, it may actually force some businesses out of business 

because they are creating such dangerous products. They are posing harm on other people that if you don’t free them from tort liability, they will go on and keep on doing these things. 

Well, one of the reasons you have tort law is to make sure that 

firms that are causing more harm go out of business. So again, a 

super-priority lien does that, but I should emphasize it has to exist 

inside of bankruptcy and outside of bankruptcy. 

Mr. COHEN. Is there precedent for those—— 

187 

Mr. BAIRD. There are some environmental laws that work this 

way. 

Mr. COHEN. Can you cite me some examples where the liability 

has continued along with the company even though they have gone 

through either a 363 or a Chapter 11? 

Mr. BAIRD. Typically speaking, if you don’t have something like 

a lien that tracks the assets then when the asset is sold in a 363 

sale, it is sold free and clear of all these liabilities, and the only 

recourse the tort victim has is to the proceeds of the sale. It is a 

slightly different case if we are talking about a future liability, but 

with respect to an accident that has already happened, the only recourse in the absence of a lien is to the proceeds of the sale. 

Mr. COHEN. In the General Motors case they are accepting liability for future claims. Of course there are vehicles that may have 

been manufactured prior to the bankruptcy. 

Mr. BAIRD. Yes. 

Mr. COHEN. Obviously they are saving money, but what is their 

argument for having that line of demarcation? 

Mr. BAIRD. The question is if the accident hasn’t happened yet, 

do you treat it as a prebankruptcy claim? And there are proposals 

to deal with this. The bankruptcy code doesn’t deal well with them 

now, but you have got two competing arguments against each 

other. On the one hand, you want to make sure the business continues free of past obligations. On the other hand, you want to 

make that future accident victims have their day in court, and they 

never had their day in court if the debt got discharged before the 

accident took place. And so you need a way to figure that out. But 

there are proposals to do that. 

Mr. COHEN. It just seems like the defect is going to be the same 

if it is a vehicle produced after the bankruptcy. That may be one 

way to do it. But if the accident is afterward, it is just lottery and 

you have got your number when it came up. 

Mr. BAIRD. The way to think about this is to figure out a way 

to estimate future liabilities and create a fund that is going to be 

there available for those—for those future tort victims. This is 

something that can happen in the Manville case. There is a way 

of trying to navigate through these problems. The big difficulty you 

have is you want to make sure that the tort victims get as much 

as possible but that is only going to happen if the assets are put 

to their best use. If you liquidate the assets, then no one is going 

to be paid anything. 

Mr. COHEN. Mr. Ikenson, in your testimony, you had concerns 

and problems with the government’s coming in and rescuing these 

two historically large corporations with so many employees. What 

would have been your suggestion if instead of having 536 CEOs, we 

had one and it was you? Sayonara Chrysler and General Motors 

and all their employees? 

Mr. IKENSON. Well, first of all, I don’t think that the situation 

was as bad as it was put out to be, Chairman. On November 5, the 

day after election, the Center for Automotive Research published a 

report which said that 3 million jobs were at stake, and that number was taken by the media and it became a central part of what 

I consider to be crisis mongering in the situation. The premise for 

those 3 million job losses was that if one of the Big Three went 

188 

down the supply chain, the parts supply chain, would be threatened and that would put too much pressure on the other two and 

ultimately not only would the Big Three go down but the foreign 

name plates as well, there would be no auto production in the 

United States. That was never part of the story in the media. 

I think what could have happened was the companies could have 

entered bankruptcy well before November, and if they could have 

emerged as viable going concerns, then a bankruptcy judge would 

have figured out away to do that without the process being so politicized. One of them might have had to liquidate. Certainly there 

would have been job losses, as there are under the current circumstances. We are hearing about it right here. But I don’t think 

it would have been as dire. I think the companies that stayed in 

business would pick up market share. That is how the process 

works. 

Mr. COHEN. And that would be the Japanese companies and—— 

Mr. IKENSON. I would say that they are American companies in 

the sense they are here and they are—— 

Mr. COHEN. America once removed. 

Mr. IKENSON. Pardon me? 

Mr. COHEN. Once removed like a cousin, a shirttail cousin. It is 

a southern phrase. 

I now recognize the Ranking Member, Mr. Franks. 

Mr. FRANKS. Thank you, Mr. Chairman. Mr. Chairman, I guess 

I have made the point so many times here that it is probably a little bit redundant, but I just want to reiterate that our economy is 

not based just on competition; it is based on trust. And I think that 

that is really if there is any central theme that I sense here, it is 

that whether you are an investor, whether you are a worker, 

whether you are someone who has been hurt in an accident, you 

have a right to—in this country we—our rule of law and that people have a right to rely upon that. And when government especially 

does things that undermine that, we have a great deal of ancillary 

effects that sometimes snowball into absolute disasters. 

And again, because of the kindness of the Chairman, I have already mentioned that I believe that government catalyzed a lot of 

this. I believe that some of our meddling in the market, our guaranteeing of certain loans, our encouragement of—encouraging people to buy homes that they couldn’t afford, catalyzed the subprime 

meltdown, which if those loans had performed as normal loans, it 

probably would not have resulted in this economic meltdown and 

then the dominos that fell and hit everyone, including the automobile industry and, of course, ultimately all of you. But I have 

heard some very compelling evidence and testimony today. 

And Mr. Mourdock, I would like to start with you because I was 

especially moved by your testimony and Mr. Warriner’s, but as it 

happens, you and I have a mutual friend in the State Treasury, 

Dean Martin in Arizona, who has gone through a crushing personal 

tragedy in the loss of his wife and child, and I just thought the 

question I would pose to you first was that do you believe that secured creditors—now you already answered this, but I just want 

you to expand on it a little bit. 

Do you believe that the secured creditors received a fair opportunity to negotiate with the auto task force and Chrysler over the 

189 

terms of Chrysler’s bankruptcy deal, and if you don’t, tell us why 

not? And why do you think that secured creditors—why is that so 

important to me? Obviously, you and I agree on this, but please 

amplify on it if you would. 

Mr. MOURDOCK. Let me deal with the second part first, if I may, 

which is kind of the macro-economic sense of how these secured 

creditors are viewed. I mentioned in the first part of my testimony, 

we have 6,000 Chrysler employees in the State of Indiana, and I 

think I heard from every one of them as I went through this process that ultimately took us to the United States Supreme Court. I 

was constantly being asked why are you putting my job at risk? 

And I understood those questions, and yet as a fiduciary, I had to 

look out for the rights of our pensioners. I have no regrets in standing up for the rule of law. What was happening, though, was bigger 

than what those Chrysler employees saw. It was bigger than 

Chrysler. 

With all respect to those with me on the panel, it is bigger than 

them. This is about our entire economic investing system. When secured creditors no longer see their rights as being truly secured, 

they will not respond the same way. You change the rules, the 

players will change. What ultimately will happen is that hundreds 

of billions of dollars that might be invested in American companies 

will be shifted to places where the markets are not changing, 

where the rules are not changing. Like American jobs have fled 

overseas, those dollars will flee overseas. 

I mentioned in my testimony that institutional investors are 

changing the way they are doing business. How do I know that? 

Because I am one. You know, I invest up to $7 billion of the State 

of Indiana’s money, and as a fiduciary, I have changed our investment policies so that—and this is hard for me frankly to say because if you cut me, I bleed red, white and blue, but the State of 

Indiana will no longer buy the secured or any debt of American corporations that have accepted bailout money. Why? Because it is too 

risky. That is not hypothetical theory; it is demonstrated fact. 

We have lost millions of dollars when we thought we were secured creditors under the terms of that meaning for more than 200 

years, and it meant nothing. After we adjusted the policy and said 

we are no longer going to buy the debt of those corporations that 

had taken bailout money, someone raised an interesting question 

in the meeting and said, wait a minute, what about Ford Motor 

Company? They haven’t taken any bailout money, should we own 

them? And some of us looked at each other with puzzlement, and 

then they said don’t you realize the same principled creditors there 

are the same majority creditors that were in the Chrysler case? 

In other words, it was the same big TARP banks that initially 

argued for 100 cents on the dollar who ultimately, under pressure 

from the government, acquiesced to take 29 cents on the dollar. 

How impossible is it for us to believe that 6 months, 8 months, a 

year down the road, people will look at Ford and say, you know, 

they are doing okay, but GM and Chrysler, they are not making 

it and maybe we ought to level the playing field and someone from 

Treasury whispers in the ears of the bankers ‘‘level the playing 

field,’’ and there we go again. We cannot take that risk as investors. And so we are looking in our office to see where might we best 

190 

invest and what other industries, American industries, American 

companies ought we not invest in because we may see this same 

scenario played out again. 

And someone mentioned in the first session this morning the airline industry. If anyone doesn’t see parallels between today’s airline industry and you can name them company by company with 

the automotive companies in this country, then you are not really 

trying to connect the dots. 

Mr. FRANKS. Thank you, Mr. Mourdock. As it happens, I was the 

one that mentioned the airline industry for the same exact reasons 

and I appreciate that. And the Chairman that has granted me an 

additional 30 seconds and I would like to quickly mention my question to Mr. Ikenson. 

Mr. Ikenson, the Chrysler bankruptcy deal in particular 

destabled contract rights and secured investment, in my opinion, 

just as you have heard it eloquently stated here. Doesn’t that jeopardize our ability to recover promptly from the current credit crisis 

and the recession itself? 

Mr. IKENSON. Yes, I think so. I mean, I am not really the expert 

on the panel. I would defer to Mr. Mourdock on that. However, yes, 

we have created a bit of a moral hazard here. It is going to take 

changes as Mr. Mourdock just testified. People change their behavior. And I think there will be fewer willing participants in the corporate bond market, which will help to drive up the price of debt, 

and that will spill over into the general economy, particularly now 

at a time when we are incurring massive debts, deficit spending, 

and are going to be needing sources of funding not only for corporations but for our government’s profligate ways. So yes, it concerns 

me that it will have adverse implications that could be costly. 

Thank you. 

Mr. FRANKS. Thank all of you and thank you, Mr. Chairman, for 

the extra time. 

Mr. COHEN. Thank you for your questions. 

Now I would like to recognize the distinguished Chairman of the 

full Committee, Mr. Conyers. 

Mr. CONYERS. Thank you, sir. We welcome you and thank you all 

for your views and presence here today. 

Professor Baird, help me in my analysis with the Treasurer of Indiana in terms of how we put this into perspective because if he 

is right, that nobody wants to invest in companies that accept 

TARP money and yet the companies come to us and ask for help, 

what do we do? Leap out of the highest window in the Rayburn 

Building or bring out our Ouija board or some kind of—I mean that 

sounds like a pretty impossible situation. What do you think happened in 1978? 

Mr. BAIRD. Well, I think—I don’t think things are quite as dire 

as Mr. Mourdock. But in terms of protecting the rights of the people he cares about, which is something I do care about and I think 

secured creditors should be protected, what can happen if you have 

effective bankruptcy law is that we have effective procedures that 

give people like him the rights that they should get. Now, if it turns out that the Federal Government’s bid of $2 billion was top dollar for Chrysler, then that is all he entitled to. All 

he is entitled to as a secured creditor is the value of the assets. If 

191 

the high bidder for the assets turns out to be the Federal Government, it is his lucky day that the Federal Government is there willing to bid. The problem in the case and the concern I have is not 

that $2 billion wasn’t the right amount; it is that procedures 

weren’t there to ensure that it was the right amount. So the solution that I think is required in terms of what happened in 1978 

with the bankruptcy code is just making sure that square corners 

are cut in these situations, and I have a concern that didn’t happen 

here. But I also have a lot of confidence in our bankruptcy bench 

that it won’t happen generally. If it starts to happen generally, 

then I would urge you to do something. 

Mr. CONYERS. Well, were there procedures in place for this circumstance that brings us here today? 

Mr. BAIRD. The difficulty is that when Congress enacted section 

363, they didn’t contemplate section 363 being used the way it is 

being used today. So if there aren’t specified procedures set out in 

section 363, some courts have tried to develop rules, but section 

363 just says there needs to be notice and hearing. That may not 

be enough. At least it won’t be enough if we see practices like this 

continue. 

Mr. CONYERS. Again, what are we to do? I mean, look, you 

trained the 44th President. Do you talk to each other anymore? 

Mr. BAIRD. We worked together for 12 years. I didn’t portend to 

train him. He had the office next to me. 

Mr. CONYERS. Okay. Well, you were in pretty close proximity a 

lot of the time. You have got to take some responsibility for this, 

sir. 

Mr. BAIRD. No. I am a great admirer of the President and I think 

there is a policy decision about what you do with these companies 

and whether or not the Federal Government rescues them, and 

then there is the question of having the bankruptcy process there 

to make sure that if these policy decisions are made, they are implemented in a sensible way. In the main, I think we have a very 

fine bankruptcy law that does allow these things to happen. But 

anytime you have a major event like this you have to reassess. You 

have to say wait a second, did we do enough? Can we do it better 

and what is the world going to look like going forward? I am cautiously optimistic about the system. 

Mr. CONYERS. Well, the Cohen Committee in Judiciary here, we 

are going to be doing plenty of assessment. Don’t worry. This will 

be the most active part of the Judiciary Committee for a long time 

to come. 

Mr. BAIRD. Mr. Chairman, I am more than happy to help any 

way I can. 

Mr. CONYERS. Well, look, we had informally agreed that the 

President incumbent was the smartest political person in the 

United States of America. He couldn’t have gotten elected otherwise. I mean he broke the time pattern. He shattered—look, he 

was in Iowa. That is where it started happening for him, in Steve 

King’s State, of all places. So we conceded him that. Now there are 

getting to be qualifications. His soaring popularity on some issues 

is not so hot, going down a little bit. And we are not sure if he is 

number one anymore. And, look, Baird, you are the one that I 

192 

know that was closest to him during his formative days, and we 

have to hold you accountable in some sense. 

Mr. BAIRD. Well, I have a great deal of—— 

Mr. CONYERS. This business about, I was next door to him for 12 

years, but we never talked about anything—— 

Mr. BAIRD. No. I am just saying that the President has a very 

strong personality and he listened very carefully and he responds 

critically, and I think you should have more confidence than you 

seem to have in him. 

Mr. CONYERS. I think you were a larger influence on him than 

your modesty would allow you to admit to. 

Mr. FRANKS. Mr. Chairman, just for the record, some of us were 

a little more skeptical early on, suggesting that sky-diving naked 

into a volcano was change. 

Mr. CONYERS. Thank you, Mr. Chairman. 

Mr. COHEN. Thank you. I think what you were asking, Mr. 

Ikenson spoke to it. He testified to his respect for Mr. Obama’s 

abilities when he suggested there were 536 CEOs, not 537, which, 

of course, with Mr. Cheney, you would have had 537, but now with 

the Vice President it is certainly a different situation. 

Mr. King from Iowa, you are recognized for 5 minutes, sir. 

Mr. KING. Thank you, Mr. Chairman. I am trying to figure out 

that math and perhaps if I had Professor Baird I would have been 

able to do that. 

Mr. COHEN. When you were not here, he testified that General 

Motors had 536 CEOs. I presume he meant the Congress, the Senate, and the President. The minority side, I don’t think they would 

believe they are really CEOs because that is why they do so many 

1 minutes, but maybe they are CEOs and they don’t know it. 

Mr. KING. Mr. Chairman, I am going to pass up that bait for debate, and also I am going to try to take Professor Baird off the hook 

because it is my information that my chief of staff also studied 

under you, Professor Baird; so however the popularity of President 

Obama may have diminished, my chief of staff still stands up as 

a good product of the University of Chicago. So I am happy to say 

that into the record, and I think she is monitoring this conversation. I am a little worried about that. 

But I am very interested in how Mr. Mourdock might characterize some of these questions that I have, and that is the discussion that I had here yesterday with the new car czar and the discussion about how the White House might divest themselves from 

this massive investment in the private sector, and he uttered a 

statement that I interpreted to be within the context of perhaps in 

a year and a half or so, we will do a public offering and sell some 

or all of these shares off again. 

So I direct it to Mr. Mourdock. Are you going to be ready to buy 

some of those shares if they offer them out in market in a year and 

a half or so? 

Mr. MOURDOCK. As a fiduciary, obviously we always look to make 

investments that we can make prudently. The several pension 

funds that we have that deal in equities, most of our State investments like most States are more on the debt side than the equity 

side, but we would wait to see how those would come through. Regarding the testimony of yesterday and coming back slightly to 

193 

what Congressman Conyers was raising the issue of what might we 

do, I think it pertains to that question as well. You know, what 

might we do as the Congress of the United States? It is a real simple answer. It is follow the law. It is understand the law. Was flabbergasted in reading the statement from yesterday’s testimony in 

which Mr. Bloom suggested that if Congress got involved with the 

dealerships, it would somehow have impact on the credit markets. 

Well, pardon me. It was already the Administration that got us in 

this situation that has already impacted the credit markets. I said 

at the outset I am not an attorney but I know that article I, section 

8 of the United States Constitution gives to the Congress and Congress solely the mandate to set uniform codes of bankruptcy. When 

the Administration acts in such a way to say secured creditors, it 

doesn’t have any meaning anymore, they just took away your 

rights. They just took away the power of the Congress. They started making the bankruptcy code and that is unacceptable. 

Mr. KING. Mr. Mourdock, I take it from your testimony that your 

sense would be that Congress didn’t assert its authority when the 

White House stepped in and usurped the property rights of the 

bondholder, the secured creditors. 

Mr. MOURDOCK. That is exactly my point, yes, sir. 

Mr. KING. And I would agree with that point. Now I would ask 

you if you could play out for us how you see it, would have unfolded with General Motors and Chrysler, had those property rights 

been preserved and protected as was understood by the investors, 

how this might have gone through a bankruptcy Chapter 11 or 7 

and what we might see today? 

Mr. MOURDOCK. Great question. And again, it was said earlier 

during the panel this morning that the only option that was out 

there was complete liquidation, and that would be true if the June 

15 deadline was the driving force for everything. If you have got 

to get it done in a very short period of time, guess what. That probably was the only option. But what we have argued in our lawsuit 

and we will continue to argue is the point that once the government decided to link itself at the hip with Chrysler, that changed 

dramatically what the possibilities were. And had instead of been 

driving to a deadline with the mandated partner of Fiat at that 

point the government said, you know what, we are going to be 

there at the hip. We want to see what kind of real values can be 

set for this business. 

I was stunned when the bankruptcy hearings took place. One of 

the assets of Chrysler Corporation is the Dodge Viper. It is a muscle car, sort of like a Corvette. It was testified at the bankruptcy 

hearing by Mr. Nardelli that that whole product line was worth at 

most about $5 million. Well, that is pretty astounding because 2 

months before Chrysler we know received an offer of $35 million 

for that one asset. And along with it was a 44- page preclosing 

agreement and there had been significant negotiations to get to 

that point. So with those kinds of questions as to how the value 

was set, you can bet our secured creditors feel very much like they 

have been ripped off here. 

Mr. KING. It might be that the Viper could have been spun off 

for seven times what they valued it at. 

194 

I would like to probe this question too, and I hope I will have 

an opportunity to listen to more than one witness answer this 

question, but is it your sense—and again to Mr. Mourdock specifically, and then hopefully broader. Is it your sense that the agreement that was made on Chapter 11 dealing with either General 

Motors or Chrysler—well, first, was any of the testimony before the 

bankruptcy—did any of that testimony alter the anticipated result 

of Chapter 11? 

Mr. MOURDOCK. No, it did not. And I cannot speak a word to 

GM. I wasn’t involved with that side. But in his opening remarks, 

Chairman Cohen raised the issue of the possible Sub Rosa arguments, and that too was part of our legal suit because throughout 

all that happened from the first of this year until the bankruptcy 

was announced by the government, not by Chrysler but by the government. You had the situation where one party was negotiating, 

setting values, determining which creditors would be in, which 

ones would be out, what they would be given, what would be liquidated, all to be set up for an auction sale for which there was 

only one bidder, the United States Government. It was on both 

sides of the table simultaneously. The impropriety of that in trying 

to establish value for a sale goes beyond plausible. 

Mr. KING. Would anyone on the panel care to address that or 

rebut that so that there is a fair opportunity because I happen to 

agree with Mr. Mourdock? None on the panel? That makes a point 

that I wanted to hear made today and I thank you all for your testimony. You have been excellent witnesses, every one of you, and 

I wish I had time to indulge with more of that, but there are real 

human tragedies out here and a big tragedy is what happens to 

property rights in the United States of America. 

Mr. Chairman, I thank you for this hearing today and I yield 

back. 

Mr. COHEN. If you would like another 30 seconds. Thank you, sir. 

Mr. Conyers. 

Mr. CONYERS. Mr. Chairman, could I get 2 minutes before we 

close up? 

Mr. COHEN. Two minutes and 12 seconds. 

Mr. CONYERS. This is the claims issue here. We have got, what, 

300 claims outstanding at Chrysler, about 1,000 at GM. Is there 

any way that we can resolve these without really foreclosing any 

equitable relief from the claimants? 

I mean, Warriner is here, but he is only one of an amazingly nottoo-large pool of people that have a cause. I wouldn’t like the idea 

of his claim, no matter how just it is, going before a company being 

settled for pennies because, ‘‘We are sorry, we just went through 

bankruptcy, we don’t have the money.’’ Too bad. If you had gotten 

here a little bit earlier, there would have been a regular trial. 

Professor Baird, is it asking too much for a little fairness in these 

claims? All of whom, of course, are not of the nature and seriousness that is presented here by our witness. But, still, there may be 

a few that are. I would concede that most of them probably aren’t. 

Mr. BAIRD. This is a serious deficiency in the law that we have 

as it is today. I don’t have any magic remedies for you, but this 

is a big problem in the law as it exists today. 

195 

Mr. CONYERS. I would like to urge my colleagues to study this 

with me further after this hearing today. And thank you, Mr. 

Chairman. 

Mr. COHEN. Thank you, sir. 

Mr. Williams, I would like to ask you a question. You may not 

be familiar with this, or not. But I asked the Chrysler folk and the 

GM folk about the proportion of dealerships in the African American community that might have been terminated. They said that 

they were all equal, everything was exactly the same. Do you have 

any reason to believe that that is accurate or inaccurate? 

Mr. WILLIAMS. Well, it is inaccurate. You can do a lot of things 

with percentages. He said the African American dealers or the minority dealers, 20 percent of them were gone, as was 20 percent of 

the others. 

If you look at the numbers, there are a lot smaller numbers. Less 

than 3 percent of the dealers are African American and minority 

dealers. Twenty percent of the smaller number is devastating when 

you are talking about getting those numbers done when you have 

a very small number of dealers. So you can make things sound like 

you want it to sound. 

When this thing is all over by the end of this year, there will 

probably be less than 600 total minority dealers left; and General 

Motors, there will be less than 20 African American dealers left. 

Mr. COHEN. In the entire country? 

Mr. WILLIAMS. Yes, sir. 

Mr. COHEN. Pretty devastating. 

Mr. Knapp, what is your experience? Your testimony was really 

riveting to me. You seem like you have been there, your company, 

for 70 years. You are right in the heart of Houston. You are selling 

all these vehicles. What did you say, a thousand? 

Mr. KNAPP. Over a thousand. 

Mr. COHEN. That is pretty strong. Did they come to you and tell 

you that that wasn’t a good number; You should have been producing more? What was your problem? 

Mr. KNAPP. You know, we are a unique dealer. We are a downtown dealer in a metro market. And I don’t know that there are 

any other than us in the whole country. And over the years they 

have always—we are not on a freeway; we are kind of in a neighborhood, and we just have a little different take than most. 

And they have always told me, ‘‘Don’t worry about—you know, 

we want a downtown dealer. We want the representation.’’ And it 

was—obviously, it was a surprise to me, as to everybody, why they 

would want to terminate us. 

But in our case, I think we make a very good anchor in downtown Houston. We are a servicing dealer for every dealership in 

Houston, because the people that buy there service their cars 

downtown. And when they lose that, when they lose us, I believe 

it is going to force these people or make them go to other makes 

and models. 

Another thing that is not really talked about is GM assumes that 

the loyalty is to GM and not their dealer. And no doubt people are 

loyal to their Camero or their Caprice or their pickup, but they are 

also loyal to the dealer. And when their dealers get knocked out 

or when dealers say no, they are going to have a bad taste in their 

196 

mouth and may look to another manufacturer and another model 

to go to. 

Mr. COHEN. General Motors has an appeal process, I think they 

said. Have you participated in that? 

Mr. KNAPP. Yes, sir, I have. Right out of the chute, we got the 

letter, and they said you have to appeal—it was 2 weeks, so—and 

with some very vague criteria. You know, we scrambled and got 

some people to help, and I believe we came up with a very good 

package and a very good set of reasons why we should stay around. 

Well, apparently they rejected every one of those appeals. Then 

they came back and said—and we never really got a notification 

from them. But we found out we could submit another appeal, 

which we did. It was denied. 

I found out, because we had talked to our Congresswoman, that 

we could have a third appeal by telephone. We called them on the 

phone and I gave him a long list of reasons why we should remain, 

and that appeal was denied. 

So lastly, I got a call from the Texas Auto Dealer Association. 

They had talked to the Texas Attorney General, and for whatever 

reason, the Texas dealers were going to be given a fourth appeal. 

And that was almost 3 weeks ago that we submitted it, and I 

talked to the man at GM that I had done the phone appeal with 

and he said, ‘‘Go ahead and put it in writing. It is a lot easier for 

me to explain it to people, the powers that be.’’ 

So I did. I came up with what I believe is a top-notch, first-rate 

appeal. I have not heard, hopeful that that is a good sign that they 

are really looking hard. 

Mr. COHEN. Thank you. 

Mr. Williams, you were nodding. You filed your appeal, too, and 

they rejected it summarily? 

Mr. WILLIAMS. I filed an appeal. They rejected. You can’t get anyone to speak to you, so you don’t know what they use, what criteria 

they used. They just rejected it. 

Mr. COHEN. Mr. Fitzgerald, Mr. Tarbox, do you also have similar 

experiences with your appeals? 

Mr. TARBOX. There was no appeal with Chrysler, and I appealed 

through the U.S. Bankruptcy Court. 

Mr. COHEN. Mr. Fitzgerald? 

Mr. FITZGERALD. There was no appeal with Chrysler, and General Motors rejected my appeal. 

Mr. COHEN. Was there some figure they put out; they thought 

they could save like $2 billion with GM? 

Mr. FITZGERALD. That is the big lie. I talked too much and I 

didn’t finish telling you about the big lie. 

Mr. COHEN. I will give you the opportunity to finish. 

Mr. FITZGERALD. Thank you. 

Mr. COHEN. You liked my humor. I am giving you a chance to 

say. 

Mr. FITZGERALD. I was. I was intrigued by it. 

Mr. COHEN. You get an extra 30 seconds. Keep going. 

Mr. FITZGERALD. Okay, I am going. 

It costs them nothing for a dealer. All of that nonsense is contrived. If you look at the price label, that is why I sent you—I put 

two price labels with factory invoices with them in the package I 

197 

submitted. We pay almost sticker for the car when we buy it. We 

used to when—that sticker is on the car by Federal mandate, 

Monroney label. It was named after Senator Monroney from Oklahoma, his Committee. And at the time, all of us received a 25 percent discount, I was a Ford salesman then, 25 percent discount. 

Over the years the manufacturers have found lots of reasons to 

change the discount, which increases their share of the transaction 

price. It has evolved to the point today where we receive somewhere between a 1 and 5 percent discount from sticker. 

And all of those things that Mr. Henderson recited for you, the 

costs that they were going to save, for example, filling the gas tank; 

I am not sure how he makes that story stick, but I haven’t even 

seen the media pick up on that. But he actually said this with a 

straight face, that they would save a lot of money, in the hundreds 

of thousands or maybe millions of dollars by not putting gasoline 

in the car for the customer. That hasn’t got anything to do with the 

cost to the dealer. 

The same thing is true with PDI: Prep it and deliver it. The 

manufacturers pay an allowance for prepping cars. I think they 

worked that out with the Department of Transportation some years 

ago why they had to do it that way. So that was an excuse to raise 

the price to us, and then they pay us to prep the car. Again, that 

is related to the car itself. 

The 1 percent marketing allowance that somebody said something about that today. That is directly related to the car and it 

has to do with advertising. You have certain strings attached to 

that. 

Oh, the incentives. One of the most significant things are incentives. If you read The Washington Post, there was a story there, 

Troy Clark, president of General Motors, talked about how the new 

Malibu brings $20,000 whereas the old Malibu only brought 16.5. 

The difference is they don’t have to pay as many incentives to sell 

it. Incentives change the price of the car. 

If your car is not for example, like most of the GM cars, if you 

not recommended in Consumer Reports, the GM—if it weren’t for 

Chrysler, GM would be in last place in Consumer Reports, and 

they have been there for many years. That is one of the reasons 

I was terminated; I keep waving this thing at them, because this 

is what my customers say. 

My customers read this. You go ask your young staffers if they 

don’t read this. And that may be why none of them drive American 

cars, because we are always at the bottom of that list. 

So the incentives change the price of the car. It is a price change. 

If they don’t have to pay the incentive to sell the car, they keep 

it. I don’t get it; they get it. So it is all related to the price of the 

car. 

There is not a single shred of truth in all of that sophistry that 

was painted for you concerning the savings on dealers. There is no 

such thing. And if we get in the back room with the coffee, I have 

got my numbers and I have got my factory invoice and I have got 

my MSRP numbers and I will show it to you. 

Mr. COHEN. When they said—Mr. Robinson, I think he said that 

the reason that the automobile industry got in such trouble is because of the finance problems in the country and the gasoline 

198 

prices. You would submit that being ranked last in Consumer Reports might have contributed to it, too. 

Mr. FITZGERALD. Well, everybody had the gasoline price to deal 

with and everybody had the finance problems to deal with. But 

General Motors and Chrysler had the overwhelming problem of 

Consumer Reports to deal with. And they have been dealing with 

it for 28 years and ignoring it. 

One of the reasons I am terminated is because I made a crusade 

out of that. And I can show you letters from Rick Wagoner all the 

way back to 2000 promising that he is going to do something about 

it. And they did; they got rid of me. Now they don’t have to listen 

to that. 

Mr. COHEN. Thank you, sir. 

Mr. King, you are recognized. 

Mr. KING. Thank you, Mr. Chairman. Mr. Chairman, you raised 

an issue that caught my attention, and the question is to Mr. Williams. 

And in your testimony, Mr. Williams—I am going from memory 

here—you have been in the car business about 30 years—or been 

in the business 30 years; 11 years as a dealership. Out of 90 competing dealers, you were ranked third in sales and number one in 

customer satisfaction. Is that all correct? 

Mr. WILLIAMS. Yeah. I have been a dealer for 30 years. I have 

been in this location for 11 years. And I have 19 competitors, and 

we are number three in sales and number one in customer satisfaction. 

Mr. KING. Nineteen competitors. I misheard that number and 

also I misheard that you were in the dealership that long. And that 

is the reason I asked the question, to some degree, because to build 

up that much capital, to find yourself in this much liability, that 

is a good hustle to get there in 11. In 30 years, I can see how you 

could get there. 

It is interesting to me, the issue of race was raised by Mr. Cohen. 

And I just want to ask this as—I am not a lawyer, so I can ask 

a question I don’t know the answer to. And that is, honestly, do 

you believe—and I am very sincere in my inquiry here—do you believe that race was a factor in the termination of your franchise? 

Mr. WILLIAMS. You know, I don’t know that somebody specifically 

said, hey, we are going to get rid of the minorities. But when I gave 

you the number, out of a thousand dealers that bit the dust last 

year, 200 of them were minorities. If we could have had that percentage of them putting in dealers, we wouldn’t be making a lot of 

noise. We are less than 3 percent of the dealers. But 20 percent can 

go out? You can’t stay with 20 percent go out and less than 3 percent are coming in. 

Mr. KING. It is about seven times the rate. 

Mr. WILLIAMS. They know how to take us out. They don’t know 

how to put us in, I guess. 

Mr. KING. And I appreciate the reemphasis of this end of the 

record. And one of the things that I admire about free enterprise 

is that you have to compete in the marketplace. And it doesn’t matter what color you are or what gender you are or what ethnicity 

you might be. If you have got cars on the lot, people will drive by 

or stop in, and if they like doing business with you they are going 

199 

to do business. If they don’t, they are going to move on to somebody 

else. 

And you have made a living for 30 years in a free market system 

that doesn’t have an affirmative action program except the one that 

you apply with your own energy and your own ingenuity and personality. 

Mr. WILLIAMS. We would still be around if they didn’t decide to 

give me the door. 

Mr. KING. And I support the idea of doing all we can to keep you 

all around. And I brought this up because I wanted to flesh that 

out a little bit more. With a President today that I think is testimonial to the ability to be upwardly mobile in this society—and I 

think you are a testimonial to that as well, Mr. Williams, and I 

thank you for being here. I thank everybody for your testimony. 

And I wanted to go back to Mr. Tarbox. And I know there was 

more within you that I didn’t hear, but the frustration of leading 

your field and dominating the market in your area. And we are 

down to you have no recourse, I understand. But what do you believe was the motive, other than the fact that you were insistent 

and resistant about the idea? Are you just too outspoken and you 

are punished for being outspoken? I hope that is not coming my 

way. 

Mr. TARBOX. Their reason was the protest that I had the year before on their intent to establish a Jeep dealer in Rhode Island. And 

it was evident on the e-mail that is on record with the U.S. Bankruptcy Court. 

Mr. KING. And what do you have to say to the testimony of Mr. 

Mourdock about how property rights have been set aside here with 

regard to these bankruptcy cases? And what do you have to say 

about what appears to be fait accompli that was negotiated perhaps before the bankruptcy hearings? 

Mr. TARBOX. I am not sure if I understood the second part of the 

question, but I certainly agree with the property right issue. I 

mean, it is evident in the fact that they are taking what I have and 

giving it to the dealer up the road. They claim that they set certain 

criteria, and I called the dealer up the road, and the dealer up the 

road specifically told me that she was surprised that she wasn’t rejected as a dealer. 

So it is not based on performance and criteria. Their decisions 

were based on spite and the fact that I protested that intent. 

Now, in discussing different things with dealers that are in the 

same boat that I am, I wouldn’t be surprised if they—when they 

made their decisions to reject dealers, that they didn’t contact their 

legal departments and say: Hey, who has litigated or protested 

with us in the last 3 to 5 years? I want a list of those dealers. 

And I wouldn’t be surprised that you might find the majority of 

those dealers were in fact rejected. 

Mr. KING. It would seem to me—and I thank all the witnesses. 

It would seem to me that in the United States of America, if you 

own something that I think we all on this panel would describe as 

a property right, that there should be some recourse to protecting 

your property rights through the litigation process. And it looks to 

me like that is what has been set aside here in this race to a pubVerDate Aug 31 2005 13:53 Feb 23, 2010 Jkt 000000 PO 00000 Frm 00203 Fmt 6633 Sfmt 6601 H:\WORK\COMM\072209\51225.000 HJUD1 PsN: 51225
200 

lic/private model that may not have a lot of value in the private 

sector a year and a half or 5 or 10 years from now. 

I thank all the witnesses. Again, this has been a good hearing. 

Mr. Fitzgerald has a voice—if the Chair has enough patience, I 

would remind us that he said there is not a single shred of truth 

in all of that sophistry. I think that is a remarkable statement. 

And I would be happy to hear from the gentleman. Mr. Fitzgerald. 

Mr. FITZGERALD. Well, I do have the data. Now, of course, we believe that Mr. Warriner and people in his position should be addressed, too. It is the American way. But from the dealers’ point 

of view, we are not asking for any money. Our property was taken 

from us. Just taken. You know, I have got 43 years of good will invested in Chrysler, and over 30 years in General Motors. That was 

taken without any compensation whatsoever. 

Now, I can get real angry about it, but I don’t have as much— 

what has been done to him is a travesty. He is 42 years old. I am 

almost 75. I mean, it is—I am okay financially. But what I have 

heard from dealers around the country, you would not believe the 

human suffering that is being caused by this reckless abuse of the 

bankruptcy laws. You just would not believe it. It is indescribable 

the things that I have heard, and it is just not the American way. 

And that is why we have 260 votes and cosponsors, I mean in 

our bill, and we have 30 Senators. And that is because when people 

hear this story and they look at the facts and they look at my price 

labels and they see the real thing, H.R. 2743 and Senate bill 1304, 

it is easy to sign on when you see that injustice, when we don’t cost 

any money. You know, this can be fixed with no money. And Congress writes the bankruptcy laws. 

Mr. KING. I thank you, Mr. Fitzgerald. 

Mr. Chairman, I have a couple documents that I would ask 

unanimous consent to introduce into the record that I am a little 

belated on. They are just simply related to dealerships within my 

district. 

Mr. COHEN. No press releases of mine? 

Mr. KING. Not this time, Mr. Chairman. 

Mr. COHEN. Without objection. 

Mr. KING. I thank you. 

[The information referred to follows:] 

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Mr. KING. I thank you for this hearing. I sincerely thank all of 

the witnesses. Some of you have paid a very high price. And I yield 

back the balance of my time. 


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Mr. COHEN. I do have a press release of the minimum wage 

going up Friday. 

Mr. KING. We will check that out. 

Mr. COHEN. Mr. Scott from Virginia is recognized. 

Mr. SCOTT. Thank you very much, Mr. Chairman. And thank you 

for holding the hearing because what has happened to these dealers is certainly tragic. 

I served in the State legislature before I came to Congress, and 

most States have laws involving franchises and what parent companies can do and can’t do to their franchisees. What has happened 

to these dealers is obviously what is protected by State law, because obviously when you have had people in business for generations being given a couple weeks’ notice that they are out of business, everybody knows that that is just not fair. 

So I thank you for holding the hearing, and we are going to do 

the best we can to get some fairness for the dealers, because this 

just isn’t right. I yield back. 

Mr. COHEN. Well, we ended with eloquence and brevity. Thank 

you, Mr. Scott. I don’t believe we have any other questions. 

I want to thank all the witnesses for their testimony today. I 

think that this has been an opportunity for General Motors and 

Chrysler to hear some of your testimony, and I think they heard 

it through different channels. 

Without objection, Members will have 5 legislative days to submit any additional written questions, which we will forward to the 

witnesses and ask you to answer as promptly as you can to be 

made part of the record. Without objection, the record will remain 

open for 5 legislative days for the submission of any other additional materials. 

Again, I thank everyone for their time and their patience. This 

hearing is adjourned. 

[Whereupon, at 3 p.m., the Subcommittee was adjourned.] 

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A P P E N D I X 

MATERIAL SUBMITTED FOR THE HEARING RECORD

PREPARED STATEMENT OF THE HONORABLE CHRIS VAN HOLLEN, A REPRESENTATIVE

IN CONGRESS FROM THE STATE OF MARYLAND

I thank Chairman Cohen and Ranking Member Franks for holding today’s hearing. I would also like to thank Congressmen Maffei and Kratovil for introducing the 

Automobile Dealers Economic Rights Restoration Act and for their leadership on 

this issue. 

This important legislation was motivated by a bi-partisan desire here in congress 

to come assist profitable auto dealers who have been unfairly treated by auto makers. The indiscriminate closing of many healthy, profitable auto dealerships is unfair 

and has put thousands of American jobs at risk at a time when our country can 

ill-afford to shed more jobs. 

Further, the decision by automakers to close dealerships overlooks the fact that 

dealerships are one of the auto industry’s key sources of strength and can be the 

source of their successful navigation out of these difficult economic times. Dealerships, and their more than 1 million employees, form personal relationships with 

customers that contribute to brand loyalty and will be key to the recovery of the 

auto industry. 

Auto dealerships are also a cornerstone of our communities and deserve our support; they employ hundreds of thousands of Americans, ensure that quality American cars are sold and serviced. 

As we move forward with legislative fixes to this flawed process, I am pleased 

that we have begun constructive and meaningful discussions with the auto manufacturers, the auto task force and with the auto dealers. I believe that we have an opportunity to save the auto industry and protect the rights of auto dealers in the 

process. They should not—and must not—be mutually exclusive goals. 

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RESPONSE TO POST-HEARING QUESTIONS FROM LOUANN VAN DER WIELE, VICE

PRESIDENT AND ASSOCIATE GENERAL COUNSEL, CHRYSLER GROUP LLC 


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RESPONSE TO POST-HEARING QUESTIONS FROM MICHAEL J. ROBINSON, VICE

PRESIDENT AND GENERAL COUNSEL OF NORTH AMERICA, GENERAL MOTORS COMPANY


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RESPONSE TO POST-HEARING QUESTIONS FROM HARVEY R. MILLER, 

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RESPONSE TO POST-HEARING QUESTIONS FROM DOUGLAS G. BAIRD, HARRY A. 

BIGELOW DISTINGUISHED SERVICE PROFESSOR OF LAW, UNIVERSITY OF CHICAGO

LAW SCHOOL


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RESPONSE TO POST-HEARING QUESTIONS FROM DANIEL J. IKENSON, ASSOCIATE

DIRECTOR, CENTER FOR TRADE POLICY STUDIES, CATO INSTITUTE


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RESPONSE TO POST-HEARING QUESTIONS FROM RICHARD E. MOURDOCK, 

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RESPONSE TO POST-HEARING QUESTIONS FROM JOHN J. FITZGERALD, PRESIDENT, 

FITZGERALD AUTO MALLS


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RESPONSE TO POST-HEARING QUESTIONS FROM JIM TARBOX, PRESIDENT, 

TARBOX MOTORS, INC. 


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RESPONSE TO POST-HEARING QUESTIONS FROM GREG WILLIAMS, PRESIDENT, 

HUNTINGTON CHEVROLET, INC. 


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*The Subcommittee did not receive a response to their post-hearing questions from this witness before the printing of this hearing. 

POST-HEARING QUESTIONS SUBMITTED TO ROBERT G. KNAPP, 

PRESIDENT, KNAPP CHEVROLET* 


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LETTER FROM MICHAEL J. ROBINSON, VICE PRESIDENT AND

GENERAL COUNSEL OF NORTH AMERICA, GENERAL MOTORS COMPANY


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