```

[Senate Hearing 111-227]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 111-227

   THE STATE OF THE DOMESTIC AUTOMOBILE INDUSTRY: IMPACT OF FEDERAL 
                               ASSISTANCE

=======================================================================

                                HEARING

                               before the

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                                   ON

 EXAMINING THE ROLE OF THE FEDERAL GOVERNMENT'S AUTO TASK FORCE IN THE 
             RESTRUCTURING OF AMERICA'S AUTOMOBILE INDUSTRY

                               __________

                             JUNE 10, 2009

                               __________

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

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

                  U.S. GOVERNMENT PRINTING OFFICE
54-510 PDF                WASHINGTON : 2010
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20402-0001

            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

               CHRISTOPHER J. DODD, Connecticut, Chairman

TIM JOHNSON, South Dakota            RICHARD C. SHELBY, Alabama
JACK REED, Rhode Island              ROBERT F. BENNETT, Utah
CHARLES E. SCHUMER, New York         JIM BUNNING, Kentucky
EVAN BAYH, Indiana                   MIKE CRAPO, Idaho
ROBERT MENENDEZ, New Jersey          MEL MARTINEZ, Florida
DANIEL K. AKAKA, Hawaii              BOB CORKER, Tennessee
SHERROD BROWN, Ohio                  JIM DeMINT, South Carolina
JON TESTER, Montana                  DAVID VITTER, Louisiana
HERB KOHL, Wisconsin                 MIKE JOHANNS, Nebraska
MARK R. WARNER, Virginia             KAY BAILEY HUTCHISON, Texas
JEFF MERKLEY, Oregon
MICHAEL F. BENNET, Colorado

                    Edward Silverman, Staff Director

        William D. Duhnke, Republican Staff Director and Counsel

                       Amy Friend, Chief Counsel

                Neal Orringer, Professional Staff Member

               Jonathan Miller, Professional Staff Member

                   Deborah Katz,  Legislative Fellow

                Mark Oesterle, Republican Chief Counsel

                   Andrew Olmem,  Republican Counsel

           Chad Davis,  Republican Professional Staff Member

                       Dawn Ratliff, Chief Clerk

                      Devin Hartley, Hearing Clerk

                      Shelvin Simmons, IT Director

                          Jim Crowell, Editor

                                  (ii)

                            C O N T E N T S

                              ----------                              

                        WEDNESDAY JUNE 10, 2009

                                                                   Page

Opening statement of Senator Dodd................................     1
Opening statements, comments, or prepared statements of:
    Senator Shelby...............................................     5
    Senator Brown................................................    44
    Senator Bennet...............................................    45

                               WITNESSES

Ron Bloom, Senior Advisor on the Auto Industry, Department of The 

  Treasury.......................................................     7
    Prepared statement...........................................    45
    Response to written questions of:
        Senator Reed.............................................    57
        Senator Bayh.............................................    57
        Senator Martinez.........................................    57
Edward Montgomery, Director of Recovery for Auto Communities and 
  Workers, The White House.......................................     9
    Prepared statement...........................................    51
    Response to written questions of:
        Senator Reed.............................................    58
        Senator Bayh.............................................    59

                                 (iii)

 
   THE STATE OF THE DOMESTIC AUTOMOBILE INDUSTRY: IMPACT OF FEDERAL 
                               ASSISTANCE

                              ----------                              

                        WEDNESDAY, JUNE 10, 2009

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Committee convened at 2:36 p.m., in room SD-538, 
Dirksen Senate Office Building, Senator Christopher J. Dodd, 
Chairman of the Committee, presiding.

       OPENING STATEMENT OF CHAIRMAN CHRISTOPHER J. DODD

    Chairman Dodd. We are here this afternoon for two purposes, 
the first of which I don't think we are going to get to because 
I don't see 12 of us here yet and I don't want to delay the 
hearing. What I would like to recommend, and I have already 
chatted briefly with Senator Shelby about this, is on the 
Executive Session nominees that there is going to be a vote 
sometime, I think tomorrow morning, on the tobacco bill and my 
recommendation would be during that vote or right after that 
vote we meet to consider these Executive Session nominations. I 
think based on conversations, they should be relatively 
noncontroversial. I would invite my colleagues to take a look 
at them, let me know if there is some problem that would 
require some further discussion and we will save it for another 
moment. But if we could do it tomorrow, then it will save us 
waiting around today.
    Yes, Bob?
    Senator Corker. I wonder, the FHA nominee, I am just 
curious about the status. I know that obviously it is a----
    Chairman Dodd. Which one is this?
    Senator Corker. The FHA nominee that is not on here. I am 
just curious about where we are there because I know it is a 
very important position and very important time.
    Chairman Dodd. Well, let me turn to Senator Shelby for any 
comments.
    Senator Shelby. If I could answer that, there is a HUD 
investigation going on, as I understand it from staff, dealing 
with the RESPA and some of the companies. We don't know if he 
is involved or not, but we are waiting to see what comes out of 
the investigation. So that is my interest, is making sure that 
all nominees are--and I feel like he will probably be OK, but 
we want to make sure. So I am waiting for a little more 
information before I agree to move him forward.
    Chairman Dodd. Let me just say to my colleague, I don't 
know Mr. Stevens personally. I have never met the man. But he 
comes highly recommended, I must say, by people who are 
knowledgeable. In fact, Senator Martinez and I have talked 
about him. I think, Bob, you and I have talked about him. I 
have constituents in my State that are very knowledgeable about 
FHA work and know Mr. Stevens well and have recommended him 
highly.
    Senator Shelby points out some issues that, candidly, the 
Committee cannot ignore in the midst of all of this. I have 
talked to the Secretary of HUD about the nominee and what steps 
they might be willing to take to provide some assurances to the 
Committee dealing with RESPA and other matters. I just don't 
believe in necessarily forcing this on the Committee. I would 
like the consultation and advice of my colleagues, as well, on 
a matter like this rather than just kind of bringing up the 
matter without any--I always like on these matters, where we 
can, to have bipartisan support for a nominee rather than 
getting into an acrimonious battle, and particularly if there 
is an outstanding issue, we are all aware of what can happen.
    It sounds fine in this letter, but 6 months from now or a 
year from now, something pops up, then obvious questions are to 
us, well, you had some idea this might happen. Why did you go 
forward? I am not sure that always ought to be the standard if 
there is anything out there, but nonetheless, that is sort of 
where we are, Bob, on this one.
    Do you have any comments you want to make? Mel?
    Senator Corker. I would just say that I have talked to the 
HUD Secretary and I think he has gone out of his way to try to 
alleviate those. I will say that, based on what I know about 
the case, and I know we are going to do some more due 
diligence, apparently, but we wouldn't have anybody serving in 
the administration, I think, or maybe in any other body. I 
mean, these are not to him personally, to my knowledge. But in 
any event, I appreciate that. I know he does come highly 
recommended, but there may be some issues and I certainly will 
defer to the Chair and Ranking Member to ensure that there is 
no problem. But it is a pretty important position that is not 
in place and he does come very, very highly recommended, so----
    Chairman Dodd. Senator Shelby?
    Senator Shelby. I would just like to say again that this 
gentleman might be very well qualified. He might be pristine 
clean. I hope he is. I have heard good things about him. But I 
think that we ought to, where there is a HUD investigation 
involved involving one of these companies that he was involved 
with, we ought to have a clean bill of health from the man 
before I vote on him. I don't know. You vote at your peril up 
here, but I have been here a few years.
    Senator Corker. Thank you.
    Chairman Dodd. OK. Well, let me also--I just want to make a 
couple of observations about the hearing today. Because of the 
rulings on the Chrysler bankruptcy at the Supreme Court last 
evening, Mr. Bloom, one of our witnesses here, was unable to 
have his full testimony ready for us on time yesterday. We will 
give you a waiver on that, knowing how busy you were. Normally, 
we like to get this testimony, but understanding the 
circumstances. However, members are rightly concerned that 
testimony was not delivered here until 11:30 today and our 
Committee has strict rules on this. I know that you are aware 
of that, but I do understand the problems of last evening.
    As members of the Committee understand, General Motors 
Corporation filed for protection under Chapter 11 of the 
Bankruptcy Code on June 1. I have therefore been informed that 
Mr. Bloom may not be able to answer questions that bear on 
specific matters that are the subject of that ongoing 
litigation, and so if that is the case, a question may be asked 
and you will have to respond accordingly, Mr. Bloom.
    But I raise those two issues that have been brought to my 
attention and I want to welcome our two witnesses as part of 
the table.
    I am going to take a couple of minutes here on an opening 
statement, turn to Senator Shelby, and then we will get to the 
hearing.
    Let me just say at the outset what the bottom line for me 
is, and every member here will have a different point of view. 
Getting out of the automobile industry by the U.S. Government 
yesterday would not be soon enough for me. My hope is that 
whatever else, whatever we like or dislike about the present 
configuration, that I want to see us get out of this business 
as quickly as we can. That is my interest. Obviously, there are 
matters to discuss on how this is all working, but I start any 
discussion and debate from that point of view. And again, my 
colleagues will express their own views on the matter, but from 
my standpoint here, it can't be soon enough on that matter.
    So I want to welcome our witnesses, both Mr. Bloom and Dr. 
Montgomery, to the third in this Committee's series of hearings 
on the state of the American automobile industry. Today's 
hearing is unique because for the first time we will be hearing 
directly from the administration officials overseeing Federal 
assistance to America's domestic auto industry.
    Failure of any one of Detroit's Big Three poses obviously, 
I believe, a grave systemic risk to the economy, threatening 
hundreds of thousands of jobs directly provided by these 
companies and imperiling over a million more jobs in related 
industries, from suppliers to car dealers to some 20,000 people 
in my home State of Connecticut alone that are directly 
employed or indirectly by the automobile industry.
    It is for these reasons that President Bush and later 
President Obama marshaled the resources of our government, not 
only to preserve countless American jobs, but to help 
reestablish a foundation for a viable and competitive domestic 
auto industry.
    With General Motors and Chrysler buckling under colossal 
liabilities racked up after years of incompetent management, 
over $170 billion in debt for General Motors and $55 billion in 
debt for Chrysler, the Obama administration's Auto Task Force 
helped develop a plan to recapitalize and overhaul the 
industry's strategic, financial, and organizational structure. 
The plan has largely been adopted as part of the prepackaged GM 
and Chrysler bankruptcy proposals. I believe that once 
finalized, they will result in the savings of thousands of 
American jobs--certainly that is my hope--and potentially the 
preservation of a very critical manufacturing sector.
    Nonetheless, communities all across the Nation are not 
going to be spared plant shut-downs, dealer closings, mass 
layoffs. Moreover, if approved, the deals that we know about 
will continue to raise important questions over unprecedented 
government involvement in private industry's restructuring. To 
me, these questions can be summed up as follows: How exactly 
are taxpayer dollars being used to restructure the auto 
industry? Why is the government taking such large ownership 
stakes in these companies? Is the government doing everything 
it can to protect American jobs? What assistance is being 
provided to communities devastated by auto plant and dealer 
closings? And when can we expect the American taxpayer to 
receive a return on the investments that we have made?
    Before turning to my colleague from Alabama, I would like 
to address what I regard to be a false debate percolating over 
the treatment of key stakeholders. Some critics have decried 
the restructuring plan as a windfall to auto workers. They 
point to an arrangement in which creditors are being asked to 
forgive debt for a smaller stake in the company than being 
offered to the Employee Health Care Trust known as VEBA.
    In the case of the GM proposal, for example, bond holders 
will be asked to forgive $27 billion in debt in exchange for 
equity in the company. They are being offered 10 percent equity 
plus the option to acquire an additional 15 percent later on. 
The VEBA, on the other hand, will forgive half of its remaining 
$20 billion in debt in exchange for acquiring 17.5 percent of 
GM's common stock, $6.5 billion of preferred shares and $2.5 
billion in a $2.5 billion note.
    But as I am sure our witnesses can explain, VEBA's debt 
forgiveness and equity stakes do not reflect the extent of the 
auto workers' concessions. Indeed, the companies have announced 
tens of thousands of layoffs as a result of the restructuring. 
Retirees are being told they will lose 30 percent of their 
health benefits as well as pension benefits. In GM's case 
alone, 21,000 additional people are likely to lose their jobs 
as a result of the bankruptcy and many UAW wages will be 
slashed below foreign transplant wages.
    The courts have been reviewing these restructuring 
proposals to ensure an equitable outcome for auto workers as 
well as other stakeholders. Hundreds of thousands of Americans 
and countless businesses will be affected by the courts' 
decisions. It is for this reason that the President was right, 
in my view, to task his administration not only with assisting 
GM and Chrysler, but with addressing the effects of the auto 
industry's years of downturn on various communities.
    But the President's plans are not without controversy. One 
aspect of the government's proposal is unprecedented. That is 
the government is taking a huge equity stake, 8 percent in 
Chrysler and a whopping 60 percent in General Motors. 
Understandably, the administration believes that this structure 
avoids the imposition of further debt on these companies, but 
it also begs the question, how will the government extricate 
itself from such a commitment in the future?
    As Mr. Posner recently wrote in an essay in the Atlantic 
Monthly, and I quote him, ``We should be concerned lest GM 
become a kind of economic Vietnam, where the Federal Government 
throws good money after bad year after year in a vain quest for 
victory.''
    I know that our witnesses today stand fast against such a 
notion. They worked tirelessly, I want to say, to establish the 
domestic auto industry's viability. But they also have toiled 
to rekindle our competitive edge in a truly iconic sector of 
the United States economy. Let us remember, not too long ago, 
it seems that an American could not walk a city block without 
sensing the strength of an American automaker's brand. Their 
labels adorned buses, rail cars, aircraft. They dominated the 
U.S. automobile market, in fact, the global market in many 
ways, and owning a Buick was the stuff of American dreams.
    Today, those images have faded. For the first time, the 
domestic market share of Ford, Chrysler, and GM has slipped 
below 50 percent, going from 66 percent in 2001 to just 40 
percent today--47 percent in today's market. The U.S. industry 
has long abandoned a diversified product mix and instead has 
had to play catch-up with foreign transplants. Only now have 
they recognized that they must shift their focus from SUVs and 
pick-ups to marketing more fuel-efficient automobiles.
    Fortunately, one thing has remained constant, the skill, 
determination, and ingenuity of the American worker. Even in 
tough times, Americans are resilient, and they are certainly 
proving it these days. Given the proper tools, our domestic 
auto industry, I think, will keep fighting until we are back on 
top once again, and I believe that can happen.
    So I look forward to the hearing today on how you, Mr. 
Bloom and Dr. Montgomery, are helping set the stage for such a 
comeback in our country. Indeed, Mr. Bloom has been intimately 
involved, I would point out, in negotiations with various 
stakeholders as well as the decisions on how best to invest 
taxpayer dollars in GM, GMAC, and Chrysler. I look forward to 
exploring the rationale behind these decisions and the 
administration's plans for the future.
    Dr. Montgomery is tasked with a far different and a far 
more difficult responsibility, and that is to steer Federal 
assistance to communities devastated by auto-related job 
losses, plant closings, and dealer consolidations. So I look 
forward to hearing about your travels around our nation and 
learning of the resources you believe are required to 
coordinate these recovery efforts.
    With that, let me turn to my colleague from Alabama for any 
opening comments, and then we will hear from our witnesses. 
Senator Shelby?

             STATEMENT OF SENATOR RICHARD C. SHELBY

    Senator Shelby. Thank you, Mr. Chairman.
    When the Detroit Three came before this Committee to ask 
U.S. taxpayers for bailout money, they cited the financial 
crisis as the reason for their troubles. The financial crisis 
was certainly a reason, but it was by no means the only reason 
these companies were failing. Although structural and 
managerial problems in these companies were decades in the 
making, they managed to convince Congress in the last 
administration that bankruptcy, the normal course of companies 
in their condition, at that time was not an option, even if it 
came with government financing. This was a few months ago. 
Instead, they said they just needed some cash to make it 
through until the economy returned to normal and consumers 
started buying cars again. Combined, the two firms received 
then $24 billion.
    These initial billions, however, were not enough to prevent 
the inevitable from happening. Both Chrysler and GM have now 
entered the Chapter 11 bankruptcy process and each company once 
again needs additional taxpayer support. The Obama 
administration has set forth a plan for the two companies post-
bankruptcy. Choosing to bypass the normal bankruptcy process, 
the administration presided over the restructuring through an 
alternative, ad hoc process.
    Today's hearing, I hope, will give us the opportunity to 
understand how the administration came to the conclusion that 
this support was warranted and expectations about how the new 
taxpayer investments will be managed and ultimately unwound.
    I look forward today to understand what considerations 
drove the outcomes of both the GM and the Chrysler 
negotiations. Why didn't the administration address the 
significant excess capacity in the U.S., possibly by merging 
Chrysler and GM? Why did the administration instead favor a 
merger between Chrysler and the Italian car maker Fiat? And on 
what did the administration base its conclusion that the new 
Chrysler will be viable in the long run? Did the administration 
take into consideration the effects that the aid to GM and 
Chrysler would have on other auto manufacturers in the U.S.? 
What underlies the determination that the U.S. Treasury should 
hold approximately 10 percent of the new Chrysler and 60 
percent of the new GM?
    By taking such significant equity stakes in the two 
companies, the administration has embarked on a disturbing, and 
I believe a difficult, road. We have been assured that the 
administration will stay out of day-to-day management and that 
it will not allow politics to influence the decisionmaking 
process within the companies. On the one hand, that is very 
reassuring. On the other, it illustrates the inherent 
difficulty posed by large government interventions in private 
markets.
    If the government intends to be a silent partner of sorts, 
how do they intend to protect the interest of the American 
taxpayer as a shareholder? I am not sure you can have it both 
ways. Restraint may be difficult when jobs are at stake. Plants 
need to be closed and environmentally friendly vehicles prove 
not to be commercially viable. Given the government's bigger 
investment in GM than in Chrysler, will it make decisions that 
favor the former at the expense of the latter? Will the 
administration be tempted to use political means to boost 
annual car sales in an effort to shore up the perceived 
viability of the two companies?
    The most difficult question, of course, is how Treasury 
intends to get out of this. Are assurances that the 
government's involvement in the auto industry will be 
temporarily realistic? Did the administration, as any private 
investor would, work through possible exit strategies before 
making its investment?
    Another question: Does the administration anticipate that 
the taxpayer will make money on his investment, and if so, how? 
And do the write-offs that it has already taken in connection 
with its investment in these companies foreshadow more losses 
to come? Does the administration here envision a long-term 
government participation in the auto financing business?
    Of course, government action is not the only factor at play 
in determining the ultimate outcome for GM, Chrysler, and the 
taxpayer. Private sector responses are critical. Will the 
private sector lend to or do business with these companies? 
Will there ever be private sector interest in owning these 
companies, particularly if the government retains an ownership 
interest?
    I look forward to hearing the administration's thoughts on 
these and other issues this afternoon and I commend you, Mr. 
Chairman, for calling this hearing.
    Chairman Dodd. Thank you very much.
    We now have a quorum and I am going to move into executive 
session, if we quickly can, and deal with these two nominees.
    [Recess.]
    Chairman Dodd. With that, we will turn to our two 
witnesses. Ron Bloom is a very experienced individual, advising 
labor and business leaders. That qualifies him, I think, to 
assist the Secretary and members of the Auto Task Force. He 
previously served for 13 years as the Special Assistant to the 
President of the United Steelworkers. He is a founding partner 
of the investment firm, banking firm of Keilin and Bloom, has 
an MBA from Harvard, and is a graduate of Wesleyan University 
in Connecticut. We have Wesleyan connections at this dais, as 
well, I would point out.
    Ed Montgomery, Dr. Montgomery joins us as President Obama's 
Director of Recovery for Auto Communities and Workers. He 
formerly left his post as Dean of the College of Behavioral and 
Social Sciences at the University of Maryland. He attended Penn 
State University and earned a Ph.D. in economics from Harvard.
    We are delighted to have both of you with us and we will 
begin in the order I have introduced you, so Mr. Bloom, you are 
up first. Try and keep your remarks relatively brief. Let me 
just say to all of my colleagues, testimony, evidence, 
supporting documents will all be included as part of the 
record.

 STATEMENT OF RON BLOOM, SENIOR ADVISOR ON THE AUTO INDUSTRY, 
                   DEPARTMENT OF THE TREASURY

    Mr. Bloom. Thank you. Good afternoon, Chairman Dodd, 
Ranking Member Shelby, members of the Senate Banking Committee. 
Thank you for the opportunity to testify before you today.
    First, let me apologize for the snafu with getting the 
material to you late and appreciate your indulgence on it and 
to commit to you that it will not happen again.
    Over the past several months, the Obama administration has 
been working to manage an historic crisis in the American auto 
industry. President Obama inherited an auto industry that had 
lost 50 percent of its sales volume and over 400,000 jobs in 
the year before he took office. Two companies, General Motors 
and Chrysler, had received substantial loans from the prior 
administration and were requesting substantial additional 
assistance that only a government could provide. Without this 
assistance, both of these companies faced uncontrolled 
bankruptcies and a most certain liquidation, which would have 
caused significant job loss with a ripple effect throughout our 
entire economy.
    Even so, President Obama was unwilling to put additional 
taxpayer dollars on the line unless these companies and their 
stakeholders were willing to fundamentally restructure, address 
prior bad business decisions, and chart a path toward long-term 
financial viability without ongoing government assistance. 
Therefore, the President decided to give both GM and Chrysler a 
chance to work with their stakeholders and secure the 
sacrifices necessary to make them stronger, leaner, and more 
competitive in a way that would justify an investment of 
additional taxpayer dollars.
    In only a few months, GM and Chrysler, working with their 
stakeholders and the President's Auto Task Force, have achieved 
a level of restructuring that many thought impossible, 
positioning both companies for future viability. As a result, 
the President has decided to stand behind these restructurings 
with additional financial assistance. Consistent with prior 
administration's actions, this assistance is being provided 
from the U.S. Treasury out of the TARP program.
    After proceeding through a fair and open bankruptcy 
process, the new Chrysler-Fiat alliance closed its sale 
agreement earlier today and has now emerged from bankruptcy. 
Its future is in the hands of its executives, managers, and 
workers, as it would be for any private company.
    While General Motors is likely to take somewhat longer to 
move through the bankruptcy process, we are confident that it, 
too, will emerge quickly as a stronger, more viable global 
company. Because GM needed substantial capital that only a 
government could provide, and because we were committed to not 
piling on irresponsible amounts of new debt on top of the new 
GM, the U.S. Government will become a reluctant shareholder in 
General Motors.
    The administration did not seek this outcome, but arrived 
at the conclusion that it represents the most responsible way 
to protect taxpayers while giving GM an opportunity to succeed. 
As the President made clear, we will manage this investment 
commercially and exit our position as quickly as is 
practicable.
    Both the GM and Chrysler restructurings have required deep 
and painful sacrifices from all stakeholders, including 
workers, retirees, suppliers, dealers, creditors, and the 
countless communities that rely on a vibrant American auto 
industry. But the steps that the President has taken have not 
only helped to stabilize the auto industry and saved hundreds 
of thousands of jobs, but for the first time in decades, they 
have also given GM and Chrysler a chance to become viable, 
competitive American businesses with bright futures.
    Before taking your questions, I want to give a brief 
overview of the process the administration has taken in 
addressing these issues. On February 15 of this year, the 
President appointed an Auto Task Force to oversee his 
administration's effort to help support and restructure the 
industry. The Task Force is co-chaired by Treasury Secretary 
Timothy Geithner and National Economic Council Director 
Lawrence Summers and includes representatives from a broad 
range of agencies and offices throughout the executive branch. 
The Task Force is staffed by a joint Treasury-NEC team, of 
which I am a senior member. This team reports to the Task Force 
and its co-chairs, who report up to the President.
    From the beginning of this process, the President gave the 
Auto Task Force two clear directions. The first was to refrain 
from intervening in the day-to-day management of these 
companies. Our role has been to act as a potential investor of 
taxpayers' resources, and as such we have not become involved 
in specific business decisions like where to open a new plant 
or which dealers to close. This is the job of management, and 
while we have been engaged in dialog and discussion about their 
approach, we have not substituted our judgment about specific 
decisions for theirs.
    Second, the President was clear that he wanted us to behave 
in a commercial manner. That is to be sure that all 
stakeholders are treated fairly and receive neither more nor 
less than they would have simply because the government was 
involved. Because the investments made by both the prior and 
current administrations to support the auto companies have come 
from the TARP, the Task Force and its staff activities have 
been subject to the full range of disclosure and reporting 
requirements under the EESA statute. This includes oversight by 
the GAO, EESA's Financial Stability Oversight Board, the 
Special Inspector General for TARP, or SIGTARP, and the 
Congressional Oversight Panel established under EESA, as well 
as required reporting to multiple House and Senate committees.
    In a better world, the choice to intervene in these 
companies would not have had to have been made. But amidst the 
worst economic crisis in three-quarters of a century, the 
administration's decisions avoided a potentially devastating 
liquidation and put a stop to the long practice in the auto 
industry of kicking hard problems down the road. While 
difficult for all stakeholders involved, these restructurings 
provide GM and Chrysler with a new lease on life and a chance 
to fundamentally restructure and succeed. Thank you.
    Chairman Dodd. Dr. Montgomery, welcome.

 STATEMENT OF EDWARD MONTGOMERY, DIRECTOR OF RECOVERY FOR AUTO 
            COMMUNITIES AND WORKERS, THE WHITE HOUSE

    Mr. Montgomery. Thank you, Chairman Dodd, Ranking Member 
Shelby, and members of the Committee. I appreciate this 
opportunity to appear here today to discuss assistance that is 
being provided to and being sought by communities and workers 
affected by auto job losses.
    As you are well aware, the current recession is arguably 
the most severe since the Great Depression and has had a 
profound impact upon our businesses, workers, homeowners, and 
homeowners throughout the country. As striking as this decline 
has been for the country as a whole, the situation is even more 
severe in much of the auto manufacturing heartland.
    Just as Mr. Bloom has discussed the challenges to our two 
biggest auto companies, or two of our biggest auto companies, 
and the steps we are taking to help meet these challenges, I 
want to briefly discuss the process we have begun to help the 
hundreds of auto communities struggling to deal with rising 
unemployment.
    When President Obama appointed me as the new Director of 
Recovery for Auto Communities and Workers, my mandate was to 
cut through red tape and assure that the full resources of our 
Federal Government are leveraged to assist the workers, 
communities, and regions that have historically relied upon the 
auto industry. The administration is developing a comprehensive 
effort that will help lift up the hardest-hit areas by using 
the unprecedented levels of resources and funding provided by 
the Recovery Act and available through regular government 
programs. We have also been engaged in our effort to identify 
new initiatives that may be helpful going forward in this 
effort to support auto communities.
    Upon appointment, my first order of business was to get out 
and directly hear from affected workers, businesses, and the 
communities. We have held town halls and meetings in Michigan, 
Ohio, Indiana, with hundreds of stakeholders to identify ways 
in which the Federal Government can be helpful. We plan to 
continue these sessions in a broader range of communities in 
the weeks and months ahead. These sessions have been more than 
just listening tours. We have established an interagency team, 
including representatives from the Department of Labor, Energy, 
Commerce, the Small Business Administration, Transportation, 
Justice, Health and Human Services, EPA, and Treasury that have 
accompanied me to these meetings to hear first-hand what works 
and what doesn't. As a result, they have already started 
implementing next steps and working with local officials on how 
to address problems and issues that are raised.
    The Recovery Act has made possible a wide range of 
investments in auto and other communities to both combat the 
current economic developments and begin to transform our 
economy for future long-term growth. Some examples of ways 
agencies have targeted support for auto communities in 
particular include the General Services Administration's 
accelerated purchase of over 17,000 new fuel-efficient 
vehicles, adding over $280 million in demand for new cars. 
Secretary Solis from the Department of Labor announced a $50 
million targeted Green Jobs Training Initiative that is 
targeted toward auto communities. In January, the Department of 
Labor also announced--since January--over $16 million in 
National Emergency Grants to support dislocated auto workers in 
various States.
    Recently, Secretary Duncan announced $7 million in a 
special competitive grant to establish innovative and 
sustainable community college programs to prepare displaced 
auto and other workers for second careers. This grant program 
will be used to develop national models that can be replicated 
around the country.
    The Small Business Administration has announced extensions 
to its 7(a) lending program and recently announced development 
of a floorplan financing program for auto dealers, RV dealers, 
and boat dealers.
    And EPA has announced millions of dollars in grants to help 
revitalize former industrial and commercial sites in auto and 
other communities. Recently, Michigan was the largest recipient 
of those funds.
    One of the most pressing challenges is to ensure that auto 
communities have access to existing Federal programs and new 
funding available in the Recovery Act. We have taken steps to 
ensure that auto communities have an equal chance to access 
Federal funds. Some examples of that include the Department of 
Energy recently held workshops for county and local 
municipalities to train leaders in how to apply for the Energy 
Efficiency Conservation Block Grants. The Department of Energy 
also held meetings with local businesses and financial 
officials to talk about how to make sure small businesses can 
access their new loan guarantee programs.
    The Commerce Department, through the Manufacturing 
Extension and the Economic Development Administration, have 
held numerous workshops in the auto region to help companies 
diversify and provide tailored assistance as well as to help 
regions with their strategic planning.
    And recently, the Department of Labor convened all the 
rapid response coordinators throughout the Midwest to make sure 
that we provide a consistent level of service and to help 
States with their planning efforts.
    The administration approach realized that there is no 
single agency that holds the key to economic growth and that 
there is no magic bullet. The challenges that the regions face 
did not appear overnight and they will not be resolved 
overnight. Credit for businesses cleaning up private 
properties, transportation issues, job training, schools, 
public safety, and health care are all integral parts of the 
solution. Local and national foundations also have a role to 
play and we have begun to find ways to reach out and partner 
with them. State and local governments have and must play a 
central role in these efforts, reflecting choices that each 
area must make about how best to use their assets. Our 
comprehensive recovery strategy will not only recognize, but it 
will support these heterogeneous local efforts.
    Families and workers in auto communities face challenges 
unlike many of us have faced in our lifetimes. I share the 
President's commitment to helping these workers and communities 
both in the near term as we go through the recovery, but over 
the long term to make sure that they fully share in our 
economic prosperity.
    I look forward to working with the members of this 
Committee, and thank you for the opportunity to be here today.
    Chairman Dodd. Thank you very much, Doctor, and I am going 
to ask the clerk to put us at 5 minutes and follow it fairly 
religiously here. We have got a lot of members, and we want to 
get a round in. The second round usually thins out the 
membership, and we can spend a little more time in the second 
round if we get to that point. And I will leave the record 
open. I know some will be coming and going, and so the record 
will remain open for questions to be submitted. To our 
witnesses, I would ask that you respond to them in a timely 
fashion.
    Let me begin with you, Mr. Bloom, if I can, and I will have 
a question for you, Mr. Bloom, and for you, Dr. Montgomery, and 
then give both of you a chance to respond to them.
    First of all, the administration has taken bold action, and 
it has been controversial, clearly. As you have heard both in 
Senator Shelby's and my opening comments, a lot of questions 
are being raised by people across the spectrum. And while there 
are going to be a lot of job losses obviously associated with 
this restructuring, I for one subscribe to the notion that had 
you not taken this action or tried this action, the job losses 
and the effect on our economy would be far more calamitous than 
it is even with the kind of erosion. We are talking about maybe 
down to like 90,000 jobs in automobile manufacturing from some 
340,000 only months ago, not to mention the impact on retirees 
and benefits and pensions. So it has been a major blow to our 
economy. But inaction, as I said, I think would have been 
worse, and the liquidation of GM and Chrysler would result in 
hundreds of thousands of jobs and related jobs being lost.
    So the questions are the following: Treasury's proposed 
equity stakes in GM and Chrysler are giving people great pause, 
as you have heard already just in the two opening statements 
that Senator Shelby and I have made. Why did the Treasury such 
large equity stakes rather than providing these companies with 
more loans? Number two, explain if you would how the Treasury 
determined the size of these stakes to be taken? And given the 
Treasury's large stakes in these companies, particularly GM, 
how will the U.S. Government quickly extricate itself?
    As I said in my opening comments, I would like us to be out 
of this business yesterday. Obviously, that is not going to 
happen, but the point is I think a lot of us would like to see 
us get beyond this, get out of it, and get these businesses 
back functioning on their own. Given the stakes we have, how 
easy is that going to be to achieve?
    And for you, Dr. Montgomery, I admire you taking on this 
job. The President obviously has a lot of confidence in you. As 
I understand it, you have no budget to operate really with, 
other than what exists around? So we need to know if we can do 
anything to help. Obviously, all of us, some more than others, 
our colleagues from, obviously, Detroit, Michigan, from Ohio, 
Senator Brown, Senator Bayh come to mind immediately. I presume 
all of us here are being adversely affected by job losses, some 
more than others. And obviously we want to help our communities 
during times of readjustment like this.
    So what additional tools are you going to be ask of us or 
will the administration ask of us in the Congress to be helpful 
for you to perform your job? Holding town meetings is great and 
listening to people are wonderful things to do, but I suspect 
that the people who show up at those meetings want to know what 
if any kind of help is going to be there for them as they try 
to find a new economic path for themselves and their families 
in the midst of this economic hardship.
    So we need to get some additional specificity as to what 
you are going to be asking of us and how we can help minimize 
the kind of economic blows these communities are going to be 
facing. Your response to the questions.
    Mr. Bloom. Yes, thank you, Senator. Let me try to address 
your three questions, if I can.
    In terms of the equity stake and why equity and why not 
debt, let me answer that this way. The size of the stake and 
the determination was done through the following process: The 
first thing that happened was the companies put forward a 
business plan which we very vigorously reviewed and challenged 
them on, but eventually came to a business plan, and through 
that business plan really a financial need was determined 
because we saw how much money they needed to right-size their 
business, to take the necessary steps, in the case of General 
Motors in the bankruptcy to pay off some of the secured debt. 
So there were a whole variety of needs that the company had, 
and that really determined the sort of starting point from the 
discussion.
    The second step was directly on your point, which was how 
do you determine how much of it should be debt and how much of 
it should be equity. And, obviously, as I said in my opening 
comment, the President did not start out with wanting to be a 
shareholder, but the dilemma we faced was that one of this 
company's core problems for a lot of years was that it was too 
highly leveraged. So for us to try to fix General Motors with 
more debt would simply have not fixed the problem.
    General Motors' key competitors, among them companies like 
Toyota and Volkswagen, have very minimal levels of debt--debt 
approximately equal either to the amount of cash they have on 
the balance sheet or to 1 year's profit. So we were very 
mindful of trying to set up General Motors to have a 
competitive balance sheet because that is one of the 
competitive weapons in the marketplace.
    And so that really left us that if we were not going to 
overburden the company with debt, then the only remaining 
security we could have would be equity, and certainly we did 
not want to give this money away. This is the taxpayers' hard-
earned money. And so the determination was to take equity.
    In terms of the size of the stake and how that was 
determined, that was determined in arm's-length dealings with 
the other key stakeholders to the company who wanted to also be 
owners. That included the bond holders where we had a vigorous 
debate and the UAW on behalf of the retiree trust, and they 
obviously wanted more equity than we wanted to give them, and 
we wanted to give them less because, on behalf of the taxpayer, 
the objective should be to get as much as you can to get as 
much value as you can out of the enterprise. So it was really 
determined through arm's- length negotiation. The other equity 
shareholder in General Motors is the Canadian Government, who 
was also making a very sizable investment, but in that case, 
they are investing side by side with us, and so they are 
proportionally getting the same amount of equity as we are per 
dollar invested. That part of it was just straight up, but to 
the others it was simply arm's-length bargaining.
    On the question of how we get out, obviously this is a key 
issue. The President has been quite clear that he is a 
reluctant shareholder and he wants to exit as soon as 
practicable. Now, ``as practicable'' in this company is not 
going to mean tomorrow morning. When this company comes out of 
bankruptcy, it is going to be a private company. The new 
General Motors is not going to be publicly listed. It will take 
some time for it to achieve a listing on the stock exchange, do 
what is called an IPO and begin to trade its shares publicly. 
We would expect that would likely happen sometime in 2010, and 
that would be our goal. And then after that, there will be an 
orderly process where these shares will be disposed of. But it 
needs to be orderly because, again, these are taxpayer dollars, 
and while the President did not want to be a shareholder, once 
we have become a shareholder, we certainly want to achieve fair 
value for those shares so the taxpayers can get back this 
investment.
    Chairman Dodd. Thank you.
    Quickly, Dr. Montgomery. My time is already----
    Mr. Montgomery. Yes, the initiative that we are undertaking 
is using the current resources provided under the Recovery Act, 
which really provides an unprecedented level of dollars that we 
can use to either support--as Mr. Bloom has pointed out, to 
support the industry, to make sure that the companies are 
viable, step one; to talk about how we support the suppliers 
and the Treasury through its supplier support program, the 
Small Business Administration through its 7(a) loan program, 
and through its dealer program all have made efforts to support 
suppliers and keep that part of the sector viable.
    As far as the workers are concerned, there are over a 
billion dollars in additional funding, multiple billions of 
dollars in additional funding for job retraining assistance on 
top of which, of course, we have extended and expanded 
unemployment insurance.
    As we think about going into the longer term and the new 
growth potential, there are in the Recovery Act funds within 
the Department of Energy to make new investments in different 
sectors, to grow different areas of the economy, everything 
from smart grid to alternative energy to modern fuel-efficient 
cars, the next-generation vehicles.
    And so there are a variety of different currently available 
resources to make investments, and my job at this point is to 
make sure that people in these regions have full access to 
those dollars.
    As we go forward, it may turn out that additional 
investments are necessary, but right now we want to make sure 
that the current investments are being fully utilized.
    Chairman Dodd. I am sure my colleagues will have some 
additional questions along that similar line, but let me stop 
there and turn to Senator Shelby.
    Senator Shelby. Mr. Bloom, following up on Senator Dodd's 
question a minute ago, how many years do you think the 
Government will be involved in General Motors and Chrysler as 
far as their investment? Would it be in your judgment 3 years, 
5 years, 10 years, 12 years, or what? You have got some kind of 
judgment there. You say it is not going to be quick to get out.
    Mr. Bloom. Yes, Senator, as I indicated, the sort of legal 
framework in which we are, which is to say a private company 
and then an IPO is a certain amount of kind of a runway period. 
Senator, at this point, we do not have a specific target in 
terms of years. The factors that will influence that will be 
many, how the market is doing, how the capital markets are 
doing. We are going to be a very large shareholder in a 
company, and so as you know, for a large shareholder to be 
selling share can be disruptive to the other shareholders. And 
so we want to be mindful of that.
    At this point, the President's direction is to get out, his 
phrase and order to us, ``as soon as practicable.'' But beyond 
that, we do not have at this point a defined timeframe.
    Senator Shelby. Will you put together a plan, though, that 
you could operate, a blueprint, some architecture? You got in. 
The question is: How long will the Government be involved in 
running a huge manufacturing or owning a huge manufacturing 
plant? I think that is a fair question.
    Mr. Bloom. It is, sir, and I want to appreciate your point. 
We are owning it. We are not managing it, sir. And that is 
important, and the President has been clear on that.
    But to your question, I think----
    Senator Shelby. But you are involved, aren't you, as a 
stockholder?
    Mr. Bloom. There will be a very limited involvement as a 
shareholder. The President has issued a series of guidelines of 
how he intends us to act as a shareholder. We do not intend to 
involve ourselves in day-to-day management, those sorts of 
decisions. The shares will only be voted on what we call core 
governance issues, which is to say the election of directors or 
a change of control transaction. So, yes, there will be some 
involvement, but it will not be onerous or overbearing 
involvement.
    But back to your question, there will be a strategy to get 
out. It will be to access the public markets and to sell when 
it is determined that the market is appropriate for selling. 
But I do not anticipate there will be a detailed blueprint, 
again, because the mere issuance of that blueprint we believe 
would be market disruptive and would cause an overhang in the 
stock, which, again, would defeat the very purpose we are 
trying to achieve, which is to get out quickly but to do it in 
a way that maximizes the shares for the benefit of the 
taxpayers.
    Senator Shelby. Do you believe the Government has put as 
much money in GM and Chrysler as they are ever going to put in? 
Or do you anticipate more down the road as Mr. Montgomery did 
not say ``anticipated'' but could be more money?
    Mr. Bloom. Yes, sir. Let me----
    Senator Shelby. In all fairness to us and the taxpayers.
    Mr. Bloom. It is a very fair question, sir. It is our 
absolute intent that this be the last assistance provided to 
these two companies. We have spent a tremendous amount of time 
diligencing the companies, and we have worked very hard to 
assure ourselves that this is their last visit. You never say 
never in this world, but our whole work, the basis of our 
analysis has been that this is a one-shot affair. We are going 
to do this, and then we are going to construct an orderly exit, 
and then it will be back to business as usual.
    Senator Shelby. What if GM and Chrysler--what if it does 
not work out as you anticipated? Will you then recommend more 
money just to keep it going, to keep a few people employed? 
Maybe more than a few. A lot of people employed.
    Mr. Bloom. It is very hard to speculate about a 
hypothetical, Senator, but I can tell you----
    Senator Shelby. That could be more than a hypothetical.
    Mr. Bloom. Well, I believe it is a hypothetical because I 
believe----
    Senator Shelby. OK. It is at the moment.
    Mr. Bloom.----we have constructed a conservative plan. We 
have what we call stress-tested it. We have looked at cases 
where the recovery is slower than most economists believe it 
will be, where the company is not fully capable of executing 
its turnaround. So we have looked hard at this question, and it 
is our belief and our confident belief that this will be the 
last trip to the well.
    Senator Shelby. I have just got a few seconds. What I deem 
conflicts of interest, the Federal Government is now the 
principal labor, environmental, and safety regulator, a 
customer, tax collector, financier, and pension guarantor of 
two of the three domestic auto manufacturers. Unprecedented. It 
also holds considerable equity positions we are talking about 
in each entity, and managing these varied responsibilities will 
engender conflicts everywhere. Other conflicts will arise by 
way of the Government's investment in two competing entities.
    What process have you put in place, if you have, to help 
identify, to manage, and then report such conflicts to the 
Congress, especially this Committee?
    Mr. Bloom. Well, let me talk generally about the 
President's admonitions in this area. He has been very clear 
that the policy directives regarding things like the 
environment or CAF? or health and safety are not within our 
purview. We have no authority to deal with the companies on 
those matters and do not expect to have any authority. Whatever 
the Congress passes and the President signs that becomes the 
law of the land we would expect would apply to all companies 
who do business absolutely similarly, and the President's has 
been crystal clear that he expects no special accommodation to 
either of these two companies in any of those areas.
    We intend to be essentially a passive shareholder who is 
trying to get our money back so we can give it back to the 
American people. And we will leave to others to determine what 
the proper policies are regarding other matters.
    Senator Shelby. Thank you.
    Senator Brown.
    [Presiding.] Thank you, Senator Shelby.
    Senator Bennet of Colorado.
    Senator Bennet. Thank you, Mr. Chairman. Thank you, Mr. 
Bloom and Mr. Montgomery, for being here today. I wanted to 
start by saying congratulations on the speed at which the 
Chrysler situation was dealt with in bankruptcy. As somebody 
who used to make his living restructuring companies in 
bankruptcy, nothing this complicated, this has been lightning 
quick. And there were a lot of people that said it could not be 
done, that you were not going to come in in 30 days. You did 
not, but you came in pretty close to it. And I think that at 
least in my view is a major step forward to trying to create 
some credibility here on these matters. I want to say 
congratulations on that.
    With all that said, I want to echo the Chairman's view that 
the American taxpayers want to be out of these companies as 
soon as possible, ``as soon as practicable'' is the language 
that you have used, and all I can say is that I hope you are as 
successful at that as you have been getting this bankruptcy 
accomplished.
    I guess, Mr. Bloom, my first question for you is whether or 
not you would be willing or could shed some light--I am sure it 
is in the bankruptcy documents--on some of the underlying 
assumptions that underlay the arm's-length negotiation that you 
were talking about. What were some of the assumptions relating 
to sales of automobiles in the United States, the cash-flow of 
the companies? How did you and the other parties think about 
how to value first the enterprise itself and then to distribute 
it to the constituencies in the bankruptcy?
    Mr. Bloom. Yes, sir. Let me first thank you for those kind 
words relative to the speed. I think Benjamin Franklin said 
that an imminent hanging tends to concentrate the mind. I think 
that is what we had in the case of Chrysler, and I think it was 
a good tonic.
    Relative to how we went about our business and this 
bargain, essentially the process was the following: The 
companies in each case came up with a business plan, and it is 
the management, obviously who is responsible for putting 
forward a business plan. We viewed ourselves essentially as a 
potential investor of the taxpayers' money. And so as an 
investor, we went and then diligenced that plan. We criticized 
it. Whatever they said, we asked, ``Did you consider this? Did 
you consider that?'' So whatever assumption they made, we kind 
of flipped it on its head and asked the reverse. And, 
obviously, we used our own assumptions, too. If they believed 
that SAR was going to be X, we asked what would happen if it 
was 0.8x or 1.2x.
    We did not fasten on any single point estimate but, rather, 
as a lender and an investor, what we really did is simply 
acted, I think, as traditional investors were, which is to say 
we looked at a variety of scenarios. We asked ourselves if SAR 
is higher, if SAR is lower, if execution is better or worse 
than planned, how do these things look? And that brought us to 
an enterprise value using relatively traditional financial 
techniques--multiples of earnings, discounted cash-flows, I 
think the things that you would expect any third-party investor 
to look at.
    Now, obviously, you know, we are the Government, and we are 
doing this because the President has directed that this is a 
critical industry. But, nevertheless, we tried in every aspect 
of this to be commercial, to ask ourselves what is the cash-
flow capability, what is the likely earnings capacity of the 
company, et cetera. From that we created models of potential 
enterprise value, and from there we engaged in the kind of 
bargaining that I described, which is to say arm's-length 
bargaining between a lender/investor and the various other 
stakeholders to the case.
    Senator Bennet. The tension the Ranking Member talked about 
between--or the Government not involving itself in the day-to-
day management decisions of the company, which I think is 
certainly the right approach. But sitting here thinking about 
what--if those projections do not come true, if you have 
quarter upon quarter of growth or lack of growth, if the 
companies do not, for example, begin to produce automobiles 
that will compete in the marketplace, what is the Government's 
role at that point as the investor of our taxpayer money in 
this enterprise? What if they do not live up to your 
expectation?
    Mr. Bloom. Well, as a lender in Chrysler and as a lender in 
General Motors, there will be covenants--there are covenants 
regarding performance, and lenders, as you know, have rights 
that we would expect to avail ourselves of. But I know that the 
President is highly committed to not having this be--to wander 
into the middle of the company and take it over. The company 
will have a board of directors. It will be comprised of 
independent businessmen. And I would point you to the two 
gentlemen who have agreed to serve as Chair of Chrysler and GM, 
respectively, Mr. Whitacre just announced yesterday and Mr. 
Kidder a week or so ago, two excellent individuals. We expect 
them to run the company.
    Senator Bennet. My time is up, regrettably, Mr. Chairman, 
so I will yield back.
    Senator Brown. Thanks, Senator Bennet.
    Senator Corker.
    Senator Corker. Thank you, Mr. Chairman, and thank you both 
for being here. I do want to point out that you are fudging a 
little bit on the history side of this. I think the 
administration prior to you all coming in laid out a loan 
program that said if the companies put forth a viable plan by 
February 17th, they would not call the loan by the end of 
March. They did not do that, and that would have precipitated 
you calling the loan.
    So I think somehow or another everybody is letting you get 
away with this precedent thing. The fact was that the prior 
administration had set in place a set of procedures that said 
if the companies did not present a viability plan that was 
appropriate, they would call the loan. You all did not do that. 
They did not put in place a plan, and instead you are putting 
in place a plan. So I just want to get the record straight 
there.
    Let me talk a little bit about the money that has gone in. 
I think we have got about $85 billion in the companies now. We 
have got $50 billion in GM, $16 billion in Chrysler. We have 
got $14 billion in the fin-cos. We have got $5 billion in the 
suppliers. I know that you have answered very affirmatively 
there will be no more money, but my understanding is--and I see 
some of the other Senators sort of moving around a little bit 
with Section 136 money in the energy bill. How much has GM 
applied there, and how much do you expect them to get out of 
another pocket, if you will? It is all our money.
    Mr. Bloom. Yes, sir. Let me try to answer your question.
    The first thing, just a very small correction. I think that 
the total U.S. Government commitment to Chrysler is $12 
billion. The remaining funds are coming from the Canadian 
Government. But that is----
    Senator Corker. The $81 billion--you know, a lot of money, 
yes. You know, we had a guy named Mark Zandi up here who told 
us if we put $1 in these companies, we would end up between $75 
and $125 billion. Obviously, we already have blown past that, 
and I think a number of us were working to try to keep that 
from happening. But to the 136, how much money have they 
applied for and how much will they get out of another pocket?
    Mr. Bloom. I believe both of the companies do have 
applications in for 136 funding. My understanding is that is a 
highly competitive process where many, many----
    Senator Corker. How much have they applied for?
    Mr. Bloom. I think they both applied on the order of $5 or 
$6 billion, but I have no indication that they will necessarily 
receive it. It is a competitive process. There are dozens of 
companies applying for 136 assistance. If they are deemed 
worthy, they will get it. If they are not, they will not.
    Senator Corker. I just see some of the policy things that 
are trying to be changed around 136, which looks like they may 
have a really good chance of receiving it. But let us just say 
that they get half of that. We are going to be, you know, in 
the $86, $87 billion range.
    On the UAW piece, I know there has been a lot said about 
shared sacrifice. I would just like some yes/no's. It is my 
understanding that the existing employees are making exactly, 
per the new contract, per hour what they were making under the 
old contract. Is that yes/no?
    Mr. Bloom. The answer to that is no. Their base wages have 
remained----
    Senator Corker. Their base wages are exactly the same.
    Mr. Bloom. I am going to try to answer your question. There 
is a cost-of-living improvement, which they had in their 
paycheck, which has gone away, of about $1 an hour.
    Senator Corker. So the base wages are exactly the same.
    Mr. Bloom. The cost-of-living----
    Senator Corker. The health care benefits are exactly the 
same. Is that correct?
    Mr. Bloom. The active employee health is the same.
    Senator Corker. I did notice that you did away with the 
Monday after Easter holiday, but my guess is they do not get 
very fearful when you come in the room to negotiate. How has 
that been, that negotiation?
    Mr. Bloom. Well, I would let them speak for whether they 
are fearful or not. I think the negotiation between the UAW and 
the companies has been extremely vigorous and arm's-length. I 
believe they have made very difficult sacrifices.
    Senator Corker. I do not want to go into a long dialog 
here, but I have not heard many sacrifices yet. I am talking 
about by active employees.
    Mr. Bloom. About $7 an hour of reduction in their 
compensation package. To me, that is a pretty big----
    Senator Corker. Things like paying time-and-a-half after 40 
hours instead of before and those kind of things.
    Mr. Bloom. The companies value the total package of 
concessions at about $7 an hour.
    Senator Corker. Well, I guess what has troubled me about 
this is I know politics are not involved, although I would like 
to know who we call. I know you all are not involved in 
politics. But what is the number Barney Frank called about 
keeping the plant open in his district? Because if it is not at 
your level, I would like to know who--we have got the same kind 
of thing happening in Tennessee. Who is that people do call to 
get those things changed?
    Mr. Bloom. I can only speak for the administration, 
Senator, and I can tell you what the President has directed us 
to do and what we are doing, which is we are not meddling in 
those matters.
    Senator Corker. Well, who made that decision?
    Mr. Bloom. The President.
    Senator Corker. Oh, the President kept the plant open.
    Mr. Bloom. No. I said the President directed the 
administration----
    Senator Corker. Well, who is it Barney Frank called to 
get----
    Mr. Bloom. I cannot comment on a conversation between two 
people, neither of whom are in the administration.
    Senator Corker. Well, let me go a different angle 
politically then. You know, the Greatest Generation we all 
hailed. We have statues and tributes to the Greatest 
Generation, many of which invested in bonds in GM and thought 
that throughout retirement GM was going to be something that 
paid them and I imagine there are circumstances in our country 
today where a GM bondholder, an 80-year-old veteran that 
expected to get retirement, has been basically made toast by 
the decisions of this task force.
    And then if you look at the UAW's component, I mean, they 
have come out really, really well from the standpoint of their 
ownership. I know that you and Steve Rattner who I wish was 
here; I really respect him and think he answers questions very 
clearly, as do you. But, you know, I guess I have been a little 
discouraged to hear that, well, we do not need them anymore. 
They loaned us money, but we do not--but we have to have 
workers. And I think there has been an overt concern that if 
you did not do everything necessary on the workers' side that 
they would strike. I know a number of occasions you all pointed 
to what happened in New York State. I just wondered if you 
might educate us a little bit into that thinking and basically 
sort of these God-like decisions where, in essence, bondholders 
are stuffed who invested in the company, you do not need them 
anymore, but others are not.
    Mr. Bloom. Well, let me try to answer that, sir. First, I 
hope we never would act God-like or anything approaching that.
    I think there is sacrifice in General Motors to go around 
for everyone. There are enormous victims of the fact that 
General Motors is a failed enterprise. Bondholders are clearly 
among them. The communities who had come to rely on those jobs, 
the dealers, the list is very, very long.
    Tragically, this chairman became insolvent, very, very 
insolvent, and it is a failed enterprise. And that meant that 
the only way to revitalize it, if we wanted to revitalize it--
we really had three choices: One is we could have let it 
liquidate, with all the damage that would have caused. Second, 
we could have made good on all promises with taxpayer dollars, 
and that I think would have been many multiples of the 
investment that has already been made. And, third, we could 
have taken a commercial--which is what we believe we did, a 
commercial approach to this restructuring. And in a commercial 
approach to a restructuring, a business owner, a financial 
investor will look in a pretty hard-nosed way at who is needed 
to make the company succeed going forward and who is not.
    For instance, in General Motors, the decision was made, as 
it was in Chrysler--which we supported--to take the suppliers 
who supply the company with goods and services and essentially 
pay them at 100 cents on the dollar, which nobody else got. And 
the reason was not about bleeding hearts for suppliers. It was 
about the commercial decision that if you do not have a 
steering wheel, you cannot make a car. And so commercially 
putting--taking those unsecured claims of suppliers and leaving 
them behind did not make commercial sense.
    There are warranty holders, people who had bought GM cars, 
worth on its balance sheet many billions of dollars. The 
commercial decision was made that those warranty holders, if 
you made them angry, probably would not buy a new GM car, and 
your best base of future car buyers is prior car buyers.
    So in all these cases, we believe in a very clear-eyed way 
and with the company in the lead and the Treasury questioning 
them every step of the way, commercial decisions were made 
about how to treat each constituent. I believe that everyone 
has made enormous sacrifice, and I believe those sacrifices 
have met two tests: one, in each case the stakeholder did 
better than he would have if the Government had not intervened; 
and, second, he was treated in a fair way given the commercial 
realities of the marketplace.
    As you know, in the Chrysler case, a bankruptcy judge heard 
over 30 hours of testimony on this exact set of questions and 
ruled completely in our favor in a very detailed 47-page 
opinion. It was upheld unanimously by the court of appeals, and 
the Supreme Court just decided not to take up the matter. They 
did not see any issues that rose to them.
    So I believe this has received enormous scrutiny by 
judicial officials at all levels and enormous scrutiny in the 
media, and we are quite comfortable and confident this has been 
done in a commercial fashion.
    Now, we understand there are a lot of disgruntled people, 
unhappy people, but, unfortunately, in a failed enterprise that 
is inevitable.
    Senator Brown. Thank you. Thank you, Senator Corker.
    Senator Bayh?
    Senator Bayh. Gentlemen, I would like to thank you for what 
you are doing. Mr. Bloom, I assume you could be making a lot 
more money with a lot less aggravation doing something else, so 
I am grateful to you, and Mr. Montgomery, it was good being 
with you in Kokomo, Indiana. I am grateful for the town hall 
meeting you had and for the floorplan financing that you 
announced while you were in our State, so thank you both for 
that.
    Look, I am one of those who thought that it was not an 
appropriate thing to run a gamble at this moment in time with 
the economy of the country, and there were some pretty sober 
analyses out there that if we just allowed these enterprises to 
fail, it wouldn't have just been them. It would have been the 
supply chain, as you were pointing out. It would have been 
dealers across the country. It would have been middle-class 
people. A lot of communities would have been hurt by this.
    And if the economy had been growing by leaps and bounds, 
maybe that is a risk worth running. But given the present state 
of the economy, I think the better judgment was to not run that 
risk as long as there was a credible--and I emphasize the word 
credible--plan in place to try and maximize the chances that 
the taxpayers were going to get a return on their money. You 
don't just throw money after a losing proposition, but if you 
have a reasonable prospect of getting repaid, then it was the 
right thing to do. So I would like to focus on that issue.
    Mr. Bloom, I understand you want to maintain maximum 
flexibility here and there are just a lot of imponderables out 
there we don't know. You are a bright businessman. You have 
analyzed this, as you were saying in response to several of my 
colleagues, from a hard-nosed business perspective. What do you 
think the chances are that the taxpayers will ultimately be 
repaid?
    Mr. Bloom. Senator, I appreciate the question and it is a 
fair question. I think the best I can give you is that we have 
certainly looked at scenarios where, over time, a very 
substantial portion and potentially all of the taxpayer 
investment in General Motors will be returned. But I by 
certainly no means would say that I am highly confident that 
that will occur. But I think there are reasonable scenarios 
where it could occur. There are obviously----
    Senator Bayh. The word ``reasonable,'' at least in the law, 
normally denominates a probability of greater than 50 percent. 
A reasonable person would----
    Mr. Bloom. I don't think I would put a probability on it. 
You are perhaps a lawyer. I am not.
    Senator Bayh. That is a handicap I constantly struggle to 
overcome.
    [Laughter.]
    Mr. Bloom. And you are doing a fine job. No. Look, we have 
looked at a lot of scenarios, and obviously that was a key 
objective for us, is to say to the President that there is a 
reasonable chance that this can happen, and that was a basis--
that was one of the key basis that we took when we insisted as 
we did that the company be aggressive in its business plan, 
because at the end of the day, the ability to pay back the 
money through the sale of the shares is based on the 
profitability of the enterprise. The profitability of the 
enterprise is based on the hard--one aspect of it is based on 
how hard-nosed they are prepared to be about dealing with their 
realities.
    Senator Bayh. Well, let me ask you this, then. Based upon 
assuming that there is a reasonable improvement in market 
conditions, we are not going to be selling this few vehicles 
forever, God willing. So we are into, say, GM for $50 billion. 
It looked to me like their total capital is, what, about $83 or 
$84 billion? We are 60 percent. That would get you to about $50 
billion. What kind of earnings per share at a normal market 
multiple do they have to achieve in order to reach that kind of 
market gap?
    Mr. Bloom. Well, I am sure you and many others can do the 
arithmetic. I mean, the company will have a trading multiple. 
It is hard to know exactly what that will be. Again, it will 
depend on a wide variety of factors, but honestly, I say what I 
said, which is I think there is a reasonable chance. It will 
obviously take a period of time and it will a recovery in our 
economy. But obviously it is a key focus for us.
    Senator Bayh. With the amount of holdings that the 
taxpayers now have--you say there is no schedule, and I 
understand that. I mean, the overhang is going to be 
substantial. Therein lies the problem. Perhaps you haven't 
contemplated this, but would just a periodic sale on some sort 
of preordained basis, so you are not trying to time the market 
and the market could kind of factor that in so that we would 
gradually whittle down our holdings over a period of time, 
would that be something you would contemplate?
    Mr. Bloom. We have looked at a variety of exit strategies. 
You know, there is some history out there. You have the 
privatizations in Eastern Europe and in Western Europe and in 
England. We have really tried to do a pretty wide canvass, and 
I think the conclusion is there is no perfect system. We looked 
at what Bill Gates did with Microsoft, which was a kind of a 
timed schedule. I think our judgment at this point is that a 
prearranged time schedule will create more problems than it 
solves, but I can assure you that was one of the strategies 
that we examined.
    Senator Bayh. My last two questions, and I think you 
already answered one of them, is in your view--I will just ask 
them both and let you respond. The supply chain, is it in 
reasonably healthy condition right now? That is number one.
    Number two, if you are an employee or a shareholder of 
Ford, what do you make of all this and how do you compete?
    Mr. Bloom. Your first question, sir, is I can't tell you 
that the supply chain is relatively healthy. The supply chain 
is troubled. The OE sector is troubled. But we are monitoring 
it very carefully. We are deeply aware of the interrelatedness 
of the supply chain. When the supply chain goes down, even if 
you didn't have a view about saving GM and Chrysler, you have 
got Ford and Honda and Nissan connected to the same group of 
suppliers. So we are deeply aware of the interconnectivity of 
this and we are monitoring it closely. We believe it can hold 
together, but we are very much mindful of that.
    The Ford question is one that, again, we have looked at 
carefully. We believe that Ford is a good and competitive 
company. We believe they will be able to survive and thrive as 
the economy turns around. But obviously, we are in constant 
dialog with them. And I would also say that Ford has chosen 
affirmatively not to participate in this program and that is 
their choice, but that was their choice.
    Senator Bayh. Thank you again, gentlemen.
    Senator Brown. Thank you, Senator Bayh.
    Senator Johanns?
    Senator Johanns. Thank you, Mr. Chairman.
    Mr. Bloom, reference was made in the previous question 
about intervention from a Congressman, Barney Frank. You can 
see why that leads to so much suspicion back home and even 
amongst members of this panel. I don't have that kind of power, 
and yet dealerships were closed in the State of Nebraska. Were 
you aware of that? Did the CEO or somebody call you and say, 
wow, what do I do with this? Barney Frank has called me and he 
wants this facility left open.
    Mr. Bloom. No, sir, we were not.
    Senator Johanns. Did you learn about it then after the 
fact?
    Mr. Bloom. I learned about it pretty much the same way you 
learned about it.
    Senator Johanns. OK. Do you know of any other special deals 
that have been made out there?
    Mr. Bloom. We have not participated in any of that 
activity. And again, I can only speak to what the President has 
directed the administration officials involved in this to do 
and what we have been admonished to do and what I believe we 
have done----
    Senator Johanns. So when you----
    Mr. Bloom.----and I assure you we are going to continue to 
do what he asked us to do.
    Senator Johanns. So when you say you haven't participated, 
does that mean you don't know of any other special deals that 
were struck?
    Mr. Bloom. I don't know what I don't know, sir. What I can 
tell you is that the Auto Task Force has been explicitly and 
very clearly discussed--this was discussed with them and I 
have--and we have regular discussions internally about this and 
I can assure you that nobody from the administration has been 
involved in trying to pressure these companies to make specific 
decisions regarding dealers or regarding plants, and I know 
that we have been instructed not to do so in the future and 
that we will not.
    Senator Johanns. Let me, if I might, focus for a minute or 
two here and talk to you about the rights of people. I didn't 
do a lot of bankruptcy when I practiced law, but I did do some. 
Is my understanding correct that if you are a shareholder and 
you just go through a regular old bankruptcy, that on the other 
end of that bankruptcy, you are going to basically end up with 
nothing?
    Mr. Bloom. I would say the overwhelming majority of 
bankruptcy cases are premised on the company being insolvent, 
and with the shareholders at the bottom of the totem pole, I 
think a shareholder should expect to not receive any recovery. 
There are a few exceptions to prove the rule, but yes, I think 
that is a fair description.
    Senator Johanns. And that is what happened with 
shareholders in General Motors. They basically have a stock 
certificate that is a worthless piece of paper.
    Mr. Bloom. The company's plan does not provide for any 
recovery for shareholders. As you know, General Motors is an 
ongoing case and so I can't predict with certainty the outcome, 
but yes, the plan that has been filed does not contemplate a 
recovery for shareholders.
    Senator Johanns. Dealers that have been notified that they 
won't be dealers for General Motors any more, same deal. They 
are out of luck.
    Mr. Bloom. I think the dealers would be expected to have an 
unsecured claim against what is called the old co-estate and 
they will recover what other unsecured creditors recover.
    Senator Johanns. OK. So dealers, shareholders, they come 
out of this basically with nothing if the plan is adopted.
    Mr. Bloom. I think they come out of it as they would in a 
traditional bankruptcy, which is to say as either unsecured 
creditors, or in the case of shareholders, even below that.
    Senator Johanns. Now, every once in a while, an employee 
would come to my office and say, you know, I am an employee of 
XYZ Company. They just filed bankruptcy. They owe me 2 weeks 
worth of wages. I would say, well, let us file a claim. I hope 
you don't need that money to buy groceries because I don't 
think you are going to see it. And I was always right. 
Employees had no rights. Describe the rights of the employees 
like you have described for me the rights of dealers, the 
rights of shareholders in just a regular bankruptcy.
    Mr. Bloom. The treatment of employees in regular bankruptcy 
varies all over the lot, largely because the entity trying to 
reorganize, if it is a 363 sale, which is going on in the case 
of General Motors and was in Chrysler, the entity providing--
being the sponsor of the new entity is going to make 
determinations about what the proper treatment is for 
employees. And in the case of General Motors, the decision was 
by the management that keeping both salaried and hourly workers 
working and on the payroll was an important part of maintaining 
the continuity of the business and having a successful 
enterprise going forward.
    And so the determination was made to continue to pay wages 
in the ordinary course, as I indicated, as it was for 
suppliers, as it was for warranty holders. These are business 
judgments that are made by companies in bankruptcies all the 
time, and I have been involved in many, many bankruptcies where 
employees did receive continuity of wages. I have been in 
bankruptcies where they didn't. And honestly, it has been all 
over the lot.
    Senator Johanns. What influence did the administration have 
on that issue--did you have on that issue?
    Mr. Bloom. I think the influence we had is to work with the 
company to try to come up with, as I have described it before, 
a commercial approach to this question, which is to say how do 
we best maximize the value of the government's investment, 
because the government is putting a huge amount of money into 
these enterprises and the only way we get it back is if there 
is a viable enterprise going forward.
    And so the question we asked the company in each case is 
what is the smallest amount you have to give--because obviously 
you would like the smallest burden you can have--what is the 
smallest amount you have to give consistent with building a 
successful enterprise? And every single stakeholder--we 
challenged the company to make that kind of determination and 
that was the role we played, essentially, as I said to an 
earlier question, we are not the management. We are not running 
the company. But we are the provider of capital, and so I think 
we had an obligation to challenge them to make sure they were 
acting in a thoughtful and commercial fashion, and that is what 
we tried to do.
    Senator Johanns. Let me ask one last question. I am over 
time here, but let me ask one last question. During any of 
these discussions, as shareholder rights were being 
extinguished, as dealer rights were being extinguished, as 
people were sacrificing and our communities were being 
affected, et cetera, et cetera, did anybody with the 
administration, with the Task Force, every say, you know, it 
seems like buying 60 percent of General Motors is a big enough 
decision where we should go to Congress and ask them what they 
think of this?
    Mr. Bloom. I think the President was proceeding under the 
authority that was created through the creation of the TARP and 
the prior administration made loans under that and the 
President determined that these investments were appropriate 
and proper under that legislation.
    Senator Johanns. You agree with me, I would hope, that 
loans by the prior administration are a vastly different 
creature than ending up with ownership of 60 percent of General 
Motors.
    Mr. Bloom. I would certainly say what I said, which is the 
administration believes it was proceeding under statutory 
authority that it was granted and doing the best it could in a 
very difficult circumstance.
    Senator Johanns. Last question----
    Senator Brown. Thank you----
    Senator Johanns. OK, I will----
    Senator Brown. Go ahead and take a last question, but this 
is your third last question and this is your last question, but 
go ahead, Senator, if you want.
    Senator Johanns. I will stick around. Thank you.
    Senator Brown. Well, go ahead. Go ahead, because we may not 
do a second round. Go ahead.
    Senator Johanns. Just in your role, does that make your 
uncomfortable?
    Mr. Bloom. In my what?
    Senator Johanns. In your role.
    Mr. Bloom. Does it make me uncomfortable?
    Senator Johanns. That we never got an opportunity to say 
yes or no on this?
    Mr. Bloom. Senator, I am working as hard as I can under the 
direction of the President to try to save these companies and 
minimize the taxpayer dollars required to do it. It is 
obviously an exceedingly challenging task. We are all doing the 
best we can.
    Senator Johanns. Thank you, Mr. Chairman.
    Senator Brown. Thank you, Senator Johanns.
    I will take my 5 minutes now. I appreciate very much both 
of your being here. I know the personal sacrifices you both 
make in taking these very difficult jobs, the hours away from 
home with small children. Mr. Bloom, I appreciate your driving 
from Pittsburgh every week. Thank you for that.
    I particularly appreciate that you took this commercial 
approach, that both the Bush administration and the Obama 
administration want GM and Chrysler to move forward, not to 
liquidate those companies. There almost seems to be a 
perception in this room and among some, not just in this body 
but elsewhere, perhaps, that the employees took no hits but 
everybody else did, the dealers, the bond holders, the 
executives, the communities.
    God knows when you represent a State like I do, you see 
what kind of hits communities take and you see what kind of 
hits workers take. There are tens of thousands of workers that 
are losing their jobs, not just at Chrysler and GM, but the 
tier one suppliers and the tier two suppliers and beyond, many 
of them small, family owned, non-union companies that pay $12, 
$15 an hour or more in many cases, but not more in many other 
cases. So I see that the $7 an hour assessment you made plus 
the lost jobs plus what it has meant to the communities.
    So a lot of us, and I think the country, appreciates that 
you have done this in a way that keeps these companies alive 
and, we hope, growing in the years ahead, and I appreciate your 
generally optimistic assessment for the future.
    I want to talk a little bit about last year, what happened 
and kind of where we are going now, and then I want to be more 
specific on one question about a community that is really--
another community in Ohio that has been hit hard by all of 
this.
    Last year, some of our Committee members worked with the 
Bush administration to provide non-TARP loans to the 
automakers. Our legislation would have required the companies 
to achieve concessions from various stakeholders within a 
strict timeframe, as you recall, before you were on board. As 
my colleagues recall, the legislation was filibustered. The 
bill ultimately died in the Senate.
    Today, many of the same critics calling for specific 
concessions from workers and from bond holders are now saying 
the government-backed plans unfairly advantage one stakeholder 
over another. You have touched on that in response to questions 
from Senator Corker and Senator Bayh and others, but compare, 
if you would, the concessions in last year's legislation to 
those in the current restructuring plans being considered in 
bankruptcy court in both cases.
    Mr. Bloom. I think in all cases, the stakeholders, and 
certainly including the UAW, the concessions wrested from them 
were in excess of those that had been contained in the 
legislation that didn't pass but were largely embodied in the 
loan agreements. So in fact--and I think that is appropriate, 
because as it worked out from December until April, the market 
got worse. The economy got worse. Car sales were even lower 
than they had been projected to be. So in light of that, we did 
insist that everybody give more, and that certainly includes 
the UAW. It does include the bond holders. But it includes all 
the key stakeholders.
    Senator Brown. Understanding your response on questions on 
decisions that GM makes, whether it is a plant closing, whether 
it is a downsizing of a plant, whether it is an assembly plant 
or a stamping plant or whatever, an engine plant, whether it is 
what happened with dealers, you do have an ongoing oversight 
responsibility obviously of this whole restructuring. A lot of 
us are troubled by some of the decisions. I mean, you can see 
the frustration on both sides here with what happened to 
dealers and how badly it was handled. I mean, I personally 
thought the free market could work with dealers and let them 
figure out--let them succeed or fail and that would then clear 
out the number of dealers that we might have gotten to anyway 
that way. But that is not what Chrysler and GM decided.
    But some other decisions, and I want to talk specifically 
about one. GM chose to close the most productive stamping plant 
they have. They have three stamping plants, Mansfield, Ohio--
full disclosure, my home town, I don't live there now--and then 
one in--I am sorry, they have, I believe, four or five plants, 
but one in Indiana, a couple in Michigan, other places, one in 
Parma, Ohio, too. The GM stamping plant in Mansfield was 
consistently ranked higher according to the competitive 
operating agreement that GM, that does its own assessment, has 
the lowest manufacturing cost per ton. GM chose to close that 
plant.
    How does the administration--I mean, they made that 
decision. I know it wasn't a political decision. The local 
Congressman said President Obama should go and explain to the 
workers why he closed the plant. That was a political 
statement, to be sure. How does the administration oversee the 
operations of these companies to make sure they are making 
objective and transparent decisions? I mean, there were some 
arguments to close it, I assume, although they didn't make them 
very well. There were many more arguments to keep it open. It 
is some 1,100 people work there. It is devastating to a 
community that size. We all know what these plant closings do 
to a community.
    Talk to me about your oversight and the demands for 
transparency in these companies that Federal taxpayers have 
major investments in.
    Mr. Bloom. Senator, certainly any particular plant closing 
is devastating to a community and certainly General Motors is 
closing a number of facilities. As I indicated before, we have 
made a pretty determined--not a pretty, an absolute 
determination that we are not going to get into micromanaging 
their decisions. We certainly have encouraged, however, the 
companies to be forthcoming. So if a particular community or a 
local union wants an explanation of how a judgment was made, we 
would expect the company to talk to them, as we would expect 
them to talk to dealers.
    But we are not going to go in on top of them and say, why 
Mansfield and why not X? It just----
    Senator Brown. Will you insist to them that they be more 
forthright to answer some of Senator Johanns' questions, his 
concerns about the dealers? Will you insist to them that they 
disclose to their dealers how they made these decisions, why 
they made the decisions, that they disclose to communities why 
and how they made these decisions? Is that your role?
    Mr. Bloom. Recognizing that there is a competitive issue 
where public disclosure of certain kinds of information can put 
the company at a competitive disadvantage, and so not being 
able to make a blanket comment like that. But I would say, yes, 
that we would be asking GM and insisting that GM have and open 
and transparent dialog with all of its stakeholders, and to the 
extent it is not, we are more than happy to facilitate that and 
insist that it occur. Again, I want to be cautious because 
there can be competitive issues where the public airing of 
information can be harmful to the company. But certainly as a 
general matter, we would expect the company to be open, 
transparent, and responsive to communities, to stakeholders in 
these sorts of matters, yes.
    Senator Brown. One last question. There was discussion 
earlier on Senator Johanns' questions about stockholders, 
creditors, others getting in line but the dollars never get to 
them, I guess, in line. What is going to happen with people 
that have product liability claims, that somebody drove a 
Chrysler and that Chrysler malfunctioned and someone was 
paralyzed as a result of a defective product? What happens to 
their claims?
    Mr. Bloom. Again, just to be direct with you, that is 
obviously a very emotional and difficult issue for those people 
who are victims, and nobody takes delight in not seeing them 
get all that they would like to get. But unfortunately, again, 
if one looks at the way bankruptcies are conducted, 
bankruptcies are about taking liabilities the companies can no 
longer afford and finding a way to discharge them in an orderly 
way.
    We would expect the company will act in accordance with 
traditional bankruptcy practice and law on how product 
liability claims are handled, which is to say that largely, 
they would be a matter for the old estate to be dealt with and 
therefore will not receive the full recompense they would hope. 
That is clearly a terrible thing for those individuals, but 
again, there are a lot of people that General Motors made 
promises to that it can't honor and we really don't have an 
alternative, as I said, other than to essentially write an 
endless check to deal with that situation.
    Senator Brown. There was no money set aside by the two big 
auto companies for claims like that that would have been 
untouched in bankruptcy proceedings, I assume?
    Mr. Bloom. There is not a separate trust or an insurance 
policy or anything like that. The companies are largely self-
insured, both of them, on this matter. And in the Chrysler 
bankruptcy, there was objection on that and the judge found it 
to be, again, an ordinary course treatment.
    Senator Brown. Thank you again, Mr. Bloom. Thank you, Dr. 
Montgomery.
    Senator Bunning?
    Senator Bunning. Thank you, Mr. Chairman.
    Last month, Secretary Geithner told this Committee the 
government was going to, and I use his word, ``try''--that is 
his word--not to interfere in choosing which plants to close or 
dealers to close or other specifics of bankruptcy plans. I 
should also note that he said he would come directly back to 
this Committee once GM filed for bankruptcy, but I don't see 
him here today. So I will ask you the question instead. Did the 
government in any way influence the selection of plant or 
dealerships to close?
    Mr. Bloom. I can answer that question very directly, 
Senator. The answer is no.
    Senator Bunning. OK. Thank you. For the taxpayers' sake, in 
GM, just to break even, the new General Motors will have to get 
up to a market capitalization of about $70 billion. That is 
roughly 15 percent higher than GM's all-time high, when as a 
much larger company it was selling high margin SUVs as fast as 
they could make them.
    It seems pretty clear to me that the taxpayers will never 
get back their money. So please explain to me how we are going 
to get our money back if, in fact, General Motors' new entity 
has to get up 15 percent higher than the highest General Motors 
was in the history of the old General Motors.
    Mr. Bloom. Let me try to answer that question.
    I hope I was clear, Senator, that there is no guarantee 
that we would get our money back. But I did say there were 
scenarios where I thought it was reasonable that we could.
    I think the only way I would disagree with your logic is 
that when GM was worth 15 percent less than that, in its all-
time high, piled on top of that equity was a huge amount of 
debt. So that the total value of the enterprise was, in fact, 
close to a multiple of that number.
    One of the things we have done by deleveraging the company 
is we have given the equity more space in the total capital 
structure. So I think if, in fact, General Motors returned to 
the total enterprise value that it had in that period, in fact 
we would get all our money back.
    But I understand those days were reliant on high-margin 
SUVs, et cetera. I do not think we would expect that those kind 
of times would be occurring anytime soon. So our analysis is 
not based on that.
    I think what it is really based on, though, is a much more 
conservative capital structure so the total enterprise value, 
before the shareholders get the ownership, there are fewer 
deductions for the debt and other liabilities.
    Senator Bunning. We all know that the original projections 
of auto sales was approximately 18 million units at the all-
time high. And we know that we are now sitting at about 9 
million units, and that's why we are having such major 
problems.
    Could you give us an estimate on where we would have to get 
to in sales to at least break even?
    Mr. Bloom. Unfortunately, it is not just one number because 
obviously sales matter a lot. So does market share, so does 
margin, so does fixed costs. So you've got four or five 
different variables that have an interplay.
    What I can say is if you look at the company's projections, 
they do not project--their publicly filed projections--they do 
not project a return to the 18 million level, nor to the market 
share that they enjoyed when they had that 18 million overall 
industry level. So I think the company has taken a more 
conservative approach versus that hypothesis.
    And again, as I said, it would be factoring all of those 
things into the other. Clearly, it will require some recovery 
in the economy. But I think most of us feel that at least some 
amount of recovery is pretty likely.
    Senator Bunning. Well, I think you're absolutely right 
about the economy recovering. It's a question of timing.
    Mr. Bloom. Yes, sir.
    Senator Bunning. Just like when will General Motors come 
out of bankruptcy. That's a question of timing. But the fact of 
the matter is that's very important if, in fact, we're going to 
have an exit strategy for us to reduce our 60 percent stakehold 
in General Motors.
    Mr. Bloom. It is certainly important and we're moving 
quickly as we can, recognizing that this is a court-driven 
process. As the Senator indicated earlier, we got Chrysler done 
in 41 days. I think, candidly, GM could be a little slower 
because it is a more complicated matter. But we intend to 
proceed as quickly as we can, recognizing that all the affected 
stakeholders have rights and they're going to be heard by the 
judge. And that's a judicial process that we certainly respect.
    But you're absolutely right, the sooner we get out, the 
sooner we can get to organizing an IPO, the sooner we can begin 
to dispose of our stake. And clearly we intend to do that in as 
orderly a way as we can.
    Senator Bunning. Mr. Montgomery, I apologize for not asking 
you any questions but my time is limited. I am sorry. Thank 
you.
    Senator Brown. Thank you, Senator Bunning.
    Senator Kohl.
    Senator Kohl. Thank you very much.
    Mr. Rattner--I am sorry. Mr. Bloom, a month ago, Mr. 
Rattner appeared before our Committee in a closed-door meeting, 
and he said that it would cost more to retool the Chrysler 
engine plant in Kenosha, Wisconsin, and he felt that in light 
of that, they are better off just moving those jobs to Mexico. 
With all of the taxpayer money that Chrysler has received, I do 
not understand, in spite of his statement, why we would move 
these jobs to Mexico. Doesn't it make better sense to utilize 
the retooling fund that is available for something just such as 
this to retool that factory in Kenosha so that we can keep the 
jobs here in the United States?
    Mr. Bloom. Let me try to respond to that, Senator. First, I 
want to deal with a process point. I think clearly the company 
did a poor job of communicating with local elected officials 
and community folks about the Kenosha decision, and I believe 
the CEO has apologized for that. It was not proper, and I hope 
we will not have a repeat of that in terms of the 
communication.
    In terms of the substance of the decision, again, what I 
hope Mr. Rattner said, because I believe these are the facts, 
is that Chrysler made a decision a couple of years ago to build 
two new engine plants, one in the U.S. and one in Mexico. And 
by the time of this matter coming before us, hundreds of 
millions of dollars had already been spent on the plant in 
Mexico, and also hundreds of millions of dollars on a plant in 
the U.S. So for us to go in and overturn that, number one, it 
would violate the basic principle that I indicated the 
President has insisted upon, which is we not interfere in the 
day-to-day management decisions; and, number two, just as a 
business matter, it would require walking away from hundreds of 
millions of dollars of investor capital.
    So I think the reality is for reasons of both principle and 
practical business, this simply is not a decision that can be 
revisited. That is certainly a terrible event for the folks in 
Kenosha, and there is no way to make it a good event. The only 
thing I can say is I think, in fairness, the alternative was 
the liquidation of Chrysler that would have been far worse for 
everybody concerned. But certainly we appreciate the difficult 
situation, whether it is Mansfield or Kenosha, that these 
closings bring upon communities.
    Senator Kohl. Mr. Bloom, last week, it was announced that a 
General Motors plant in Janesville, Wisconsin, was one of three 
plants in the running to make small cars, and if that occurred 
in Janesville, 1,400 workers would be put back to work. Is the 
auto task force working with General Motors and the Department 
of Energy to help retool that plant in Janesville?
    Mr. Bloom. What we are doing, sir, is trying to ensure that 
General Motors has a fair process where the three communities 
have a chance to have an open dialog with it, where they make a 
fair and reasoned decision and are transparent with folks about 
the way they are doing it. But we are not insisting that 
General Motors locate that factory in Janesville any more than 
we are in the other potential locations.
    As I said in reference to, I think, a question of Senator 
Brown's, we are insisting that the company be forthright and 
that it deal fairly with Janesville as well as the other 
facilities. But we are not intervening and insisting that 
Janesville or any other place get any special consideration.
    Senator Kohl. Thank you. Mr. Bloom, as you know, there have 
been verifications of profitable dealerships that were doing a 
good job, making money, employing people, doing exactly what 
General Motors or Chrysler would want them to do, being 
notified that they have to close.
    Now, what is the point?
    Mr. Bloom. Sir, the companies had determined that their 
dealer network was not over the long term maximizing value for 
the company. The company had a far greater number of dealers 
than their competitors per car sold, and analysts throughout 
the industry, I think of every stripe, have indicated that the 
companies are over-dealered. That causes over time the brand to 
degrade. It causes pressure for price cutting. It causes the 
dealerships to not be as attractive in terms of their physical 
make-up, et cetera. And the companies determined that to be 
successful, they needed to realign their dealer networks.
    In that context, they persuaded us that that was generally 
a sound business decision, that to do it quickly, relatively 
quickly, was, in fact, appropriate and would get to the good 
result as quickly as possible. From there, it was the companies 
decision how to do it, which dealers to choose. And that was 
the decision they made. We believe--we insisted, and I think 
they did do it, using fair and objective criteria of what were 
the dealers that were selling the most cards, had the best 
throughput, had the best other metrics that were objective 
metrics. And on that basis, the company has determined that it 
cannot bring all its dealers forward and be successful.
    This is obviously, again, a different sacrifice for those 
dealers, but without these sorts of difficult changes, we are 
not going to have a successful General Motors.
    Senator Kohl. Well, I thank you. I still think your 
willingness to accept in this case dealerships being forced to 
close who may have been in business, for example, 20, 30, 40 
years and are profitable, were running a business, and the 
point of running businesses is to make money. That is why 
Chrysler and General Motors are going out of business. So here 
you have dealerships that have a history of profitability, and 
yet they are still being told that they have to close, and you 
come before us and simply say, ``Well, you know, they made 
those decisions and we go along with it.'' I do not think that 
is a good enough answer, sir, but perhaps it is the best you 
can do.
    Senator Brown. Thank you, Senator Kohl. Do you want an 
answer there?
    Mr. Bloom. I would be happy to, if you would like me to 
take another minute. I mean, I appreciate, sir, that you are 
not satisfied. A dealer's profitability is not the only measure 
of whether or not that dealer network is best serving a long-
term interest of the company and all of its stakeholders. If 
there are too many dealers in a particular area, while it may 
be that an individual dealer is making money, you still have 
the issue of whether or not he is sufficiently investing in a 
showroom to get returning customers, whether or not he is 
pricing the product in a way that is maximizing value for all 
concerned, whether or not he is offering the kind of service 
that brings people back.
    Again, these are difficult, difficult individual decisions, 
but if we get in there and start telling the company you can do 
this and you cannot do that, then we might as well make them an 
arm of the U.S. Government. And I do not think anybody thinks 
that is the right thing to do. What we have to do is we have to 
give General Motors the kind of discipline to come up with a 
business plan that makes sense, where they can make money. We 
have to put a first-class board of directors in place, and 
again, I want to point you to Ed Whitacre and Bob Kidder, two-
first class businessmen who have agreed to chair the boards of 
these two companies, guys who have run big, large, complicated 
companies, done it well, done it effectively. And I think they 
give you a good sense of how the Obama administration intends 
to treat this matter.
    Senator Brown. Thank you, Senator Kohl.
    Before turning to Senator Hutchison, one comment about 
that. I think all of us are frustrated. On the one hand, we 
tell you we do not want the Government running these 
businesses; on the other hand, we tell you we wish that you 
would step in and make GM and Chrysler do this, this, and this. 
And I understand, we all do that. I have done that. But I think 
none of us has really heard--I know that a lot of the dealers 
think this. I know a lot of the public thinks this. I think now 
a lot of Senators and Congressmen and Congresswomen think this, 
that we have never really heard the economic argument made by 
Chrysler or GM to close these dealerships unilaterally the way 
they have, understanding they pick off in many cases those that 
might be the weakest in terms of profits and sales, although as 
Senator Kohl said, many of them are making money, many of them, 
he said, have been around 20, 30, 40 years. I have some in Ohio 
who have been around 75 years. They are closed. And it is 
tragic because all of the dealers do so much for the 
communities and all that. So I just wish that the two major 
companies would explain better sort of the economics of it, why 
they did it.
    The other point I want to make--and I apologize, Senator 
Hutchison--you mentioned Janesville. Have you made public the 
three communities, if there are, in fact, three--you seem to 
sound like there are--that GM is looking at for the small cars? 
Or would you like to make that announcement right now, Mr. 
Bloom?
    Mr. Bloom. You know, I know there are three. I know there 
is one in Michigan, in Janesville. To be perfectly honest, I do 
not recall whether it has been made public, but we will get 
back to you on that.
    Senator Brown. The third one in Ohio, by chance?
    Mr. Bloom. No, comment, Senator.
    Senator Brown. Well done, Herb.
    Senator Kohl. I am not telling you.
    Senator Brown. Senator Hutchison.
    Senator Hutchison. Thank you, Mr. Chairman.
    Mr. Bloom, I heard what you said to Mr. Kohl, Mr. Brown, 
and Mr. Johanns, and it is not coming together for me either. 
And I am going to refer to the March 30th White House 
Determination of Viability Summary for the General Motors 
Corporation in response to their viability plan on February 
17th in which the document states, ``The company is currently 
burdened with underperforming brands, nameplates, and an excess 
of dealers. The plan does not aggressively enough act to curb 
these problems.''
    It goes on to say that:

        GM has been successfully pruning unprofitable or 
        underperforming dealers for survival years; however, its 
        current pace will leave it with too many such dealers. These 
        underperforming dealers create a drag on the overall brand 
        equity of GM and hurt the prospects of the many stronger 
        dealers who could help GM drive incremental sales.

Then, on May the 15th, the Treasury Department says that:

        As with the case with Chrysler dealer consolidation plans, the 
        task force was not involved in deciding which dealers or how 
        many dealers were part of GM's announcement.

    So it seems to me that the task force and the Treasury is 
saying you did not act aggressively enough, you have not cut 
back on enough dealers, but you are saying to the public, Gee, 
we are not involved in those decisions. And, in fact, now that 
we know what dealers are being closed in both Chrysler and GM, 
there are profitable dealers that are being closed, not just 
underperforming. And I still do not understand when the dealer 
buys the car, the dealer provides the real estate, the dealer 
provides the showroom and the repairs and rents the signs, how 
is it a drag on the company, and why is the White House saying 
that an excess of dealers is a problem, even profitable 
dealers? It is a disconnect for me, I think, as well as many of 
my colleagues.
    Mr. Bloom. Let me see if I can answer that. I think you 
certainly accurately quoted the President's statement on, I 
think, a fact sheet from the 30th. It is certainly an accurate 
quote. I think what we said in addition, however, is we said 
that overall General Motors is burdened by excess capacity in 
many areas. We said that their plant footprint has excess 
capacity, their dealer network has excess capacity, their 
white- and blue-collar ranks, all of these things are not 
commensurate with the current size and prospects of the 
company.
    And so what we told General Motors when we rejected their 
February 17th submission is you need to go back and you need to 
take a more aggressive approach. And, yes, that included 
dealers, but it included plants and it included white-collar 
head count and it included blue-collar head count, and it 
included every aspect of the company from the top to the 
bottom. And the company came back with a more aggressive plan 
to rationalize its dealer network.
    I think what we said on the 15th was also true, which is we 
did not give them a numerical target, but we certainly did say, 
regarding plants, regarding dealers, regarding white- and blue-
collar head count, regarding all these matters, that you need 
to be more aggressive, because our judgment was on the February 
17th plan that they were not going to achieve the kind of 
profitability that would make them long-term viable.
    It was their determination that this level of consolidation 
of the dealers was consistent with a path to long-term 
viability, and we did not say why not five more or ten more or 
five or ten less. We scrutinized the analysis in all areas and 
concluded that overall it was a proper plan and reflected a 
good business judgment and, therefore, was worth investing 
taxpayer resources into it.
    Again, I know you find this answer not satisfactory, but 
the simple fact that a dealer is making money does not indicate 
that the dealer network in that community is maximizing revenue 
and repeat customers and satisfied customers and the things you 
need to be a successful car company.
    The company's large competitors are selling cars that--
excuse me, are using dealers that have more than twice as many 
cars per dealer sold than GM or Chrysler do. Now, some of that 
is due to the geographic make-up of where the sales take place, 
where GM and Chrysler are selling in more rural areas, but even 
when you compare urban area to urban area, which would be an 
apples-to-apples comparison, the throughput of these other 
companies is far higher, and our judgment and the judgment of 
many, many outside experts we have consulted is this is one, 
certainly not the only, but this is one of the reasons why the 
companies have not been successful.
    Senator Hutchison. I think what makes it so hard is because 
there are other points where there are competing explanations. 
For instance, in one case, every dealer--four dealers in one 
town of over 100,000 people are being closed. And it is clear 
that a new dealer is going to be brought in. One new dealer, 
not one of the four that is being closed. And yet all of those 
dealers were doing fine.
    So rather than giving the nod to one of the four that had 
been with you for years and years and years--I do not mean you; 
I mean General Motors or Chrysler. But there just seems to be a 
loyalty disconnect here, and also what you have just said is, 
OK, you want bigger dealerships that can do more volume sales, 
and yet you are doing bigger dealerships that--you are doing 
bigger dealerships, more volume, and yet in the contract that 
is being put forward by GM, if they sign it, they take away 
their right to protest now any dealer that would come in within 
4 or 6 miles. So there is just so much disconnection, which is 
why I think the dealers are feeling so wronged about this.
    And let me give you one other example of where I would like 
to ask if the task force is going to take a position. One of 
the dealers that is being closed, Chrysler in this instance, 
Chrysler Financial is asking for 3 percent of their loan 
balance to cover potential chargebacks. Now, Chrysler, of 
course, has now closed, but these dealers are going to be able 
to sell used cars, but not under the Chrysler name. So for one 
dealer, who has been in business for 90 years in Texas, it is a 
$90,000 requirement for a $1,500-a-year annual risk.
    Now, is the task force going to look into that kind of 
requirement and say there should be some protection here with 
our taxpayer dollars?
    Mr. Bloom. Let me try to answer two or three of the points 
you raised, Senator.
    Regarding the new participation agreement, I do not know if 
you are aware of this or not, but General Motors has been in 
active dialog over the recent period with both the NADA, the 
National Association, as well as their own Dealer Council, and 
I believe that NADA has put out a statement indicating that 
they find the modifications that have been made to the go-
forward agreement, participation agreement to meet the majority 
of the dealer concerns. So I think concerns were raised. I 
think you and others brought them to the attention of GM. And I 
think good dialog was had, and I think a good result.
    So certainly when Members of Congress bring to our 
attention situations, we absolutely will do everything we can 
to facilitate dialog between the affected stakeholder and the 
company. Now, we are not going to intervene and become the 
arbitrator of a dispute, but we certainly are going to ask and 
insist that the companies listen carefully to the concerns of 
any stakeholder, and if it is the particular situation you 
mentioned regarding the Chrysler dealer or the participation 
agreement, which is a broader issue, we are going to insist 
that they be listened to.
    But, again, I do not want to mislead you. We are not going 
to substitute our judgment on every particular case. I do know 
in the case of the Chrysler dealers that are not being brought 
forward that every single car on their lots is going to be 
moved to another dealer with financing provided by either GMAC 
or other entities. And so all the dealers are going to be able 
to sell their cars at dealer cost.
    Again, this was a matter that was raised. Members like you 
brought it to attention, and I think a good solution was made. 
We certainly see our role as monitoring and staying on top of 
these things, and whether it is a Senator or a mayor or anybody 
who identifies a stakeholder who is not being dealt with, we 
are going to insist on everybody getting a hearing.
    But as I said earlier--I do not want to mislead you--we are 
not going to get in and kind of arbitrate disputes between the 
company and its stakeholders. We are going to insist these 
companies manage themselves in a commercial fashion.
    Senator Hutchison. Thank you, Mr. Chairman. Of course, my 
time is up, but I would just say that unfortunately it is the 
taxpayers' money that you are largely managing, and I just 
think we have a requirement not only to help the people where 
plants have closed, which I think is huge and important, but 
also the many communities and the dealers that are getting 
shafted in many ways. And I do not think we as taxpayers would 
want to have that result, and I would hope you would be a very 
strong watchdog on all of their behalfs.
    Thank you.
    Senator Brown. Thank you, Senator Hutchison.
    Senator Bennett, thank you for your patience.
    Senator Bennett. Thank you very much, Mr. Chairman.
    Gentlemen, I do not envy you your task. Let me just make it 
clear I recognize how difficult all of these issues are, and 
thank you for your diligence and your attempt to get them 
solved. You have probably been around Washington long enough to 
know that is a set-up for what is coming.
    [Laughter.]
    Mr. Bloom. First 24 hours.
    Senator Bennett. Yes, OK. Just picking up a little quickly 
on what Senator Hutchison had to say, we will now in Utah have 
no Chrysler dealers from Las Vegas to Provo. And a lot of 
people live between Las Vegas and Provo. Now, all right, it is 
a rural area. There are a lot of rural areas and there are a 
lot of miles, but by virtue of that decision, that guarantees 
that there will be no possible way for Chrysler to come back in 
that very large stretch of population.
    I have talked to some of the dealers there, and they are 
making the same point that Senator Hutchison is making, that if 
the market says, OK, there needs to be a dealer there, the 
dealers that have been serving Chrysler diligently for all of 
these decades, who have been shut out now, will not be allowed 
to set up the new dealership that comes along and some new kid 
will show up--new kid not necessarily by age, but come along 
and say, OK, I have this very large market now exclusively 
myself.
    I do not know what you can do about it, but I am working 
with Senator Hutchison and the NADA to see what we can think 
about doing about it, and we are going to be talking to you 
about that. I just warn you that that may be coming.
    Mr. Bloom. Forewarned.
    Senator Bennett. OK. Let us talk for just a minute about 
the whole question now of the viability of General Motors. I 
take your point that the market cap can be achieved with a much 
better, cleaner balance sheet so that we do not have to compare 
the new GM to the old GM. But I would point out to you that in 
terms of a true vulture capitalist--a lot of people do not like 
that term, but that is basically what you are here as the 
Government. As a true vulture capitalist, you have gone exactly 
the wrong way.
    General Motors, if a true vulture capitalist--I am quoting 
from Homer Jenkins, but I like what he says, and he just 
happens to put it better than I can.
    Mr. Bloom. I admit to reading it.
    Senator Bennett. You admit to reading it, OK. He says:

        The bailout has deeply politicized the company's business model 
        by privileging its money-losing domestic operations, saddled 
        with the UAW----

you may not like that term----

        over its money-making foreign ones. A truly commercial vulture 
        investor would have done exactly the opposite, dumped North 
        America and kept the promising businesses in China, Russia, 
        Europe, and Latin America.

And I have talked to General Motors people in these other 
countries, and they are profitable in these other countries, 
have been profitable. It is the North American activities that 
have hurt them. And if indeed you were to take General Motors' 
production out of North America, out of the $9 million car 
market that Senator Bunning was talking about, it would 
increase the market share and thereby the profitability of all 
of the others.
    Now, the outrage politically would have been enormous for 
that, but if you are going to talk in straight market terms, 
that would have been the thing to do.
    I remember--I will just say this and then get your comment 
on it--reading--I cannot tell you the date now, but it is 4 or 
5 years ago--a cover story in Fortune Magazine called ``The 
Demise of General Motors.'' And they outlined at that time, 
when the economy was doing very well, that General Motors was 
doomed for a variety of reasons. And one of the interesting 
things they said was about the quality of General Motors' cars 
and how everybody said General Motors' cars were terrible 
quality, that at that time General Motors' quality had gotten 
back to the point where it was as good as Toyota or Honda or 
any of the rest of it, and they quoted an expert who said the 
quality is very, very good, and no one will buy them because 
the reputation had come along.
    And we are now facing a situation where that legacy of the 
market is still there, and I read columnists who say, well, now 
the Government will insist that General Motors make good cars. 
I think General Motors has been making good cars for the last 4 
or 5 years, but they are running into that problem.
    Now, as you deal with all that, do you have a reaction?
    Mr. Bloom. Yes, I do, and let me start by trying to agree 
with you. I may not end there, but I think you are right. I 
think General Motors has been kicking problems down the road 
for a long time. I think that is an accurate description. I 
think very intelligent, thoughtful people have been talking 
about General Motors deep in systemic problems for a long time, 
and they have not been listened to. And I think the President 
was clear, these problems have been kicked down the road for a 
long time.
    I also agree with you that as little as 3 or 4 or 5 years 
ago, GM's quality by a lot of measures was up at Toyota's, up 
at anybody's. The problem is, as you know, consumer sentiment 
lags reality because for a long time, when their transplant 
cars were better, GM was living on reputation, and then it 
flips. So these are problems that are not addressed overnight. 
And I think that--and so you are right, this is going to take 
some time to evolve.
    The Government is not going to insist that General Motors 
make good cars. That is not something a government can insist. 
What we can do, and I believe what we have done, is help the 
company to rethink its business model and to restructure its 
balance sheet. So I think what----
    Senator Bennett. Let me just quickly, because I do not want 
to take too much more time, but isn't the Government going to 
focus on North America and castrate General Motors overseas?
    Mr. Bloom. Let me answer that question. I do not think it 
is accurate to say that we are castrating General Motors 
overseas. I would just observe to you, for instance, that their 
European operation, in fact, is also deeply troubled. And 
provisions are being made without United States taxpayer 
dollars to deal with their European operations. They do have 
profitable operations other parts of the world. We are 
encouraging them to grow those, but not with U.S. taxpayer 
dollars.
    The decision to make an investment in GM and its North 
American operations is obviously because these are United 
States taxpayer dollars. And so while we are a vulture 
capitalist, we are an American vulture capitalist, and the 
determination was to get them competitive in North America so 
they can make money in North America. And that is the focus of 
the activity. That is the only justification for taxpayer 
dollars because we are trying to preserve American jobs in 
American communities and American suppliers and American 
dealers, because it is American taxpayers.
    But the insistence, as any good vulture capitalist would do 
before he put money in, was to insist that there was a path to 
profitability, and to get competitive whether it be dealers or 
be employees or be debt level or be suppliers or be white-
collar, whatever it was, to insist that General Motors get 
competitive so their good cars can find space in the 
marketplace and can be successful. And that has been the 
effort, and that is what we have tried to do.
    Senator Bennett. Thank you, Mr. Chairman.
    Senator Brown. Thank you, Senator Bennett.
    Before adjourning, Senator Shelby has one question and I 
have one question. My question will be for Dr. Montgomery.
    Mr. Montgomery. Excellent.
    Senator Brown. We feel like you are sitting there alone, 
Dr. Montgomery, with little to do.
    Mr. Montgomery. OK.
    Senator Shelby. Do you want me to go ahead, Mr. Chairman?
    Senator Brown. Yes. Go ahead, Senator Shelby.
    Senator Shelby. Thank you. I would like to get back quickly 
on how we get out. We are in. We, the taxpayer, the government, 
is in big time. We know this. How much thought went in, just 
roughly, from your judgment, went into getting into GM and 
Chrysler and how much thought went in how do we exit? How do we 
get out? I think the term was used earlier, could this be an 
economic Vietnam?
    Mr. Bloom. Yes, sir.
    Senator Shelby. In other words, easy to get in, hard to get 
out.
    Mr. Bloom. I think that is a very fair question, Senator, 
and again, I want to try to talk about our process. There was a 
tremendous amount of thought and debate about whether or not an 
equity stake was the proper vehicle. But again, I think when 
you walk down our decision tree, if you decide that you are 
going to invest in the company because today's capital markets 
are not going to provide capital to this company, the need of 
the company for capital is not determined by us. It is 
determined by an analysis of the business.
    But at the end of the day, the company has a forecast. You 
beat it up all you can, but eventually you have got to decide 
there is a certain amount of money that is needed. Once you 
decide the money is the X, then you have either got to do it as 
debt or equity. I mean, you could do it as a gift, but that 
seems crazy.
    So it is going to be debt or it is going to be equity, and 
the problem is, when you look at Toyota, when you look at 
Volkswagen, when you look at Daimler, when you look at Honda, 
you find companies that are not levered. So I think you are 
driven to equity by the decision to try to maximize the return 
and have a successful company.
    As far as the exit, it is going to be orderly. It is going 
to take advantage of a profitable company in our private 
capital markets.
    Senator Shelby. What is it going to take? I know you don't 
know how many years the government will be in. You don't know 
exactly whether or not there will be more money. In other 
words, GM and Chrysler, things don't work out quite as you 
maybe thought they would and they need more money and you go 
back to the well. What will it take to get them on their feet 
and the money back? It will have to be a pretty rosy scenario, 
wouldn't it?
    Mr. Bloom. No, sir, I really don't think it is. I mean--and 
I want to emphasize that.
    Senator Shelby. Describe the scenario you would think----
    Mr. Bloom. We believe that using a conservative set of 
assumptions about market share, about overall market, about 
margins, about costs, about all the things that would go in, we 
strongly believe that this is the last money that GM will 
require. Now, I can't make a promise about the future----
    Senator Shelby. No----
    Mr. Bloom.----but I can assure you that it has been a 
vigorously debated and thought about question and it is our 
best judgment that that is the case, that this is it.
    Senator Shelby. You say that you believe--it is your 
judgment, you don't believe they will need more money. Now, 
what is your best judgment--I know you don't know, but your 
best judgment on when the exit will come on behalf of the 
taxpayer, and will the taxpayer ever be made whole?
    Mr. Bloom. Senator, I don't have a point estimate best 
judgment about when we will be able to exit. I do believe that 
there is a reasonable probability that we can get most, if not 
all, of our money back. That is the way I would say it to the 
President and that is the way I said it to him and the way I 
say it to you here today.
    Senator Shelby. Do you believe it is very important for the 
government not to be owner of a huge industrial company?
    Mr. Bloom. I believe it is profoundly important that we 
exit this investment as soon as is practicable.
    Senator Shelby. Thank you.
    Senator Brown. Thank you, Senator Shelby, and I will ask my 
one question and I will call on Senator Johanns and Senator 
Corker if they would keep it under 3 minutes, if possible.
    Dr. Montgomery, I want to talk about for a moment the issue 
of suppliers, some of their concerns. I chaired a hearing last 
month with the Economic Policy Subcommittee of the Banking 
Committee on manufacturers and access to credit. One of the 
witnesses was an auto supplier and the message he and his 
members get regularly is if you supply for autos, you are on a 
black list and banks won't loan to you.
    The administration stated that the updated SBA loan program 
is a source of credit for them. That is not what we found 
typically, because loan eligibility is determined by banks and 
banks are not making those decisions affirmatively for them. So 
I want to know what the administration's plans are for SBA 
specifically for loans for them.
    Are there other things we can do beyond promoting 
diversifying into new clean energy areas through MEP, through 
the Manufacturing Extension Partnership? What is the plan to 
provide financing? Are there National Emergency Grants for non-
traditional auto-related workers, like dealers and suppliers? 
Are there new authorities from Congress, like the Defense 
Production Act? I just want to pick your brain for a moment on 
how do we get this. How do we get suppliers financed when 
credit is still pretty frozen if you are an auto supplier?
    Mr. Montgomery. My impression, Senator, is that obviously 
the issue that you raised about suppliers and having access to 
credit is one that we hear a lot, I heard a lot as I have 
traveled through the Midwest States. The administration 
obviously has tried to move on a variety of fronts from the 
supplier program under the TALF, TARP, to the SBA 7(a) 
expansion to the floorplan for using collateral, all three of 
which are trying to provide various different participants in 
the industry credit.
    There are additional mechanisms to support dealers or to 
support workers. You had mentioned NEG grants, National 
Emergency Grants. Those are typically available for retraining, 
not as a matter of collateral, but there are ways that you can 
support the workforce at dealers through the provision of 
National Emergency Grants. And, in fact, the States of Ohio, 
Indiana, and Michigan--Ohio and Michigan have come in for 
National Emergency Grants and have used those. Minnesota came 
in for a National Emergency Grant to support a pooling of 
dealers, all of whom were relatively small in size but in 
aggregate the total effect was fairly significant in terms of 
dealer layoffs. So they did come in for a National Emergency 
Grant.
    So there are a variety of different mechanisms. The SBA is 
one. Agriculture has ways to support rural facilities and 
getting credit out to them. So there are a variety of different 
mechanisms we are already looking at and obviously we are 
trying to monitor going forward. I am told from the Small 
Business Administration that volume has picked up in the last 
couple of months and I think there are some positive signs, but 
clearly not out of the woods yet.
    Senator Brown. Thank you.
    Senator Corker?
    Senator Corker. Thank you, Mr. Chairman, and thank you both 
again for being here. My temperature got a little up with some 
of the revisionist statements about some of the past, and I 
didn't get to the point of I do want to thank you guys for your 
service. Even though I know that your political biases are 
showing in many ways throughout this bankruptcy and I feel like 
some of the decisions should have been made in different ways, 
that doesn't take away from the fact that you are away from 
your families and you are doing things that certainly are not 
as productive for you financially as in other ways.
    That sort of takes me down the path. I know we have 
talked--I have a bill, look, if you guys decide to close every 
dealer, I guess, in the country, that is certainly your 
decision. I have a bill that just states--and I hope I don't 
have to offer it--that states that you will at least make whole 
dealers that you close for their inventories and parts, and we 
actually have talked some with GM. I think they plan on doing 
that with all of their dealers and I know they are going 
through a transition period.
    I do think that when you look at the history of Chrysler 
and the fact that the executives there, Jim Press and others, 
were actually pressing dealers to take inventory, and in some 
ways even kind of threatening them. We have seen evidence of 
some pretty heavy-handed stuff. If you are going to be part of 
our dealer network--this was 6 months ago--then you have to 
take delivery of these cars so we can show them as sales.
    And I think that the way, again, a political decision that 
you made, because the amount of money could not have been that 
large, but the decision that you made in this bankruptcy to 
take these people all across the country that are small 
business people, that borrowed money, that have signage and may 
have borrowed $400,000 or $500,000, a couple million in some 
cases to revamp their dealerships, and to basically say, you 
are terminated, you are toast and we are not even going to take 
you out of your automobiles and parts which we forced you to 
take during our time of need, that was a decision that you and 
this Task Force made.
    You decided--when I say God-like, I mean, a 363 bankruptcy 
is pretty much a God-like kind of thing. I mean, you decide the 
winners and losers and it marches on. The Supreme Court, by the 
way, just said they wouldn't take the case. They didn't say 
grace over the decisions.
    But back to the Chrysler issue. Is there no ill feelings on 
behalf of the Task Force with those decisions about just saying 
to all these small owners across the country that have borrowed 
money, that have taken inventory to try to keep the company 
alive and basically you all are saying, you are toast because 
we don't need you anymore?
    Mr. Bloom. Well, again, Senator, I think that, as I said, 
the list of victims of a failed corporation is very wide and it 
certainly includes dealers. I think----
    Senator Corker. And we are not trying to get you to 
reinstate dealers you don't need----
    Mr. Bloom. I understand----
    Senator Corker.----but just taking care of their 
liabilities.
    Mr. Bloom. I do believe that Chrysler has agreed to buy 
back all of the cars from the dealers whose franchise agreement 
is not being renewed and I believe that is being effectuated. 
My understanding is there is continuing dialog between Chrysler 
and the dealer and others like you about what to do about the 
parts. I can assure you, we will stay on top of it. We will 
continue to monitor it. These are not our decisions, but we are 
certainly in favor of the company working, whether it be 
Senators or dealer representatives or anybody, to try to 
achieve fair and equitable resolutions.
    I do think, in fairness, that the intervention of you and 
others has produced a better result for the participation 
agreement going forward on GM. It has produced a better result 
for the cars for the Chrysler dealers who are not being taken 
forward. And we would expect that dialog to continue.
    And the role we are going to play is to continue to 
encourage the companies to work with affected constituents to 
try in a commercial way to deal fair and equitably. But we are 
not going to insist that they do X or Y because we are not 
running these companies.
    Senator Corker. Right, and I know my time----
    Senator Brown. I am sorry. Time is up.
    Senator Johanns? I apologize, Bob. Senator Johanns?
    Senator Johanns. Thank you very much.
    You know, I have to tell you at the end of this hearing, 
and it has been a long afternoon and we appreciate your 
patience, it is our government that comes across as heartless 
and indifferent, indifferent because you keep saying, well, 
even though we own 60 percent, we don't want to be in the 
middle of this. We don't want to run it. But you own it. I 
don't know how you sustain that position over time.
    And then Senator Brown asked a really good question about 
product liability claims. It reminded me of a very poignant 
letter I got from a lady back home in Nebraska, a quadriplegic, 
injured in an auto accident with a Chrysler product, battles 
Chrysler for years and years and years, finally right on the 
edge of getting into court and the bankruptcy is filed. And of 
course she is not going to get anything from Chrysler. You know 
that, and yet you said in your testimony, well, she probably 
won't get as much as she wished. Come on. She is not going to 
get anything. You file a stay of bankruptcy, then you file a 
discharge and the case is over.
    We put billions of dollars into this company and then jobs 
go to Mexico while people here in the United States are losing 
their jobs, and yet we say, well, we are not going to touch 
that. We don't want to run this company. How many years can 
this go on?
    Mr. Bloom. Well, I guess I would say this, sir. I am sorry 
that you feel like we have been heartless. I think we have 
worked to save hundreds and hundreds of thousands of jobs and 
thousands and thousands of dealers. The alternatives for this 
company--both of these companies--was nothing for anybody, and 
the alternative that we have managed to craft here, while it is 
very painful for many--very painful for many--preserves 
businesses that can be successful going forward, can provide 
tens and tens of thousands of Americans with jobs, thousands of 
successful dealers, hundreds of thousands of supplier jobs, and 
strong communities.
    So I think while it has been exceedingly painful and I 
would not debate a word you say about the particular 
circumstance or dozens of others that I am sure exist, I think 
when you balance it out, what has happened here, while very, 
very difficult, has been a remarkable act of trying to save two 
great American companies at great sacrifice to many, but in the 
aggregate, I believe it is far, far better than the 
alternatives that we faced. But that is our judgment and I 
certainly respect people's right to disagree with it.
    Senator Johanns. I will wrap up with this with the 20 
seconds I have. Hard decisions are best made in a transparent 
sort of way. For Congress to wake up like the rest of the 
American public on Monday and find out that over the weekend we 
had bought General Motors with all of the problems associated 
with it is really outrageous--really outrageous.
    Thank you, Mr. Chairman.
    Senator Brown. Thank you, Senator Johanns. Thank you, 
Senator Corker. Thanks to both of you for remaining. If you 
have further questions, either of you or anyone else, the 
record will remain open for seven more days.
    Dr. Montgomery, thank you for being here and thank you for 
your service. Mr. Bloom, thank you for being here and thank you 
for your service.
    The Committee is adjourned.
    [Whereupon, at 4:52 p.m., the hearing was adjourned.]
    [Prepared statements and responses to written questions 
follow:]
              PREPARED STATEMENT OF SENATOR SHERROD BROWN
    Thank you, Mr. Chairman.
    I want to thank our witnesses, Mr. Bloom and Dr. Montgomery, for 
joining us. I appreciate your service.
    Over the past few months, I have had several conversations with 
each of you because the auto industry crisis is a crisis for my State.
    This crisis hit home in Mansfield, Ohio, where GM has one of its 
best stamping plants. Workers at this plant were asked to make 
concessions over the past 2 years, and they did. They were asked to 
produce in an exceptionally efficient manner, and they now rank at or 
near the top across a range of performance standards. Mansfield played 
by the rules, did all that was expected of them, and made it to the top 
ranks of GM stamping plants. Yet GM has decided to close this facility.
    This crisis hit home in Twinsburg, where Dr. Montgomery recently 
visited. Twinsburg is home to the most modern stamping plant in 
Chrysler's network. It ranks among the highest in safety and 
productivity. Yet Twinsburg workers and their families got the rug 
pulled out from under them last month.
    The crisis is playing itself out every single day as auto suppliers 
struggle to find credit. If a manufacturer has auto customers, banks 
seem to put them on a ``black list'' and do not want to extend any 
loans, even those backed by the Small Business Administration (SBA).
    The crisis is playing itself out in Warren and Dayton where Delphi 
salaried retirees played by the rules are left without the pensions 
they deserve.
    These stories from Mansfield and Twinsburg are unfortunately not 
unique.
    There are more stories . . . stories from small Ohio towns like 
Trotwood, Van Wert, and Greenwood, and from other areas across Ohio and 
throughout the Midwest.
    That is why it angers me when I hear these restructuring proposals 
for Chrysler and GM portrayed as giveaways to the United Auto Workers. 
They are far from giveaways; American autoworkers, their families, and 
their communities are taking it on the chin.
    Just 3 years ago, there were 250,000 members of the UAW. After 
these GM and Chrysler restructurings, the number of members will be 
below 100,000.
    Those are men and women like you and me. They work hard, they 
support their families, and they are watching as their chance at the 
American dream goes up in smoke.
    It's an American tragedy. And anyone who dismisses it should be 
ashamed.
    Wages have decreased, and for entry level workers wages have 
frozen. Key health care benefits were eliminated for both active and 
retired workers.
    These concessions, combined with swapping GM's contributions owed 
to the VEBA with stock, a step that will increase risks for retirees, 
will save GM billions.
    Every facet of this restructuring has an impact on hard-working 
Americans, on their communities, their states, and the Nation as a 
whole.
    It is absolutely critical that there are no missteps that victimize 
Americans, jeopardize the industry's recovery, or shortchange our 
economy.
    I look forward to hearing Mr. Bloom's thoughts on the Treasury 
Department's strategy for using TARP funds to aid the auto industry.
    I also look forward to Dr. Montgomery's vision for the auto 
communities he is dedicated to assisting.
    In moving forward today, I'd like to pose a couple of thoughts and 
questions for Mr. Bloom and Dr. Montgomery's consideration.
    Is the government doing everything it can to protect and create 
American jobs?
    Is the government ensuring that top-performing segments of Chrysler 
and GM aren't sacrificed because of information gaps, expediency, or 
politics?
    I held a conference call with mayors from auto communities. Nearly 
all of them raised the fact that they may need to eliminate police and 
fire personnel because of the shortfall in tax revenue from plant 
closings. Some mayors already have.
    The worry from these mayors reminds us we are talking about more 
than jobs and bottom lines. In short, what kind of return do the 
American people deserve on this investment?
    Thank you again for your service, and I look forward to your 
testimonies.
                                 ______
                                 
            PREPARED STATEMENT OF SENATOR MICHAEL F. BENNET
    I'd like to thank Mr. Bloom and Mr. Montgomery for appearing here 
today. Both of these witnesses have an extremely difficult and delicate 
task of confronting the severe financial condition of our domestic 
automobile industry, and assisting the communities that are grappling 
with staggering job losses.
    A liquidation of our domestic auto industry would have devastated 
our already struggling economy, caused painful job losses and impacted 
countless other business sectors, which depend on the continuing 
vibrancy of the Big Three.
    All of this being said, however, I'm extremely concerned about the 
rapid increase in our budget deficit. Our fiscal trajectory is 
unacceptable in the long run. The CBO recently concluded that the debt 
held by the public could reach 62 percent of the GDP in 2011 and that's 
assuming that our economy continues to recover. I look at my three 
daughters and worry that our inability to control our deficits today 
will affect their opportunities and their children's opportunities. 
There is enough blame to go around. Washington in recent years simply 
did not act to secure the nation's fiscal health. And now, with this 
economic emergency leading to unexpected spending, we need to be 
thinking beyond the near term. As our economy turns around, we'd better 
have a plan for restoring the fiscal health of this country.
    Given this backdrop, we must think very carefully about the 
government's future involvement in the domestic auto industry. The Auto 
Task Force must begin planning now for how to remove the government 
from the auto business. `Exit strategy', a term that has rightly been 
applied in other contexts, is an appropriate topic here today also. I 
think an exit strategy from the auto industry ought to encompass three 
basic goals:

  (1)  seek to reform and repair the auto industry so it can compete in 
        the long run,

  (2)  get out as soon as is practicable, and

  (3)  retrieve as much of the taxpayer investment as is practicable.

    I'd like to elaborate for a moment on this third goal of protecting 
the taxpayer investment. Our exit strategy from GM and Chrysler should 
seek also to minimize any further financial exposure to the American 
taxpayers. This will not be an easy task given the government's 
substantial stake in GM and the weakened condition of the company.
    I look forward to hearing from our witnesses about how to make this 
work. Also, I will be listening for testimony about the specific 
components of the restructuring. It is extremely important that we get 
this right-both from the perspective of the American taxpayer and the 
tens of thousands of people whose livelihoods depend upon a functioning 
domestic auto industry. If we don't do this correctly, we will only 
have increased the national debt and invited even more taxpayer 
subsidies.
    Thank you Mr. Chairman.
                                 ______
                                 
                    PREPARED STATEMENT OF RON BLOOM
                  Senior Advisor, Treasury Department
                             June 10, 2009
    Good morning.
    Chairman Dodd, Ranking Member Shelby, members of the Senate Banking 
Committee, thank you for the opportunity to testify before you today.
Introduction
    Over the past several months, the Obama Administration has been 
working to manage an historic crisis in the American auto industry. 
President Obama inherited an auto industry that had lost 50 percent of 
its sales volume and over 400,000 jobs in the year before he took 
office. Two companies--GM and Chrysler--had received substantial loans 
from the prior Administration and were requesting substantial 
additional assistance that only a government could provide.
    Without additional assistance, both of these companies faced 
uncontrolled bankruptcies and almost certain liquidation, which would 
have caused substantial job loss with a ripple effect throughout our 
entire economy. However, President Obama was unwilling to put 
additional tax dollars on the line unless these companies and their 
stakeholders were willing to fundamentally restructure, address prior 
bad business decisions, and chart a path toward long-term financial 
viability without ongoing government assistance.
    Therefore, the President decided to give both GM and Chrysler a 
chance to work with their stakeholders and secure the sacrifices 
necessary to make them stronger, leaner, and more competitive in a way 
that would justify an investment of additional taxpayer dollars. In 
only a few months, both GM and Chrysler--working with their 
stakeholders and the President's Auto Task Force--have achieved a level 
of restructuring that many thought impossible. In virtually every 
respect, the concessions these companies have secured exceed the 
restructuring conditions included in the December 2008 loan agreements 
to GM and Chrysler. While difficult, these actions position both 
companies for future viability. As a result, the President has decided 
to stand behind these restructurings with additional financial 
assistance. Consistent with the prior Administration's loan agreements, 
this assistance is being provided from the U.S. Treasury out of the 
TARP program.
    After proceeding through a fair and open bankruptcy process, the 
new Chrysler-Fiat alliance has now been approved and is scheduled to 
close its sale agreement on Wednesday June 10, 2009. While General 
Motors is likely to take somewhat longer to move through the bankruptcy 
process, we are confident that it too will emerge quickly as a stronger 
more viable global company.
    This restructuring process has required deep and painful sacrifices 
from all stakeholders--including workers, retirees, suppliers, dealers, 
creditors, and the countless communities that rely on a vibrant 
American auto industry. But the steps that the President has taken have 
not only helped to stabilize the auto industry and saved hundreds of 
thousands of jobs--but for the first time in decades--they have also 
given GM and Chrysler a chance to become viable, competitive American 
businesses with bright futures.
President Obama's Auto Task Force
    In recognition of the unique role of the American auto industry to 
our economy and the multifaceted challenges that industry was facing, 
on February 15, 2009 the President appointed an Auto Task Force to 
oversee his Administration's efforts to help support and restructure 
the industry. The Task Force is co-chaired by Treasury Secretary 
Timothy Geithner and National Economic Council Director Lawrence 
Summers, and includes representatives from a broad range of agencies 
and offices throughout the executive branch.\1\ The Task Force is 
staffed by a joint Treasury-NEC team, of which I am a senior member. 
This team reports to the Task Force and its co-chairs, who report up to 
the President.
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    \1\ The other members of the Task Force are the secretaries of 
Transportation, Commerce, Labor, and Energy, along with the Chair of 
the President's Council of Economic Advisers, the Director of the 
Office of Management and Budget, the EPA Administrator, and the 
Director of the White House Office of Energy and Climate Change.
---------------------------------------------------------------------------
    From the beginning of this process, the President gave the Auto 
Task Force two clear directions regarding its approach to the auto 
restructurings. The first was to refrain from intervening in the day-
to-day management of these companies. Our role has been to act as a 
potential investor of taxpayer resources, and as such we have not 
become involved in specific business decisions like where to open a new 
plant or which dealers to close. This is the job of management and 
while we have been engaged in dialog and discussion about their 
approach, we have not substituted our judgment about specific decisions 
for theirs.
    Second, the President was clear that he wanted us to behave in a 
commercial manner--that is to be sure that all stakeholders were 
treated fairly and received neither more nor less than they would have, 
simply because the government was involved.
    Because the investments made by both the prior and current 
Administrations to support the auto companies have come from the TARP, 
the Task Force and its staff's activities have been subject to the full 
range of disclosure and reporting requirements under the EESA statute. 
This includes oversight by the GAO, EESA's Financial Stability 
Oversight Board, and the Special Inspector General for TARP or 
``SIGTARP,'' and the Congressional Oversight Panel established under 
EESA, as well as required reporting to multiple House and Senate 
committees.
Chrysler
    On February 17, 2009, Chrysler submitted a detailed business and 
operating plan for assessment by the Auto Task Force. While this plan 
took several steps to restructure the struggling Company, it did not go 
far enough to address Chrysler's issues with scale, quality, 
technology, and product portfolio. For these and other reasons, on 
March 30 the President announced that he had determined that as a 
stand-alone company, Chrysler was not viable. However, The President 
also determined that Chrysler could achieve viability through a 
partnership that addressed the shortcomings of its viability plan. The 
partner most likely to fill this role was the international automobile 
manufacturer, Fiat.
    Over the next month, Chrysler worked closely with Fiat and its 
other stakeholders to secure the necessary concessions to reach 
agreement around a viable partnership. On April 30, the President 
determined that Chrysler had made sufficient progress in its commercial 
viability to justify an additional investment of U.S. taxpayer 
resources. In order to effectuate these agreements, on April 30 
Chrysler filed for bankruptcy. One month later, after a court process 
that gave all creditors a chance to raise their concerns, the 
bankruptcy court approved the sale of substantially all of Chrysler's 
assets to the new Chrysler-Fiat Alliance. On June 5, this judgment was 
affirmed unanimously by a three-judge panel of the Second Circuit Court 
of Appeals. On Tuesday, June 9 the U.S. Supreme Court denied an 
application to stay the closing of the Chrysler-Fiat Alliance.
    As a result, the new Chrysler-Fiat Alliance is scheduled to close 
its sale agreement on Wednesday, June 10, 2009 and successfully emerge 
from the bankruptcy process. When that occurs, Chrysler's future 
success will be in the hands of its executives, managers, and workers--
as it would be for any private company. But the President's commitment 
to completing this alliance in this short period of time helped ensure 
that tens of thousands of jobs that would have been lost if Chrysler 
had liquidated will now be saved.
    Reaching this point with this historic alliance was only possible 
because of an unprecedented degree of sacrifice from Chrysler, Fiat, 
and all their key stakeholders:

    The UAW has made important concessions on wages, benefits, 
        and retiree health care. These concessions have brought 
        Chrysler's compensation in line with Toyota and other 
        transplants. In addition, the UAW retirees exchanged a $10 
        billion fixed obligation to the VEBA retiree health trust for a 
        $4.6 billion unsecured note and stock in the new Chrysler. This 
        arrangement shifts substantial risk onto the retiree health 
        care trust and will likely result in meaningful reductions in 
        retiree health care benefits for Chrysler's 150,000 retirees. 
        While the Trust, beyond a single seat on the Company's Board of 
        Directors, will have no role in the governance of the Company, 
        the ability of the Trust to provide decent benefits over the 
        long-term will require that the Company's stock become 
        valuable, thus importantly aligning the interests of the 
        Company and a key stakeholder.

    Chrysler's largest secured creditors agreed to an exchange 
        of $2 billion in cash for their $6.9 billion in outstanding 
        secured debt. The Court determined that the $2 billion was well 
        in excess of the liquidation value of Chrysler \2\ and thus 
        found this to be a very normal and conventional treatment of 
        secured creditors in the bankruptcy process. In addition, it 
        was always made clear to the secured lenders that no one 
        contested their right and they were therefore free, to take 
        their collateral and do with it as they pleased, including 
        either liquidating the company or operating it Instead, they 
        made a commercial choice to take their recovery in cash.
---------------------------------------------------------------------------
    \2\ $800 million on the high end of the range, as cited in the 
Opinion Granting Debtor's Motion Seeking Authority to Sell, Judge 
Gonzalez, filed 5/31/09, page 19.

    Chrysler and Fiat determined that meaningful actions were 
        required to reduce the overcapacity in both the Company's plant 
        footprint and dealer network. Therefore the restructuring 
        included reductions in plants and dealers across the United 
        States. These decisions, while difficult, will help make 
        Chrysler more competitive and help ensure the success of the 
        Company in the future. Importantly, as part of its dealer 
        rationalization effort, Chrysler has made clear that every 
        dealer that is not receiving a franchise agreement going 
        forward has a guarantee that they ``will be made whole, less 
        inspection and shipment costs, for all remaining 
        inventory.''\3\
---------------------------------------------------------------------------
    \3\ Memo from Steve Landry, Chrysler, to All Chrysler, Dodge, and 
Jeep Dealers, Dated June 5, 2009.

    The U.S. and Canadian governments have provided working 
        capital and exit financing to support the Chrysler-Fiat 
        Alliance. The total funding provided by the U.S. Treasury for 
        this effort is $8.1 billion, with the governments of Canada and 
---------------------------------------------------------------------------
        Ontario providing just over $2 billion.

    The Company's successful emergence from bankruptcy, in conjunction 
with financial support from the U.S. and Canada, would put the new 
Chrysler-Fiat Alliance on solid footing to succeed and generate jobs 
well into the 21st century.
General Motors
    On March 30, 2009, President Obama laid out a framework for General 
Motors to achieve financial viability. This framework required the 
company to rework its business plan, accelerate its operational 
restructuring and make far greater reductions in its outstanding 
liabilities. After 2 months of significant work by the company's 
management and engagement with its stakeholders, GM developed such a 
plan. As a result, the President deemed GM's plan viable and on June 1, 
2009 committed approximately $30.1 billion of additional Federal 
assistance from the TARP to support the company's restructuring. To 
effectuate its plan, General Motors filed for bankruptcy protection and 
will utilize Section 363 of the bankruptcy code to clear away the 
remaining impediments to its successful re-launch.
    As with Chrysler, every one of the company's stakeholder has made 
substantial sacrifices as part of this process. These sacrifices 
include:

    The UAW made significant concessions on compensation that 
        will result in wage rates comparable to foreign competitors. In 
        addition, The GM VEBA retiree health trust exchanged a $20 
        billion fixed obligation for a $2.5 billion note and stock in 
        the new GM (in the form of $6.5 billion in preferred stock, 
        17.5 percent in common equity of the new GM and warrants to 
        purchase an additional 2.5 percent in common equity at a $75 
        billion strike price).

    Unsecured bondholders agreed to exchange $27.1 billion of 
        their claims for 10 percent of the equity of new GM, plus 
        warrants for an additional 15 percent of the new Company. This 
        outcome allows the bondholders to recover more than what was 
        implied by the market price of their bonds, and substantially 
        more than they would have recovered if the government had not 
        intervened and GM had liquidated. Prior to the bankruptcy 
        filing The Steering Committee of a group of GM bondholders 
        confirmed that a majority of GM's bondholders supported the 
        deal, and the percentage of individual and institutional 
        bondholder in supporters is now over 55 percent. The bankruptcy 
        court process will be used to confirm this treatment for those 
        bondholders and other unsecured creditors that failed to accept 
        or did not participate in the offer.\4\
---------------------------------------------------------------------------
    \4\ While some unsecured creditors--including trade creditors and 
warrantee holders--will receive substantially greater recoveries than 
the unsecured bondholders, this reflects conventional and well-settled 
bankruptcy practice. As Judge Gonzalez explained in the Opinion 
Granting Debtor's Motion Seeking Authority to Sell, filed 5/31/09, page 
1: ``The sale transaction for which authorization is sought (the ``Sale 
Transaction'' or ``Fiat Transaction'') is similar to that presented in 
other cases in which exigent circumstances warrant an expeditious sale 
of assets prior to confirmation of a plan. The fact that the U.S. 
Government is the primary source of funding does not alter the analysis 
under bankruptcy law.''

    GM has designed and announced a reduction in its dealer 
        network and reduction in its plant footprint. These steps are 
        part of the company's broad effort to right-size the business 
        to reflect current and expected levels of demand. The resulting 
        GM will operate with a dramatically improved cost structure 
        that lowers its breakeven point to a 10 million annual unit 
        environment compared to a prior breakeven point of more than 16 
        million. Because of the reduced debt and other post-retirement 
        benefit obligations, New GM will have credit statistics 
        consistent with well capitalized peers. This provides the 
---------------------------------------------------------------------------
        company with a path to a sustainable future.

    The U.S. and Canadian governments will provide substantial 
        financial assistance to support this restructuring. GM will 
        receive $30.1 billion in new assistance from the U.S. Treasury 
        under the TARP program.\5\ In return, the U.S. Treasury will 
        receive $8.8 billion in debt and preferred securities as well 
        as a 60 percent equity stake in the restructured company. (The 
        U.S. Treasury's equity stake is about 50 percent on a fully 
        diluted basis). The Governments of Canada and Ontario will 
        invest $9.5 billion and receive a proportional share of each of 
        these securities.
---------------------------------------------------------------------------
    \5\ Total UST commitment for GM is $49.5bn, of which $19.4bn was 
funded prior to bankruptcy filing on June 1st. UST commitment to 
debtor-in-possession funding is $30.1bn.

    While GM's restructuring plan will result in substantial short-term 
sacrifices including further job reductions and dealer closings, the 
long term result will be a more competitive American automobile 
industry that will continue the long history of American growth and 
innovation.
Understanding the U.S. Government's Ownership Stake in General Motors
    As the President has made clear, The Obama Administration is a 
reluctant shareholder in General Motors. We inherited a situation in 
which GM needed substantial capital that only the government could 
provide. At the same time, GM had been hobbled for years by an 
unsustainable debt burden. In this context, piling on irresponsible 
amounts of new debt on top of the new GM would have simply repeated the 
mistakes of the past. Likewise, giving away the equity stake to which 
taxpayers were rightly entitled would have been irresponsible.
    Therefore, the Administration made the decision to take the equity 
that taxpayers are entitled to, alongside a firm conviction to manage 
that investment commercially and exit our position as quickly as is 
practicable. The Administration has articulated a set of four 
principles that will govern its approach to managing ownership 
interests in financial and automotive companies that will apply 
directly to the government's approach to GM:

    The government has no desire to own equity stakes in 
        companies any longer than necessary, and will seek to dispose 
        of its ownership interests as soon as practicable. Our goal is 
        to establish strong and viable companies that can quickly be 
        profitable and contribute to economic growth and jobs without 
        government involvement.

    In exceptional cases where the U.S. Government feels it is 
        necessary to respond to a company's request for substantial 
        assistance, the government will reserve the right to set 
        upfront conditions to protect taxpayers, promote financial 
        stability and establish the foundation for future growth. When 
        necessary, these conditions may include restructurings similar 
        to that now underway at GM as well as changes to ensure a 
        strong board of directors that selects management with a sound 
        long-term vision to restore their companies to profitability 
        and to end the need for government support as quickly as 
        possible.

    After any up-front conditions are in place, the government 
        will protect the taxpayers' investment by managing its 
        ownership stake in a hands-off, commercial manner. The 
        government will not interfere with or exert control over day-
        to-day company operations. No government employees will serve 
        on the boards or be employed by these companies.

    As a common shareholder, the government will only vote on 
        core governance issues, including the selection of a company's 
        board of directors and major corporate events or transactions. 
        While protecting taxpayer resources, the government intends to 
        be extremely disciplined as to how it intends to use even these 
        limited rights.
Steps to Stabilize Auto Finance Market
    A viable auto industry requires automotive financing for dealers 
and consumers. The vast majority of automobile purchases in the U.S. 
are financed, including an estimated 80-90 percent of consumer 
purchases and substantially all dealer inventory purchases. As Chrysler 
wrote in their viability plan, ``[t]he availability of credit for 
automotive customers and dealers is the single most important element 
of Chrysler's viability.''
    Following the collapse of Lehman Brothers, credit availability to 
auto dealers and consumers was severely impaired. The impact of the 
contraction of credit was dramatic: loan approval rates dropped, 
interest rates increased, and financing terms tightened. This was 
particularly true for domestic manufacturers, most acutely for Chrysler 
and General Motors products as uncertainty about the future of the 
companies impaired the ability of GMAC and Chrysler Financial to access 
the capital markets.
    With Chrysler posed for a successful reorganization through a sale 
to the New Chrysler entity, the brighter prospects for General Motors 
in the context of the U.S. Treasury's support of GM's reorganization, 
the stabilization of the value of domestic automobiles, and the 
creation of healthy dealer networks, credit spreads in auto asset-
backed securities markets have tightened considerably in recent weeks. 
For example, the spread against comparable 3-year Swap rates of prime 
automotive retail AAA ABS have tightened by roughly 100 basis points 
since March and 400 basis points from their peak of more than 600 bps 
in November 2008. However, the current spread of 200 basis points is 
still above historical averages of less than 25 bps.\6\
---------------------------------------------------------------------------
    \6\ Source: Deutsche Bank Auto Industry Outlook, May 28, 2009, and 
FRBNY TALF June Subscription Report.
---------------------------------------------------------------------------
    Having the capital markets recognize the stability of the value of 
domestic automobiles as collateral will be the most effective mechanism 
for improving the provision of credit to automotive dealers and 
consumers. Until that time, as with many lending markets in the current 
financial crisis, some government support of the U.S. automotive 
financing marketplace has been and will continue to be required to 
ensure that U.S. dealers and consumers have access to the necessary 
financing to buy cars. To date, the U.S. Government has provided 
support to the automotive finance sources through a number of notable 
programs:

    TALF, the joint U.S. Treasury and Federal Reserve program, 
        in which automotive finance companies have raised over $16.8 
        billion for retail and lease lending through June 2009. Issuers 
        participating in this program include Ford, Nissan, BMW, 
        CarMax, and Honda, among others (Ford issued $3.0 billion of 
        TALF-supported retail financing in March, and an additional 
        $1.9 billion of retail and $0.8 billion of lease TALF-supported 
        financing in June). While dealer floorplan loans are eligible 
        under TALF, the rating agencies must make their own independent 
        determinations, and the rating agencies have not rated floor 
        plan securities AAA, regardless of the credit enhancement 
        offered. The Federal Reserve and Treasury continue to review 
        and study the eligibility requirements across asset classes.

    U.S. Treasury support for automotive finance companies. In 
        January, the Bush Administration loaned $1.5 billion to a 
        subsidiary of Chrysler Financial to enable Chrysler Financial 
        to continue making retail auto loans to creditworthy Chrysler 
        customers during the first quarter of 2009. More recently, the 
        U.S. Treasury invested an additional $7.5 billion of capital in 
        GMAC to fulfill two goals: (1) to enable the company to take on 
        financing for Chrysler dealers and customers, and (2) to 
        increase the company's capital by addressing a portion of its 
        capital needs as identified through the stress test process 
        GMAC completed with the Federal Reserve. As a result, GMAC, 
        which has been a leader in providing automotive credit since 
        1919, is healthier and more diverse, and therefore well 
        positioned to continue to finance creditworthy GM and Chrysler 
        dealers and customers. As of Tuesday, June 9, 2009 GMAC has 
        made significant progress on-boarding Chrysler dealers for both 
        retail and wholesale floor plan financing. Retail on-boarding 
        is nearly complete, with 2,288 Chrysler dealers (96 percent of 
        all go-forward Chrysler dealerships) activated and ready to 
        submit retail applications to GMAC. Wholesale floor plan on-
        boarding continues as planned, with 1,491 dealers activated and 
        ready to finance new units (representing 90 percent of all go-
        forward dealerships that were previously financed by Chrysler 
        Financial or GMAC). Finally, GMAC is prepared to fund the 
        redistributed vehicles from rejected dealers to the go-forward 
        dealers it finances (estimated 15,000 units).
Stabilizing the Auto Supply Base
    Because of the credit crisis and the rapid decline in auto sales, 
many of the nation's auto parts suppliers have been unable to access 
credit and have been facing growing uncertainty about the prospects for 
their businesses and for the auto companies that rely on them. 
Suppliers that ship parts to auto companies generally receive payment 
about 45-60 days after shipment. In a normal credit environment, 
suppliers can either sell or borrow against those commitments-so-called 
``receivables''--in the interim period to pay their workers and fund 
their ongoing operations. However, due to the current uncertainty about 
the ability of the auto companies to honor their obligations, banks 
have been unwilling to extend credit against these receivables.
    On March 19, 2009 the U.S. Treasury announced a $5 billion 
Automotive Supplier Support Program to help address this problem.\7\ 
Any eligible domestic auto company may participate. This program has 
provided the necessary stability to suppliers and the OEMs at a 
critical time. Nonetheless, the Task Force is mindful of the continuing 
challenges facing auto suppliers and is continuing to actively monitor 
the health and state of the supply base during this period of industry 
restructuring.
---------------------------------------------------------------------------
    \7\ The Program is implemented through a special purpose vehicle 
(``SPV'') and functions as follows: The OEMs initially identify 
critical suppliers to participate in the Program. Once included, the 
OEM submits receivables of the Suppliers eligible for the Program. For 
those receivables, a participating supplier is entitled to be paid 
directly from the SPV. Suppliers have the option of receiving payment 
immediately, in which case they pay a 3 percent discount, or receiving 
payment under the supply contract's normal payment terms (usually 45-60 
days), in which case the supplier pays a 2 percent discount. In either 
scenario, since the supplier receives payment from a government-funded 
SPV, the payment is certain. When the OEM's payment is due to the 
supplier under the terms of their contract, the OEM makes the payment 
to the SPV. The SPV thus bears the risk of the OEM's non-payment, and 
the supplier is secure.
---------------------------------------------------------------------------
Conclusion
    In a better world, the choice to intervene in the companies would 
not have had to be made. But amid the worst economic crisis in three-
quarters of a century, the Administration's decisions avoided a 
devastating liquidation and put a stop to the long practice in the auto 
industry of kicking hard problems down the road. While difficult for 
all stakeholders involved, these restructurings provide GM and Chrysler 
with a new lease on life and a chance to fundamentally restructure and 
succeed.
                                 ______
                                 
              PREPARED STATEMENT OF DR. EDWARD MONTGOMERY
         DIRECTOR FOR RECOVERY FOR AUTO COMMUNITIES AND WORKERS
                             June 10, 2009
State of Domestic Autombile Industry
    Chairman Dodd, Ranking Member Shelby and members of the Committee, 
thank you for the invitation to testify today. As the recently 
appointed Director for Recovery of Auto Communities and Workers, I 
appreciate this opportunity to discuss assistance being provided to or 
being sought by communities and workers affected by auto job losses.
    As you are well aware, the current recession is arguably the most 
severe since the Great Depression and has had a profound impact upon 
our businesses, workers and homeowners throughout the country. Whether 
measured by housing prices or stock prices, the overall impact on 
consumer wealth has been substantial. But the consequences of the 
recession have not just been felt in our savings accounts and in the 
value of our assets; they have rippled through corporate and small 
business profitability and in layoffs and job loss.
    According to the Bureau of Labor Statistics (BLS), our nation has 
lost 6 million jobs since the recession began in December 2007. The 
unemployment rate has surged to 9.4 percent--the highest level in 26 
years. Those who lose their jobs are stuck in unemployment for longer 
periods of time as the number of long-term unemployed (those jobless 
for 27 weeks or more) rose to 3.9 million in May or an increase of 
about 2.6 million since the start of the recession. Among those lucky 
enough to keep or find a job, the number of people working part-time 
because they can't get a full-time job has increased by over 4.4 
million over the same period, to 9.1 million workers.
    As striking as this decline is for the country as a whole, the 
situation is even more severe in much of the auto manufacturing 
heartland. Over 300,000 jobs have been lost in motor vehicle and parts 
manufacturing since December 2007 and some states such as Wisconsin and 
Delaware face the prospect of the closure of all of their automobile 
production facilities. In April, the unemployment rate in the three 
largest automobile states was 12.9 percent in Michigan, which has the 
highest rate in the nation, 10.2 percent in Ohio and 9.9 percent in 
Indiana. While employment among the traditional Detroit 3--Chrysler, GM 
and Ford--is concentrated in these three states in the upper Midwest, 
the auto industry, including the operations of foreign-based 
manufacturers and their suppliers, has spread out down the center of 
the country through Kentucky and Tennessee to Alabama, Mississippi, and 
Texas. In Kentucky and Alabama, which are the home of the fourth and 
fifth greatest number of reported motor vehicle manufacturing jobs, the 
unemployment rates are also near double-digit level.
    It is hard to overstate the significance of this industry for the 
economic life of millions of Americans. The Center for Automotive 
Research (CAR) lists 281 counties in 27 states where substantial income 
or earnings comes from the automotive industry. The BLS estimates that 
nearly 650,000 workers are employed in motor vehicle and parts 
manufacturing. Adding auto or motor vehicle dealers to the mix, the 
reach of the automotive industry is expanded by over another million 
workers in nearly every community in the country. Besides those 
directly employed in the production of vehicles and suppliers of parts, 
it has been estimated that as many as 7.5 additional jobs are created 
for every assembly plant job in industries ranging from steel to glass, 
from aluminum producers to construction companies or health care 
providers.\1\ While there is often a tendency to focus on the Original 
Equipment Manufacturers (OEMSs) and their suppliers when discussing the 
auto industry, auto dealers also represent a significant source of 
employment and business activity in nearly every community. This 
industry has been the source of R&D investment and countless 
innovations that have helped make our economy a technological leader, 
as well as created millions of well-paying jobs that help build our 
middle class.
---------------------------------------------------------------------------
    \1\ McAlinden, Sean P. and George A. Fulton. Contribution of the 
Automotive Industry to the U.S. Economy in 1998: The Nation and Its 
Fifty States. A Study Prepared for the Alliance of Automobile 
Manufacturers, Inc. and the Association of International Automobile 
Manufacturers, Inc. by the Center for Automotive Research, 
Environmental Research Institute of Michigan and the Institute of Labor 
and Industrial Relations, The University of Michigan, Ann Arbor, March 
2001.
---------------------------------------------------------------------------
    While the recession has had a profound impact on the auto industry 
and the communities where it resides, it is important to recognize that 
contraction in the American auto industry did not begin in 2008. In 
February 2000, the BLS reported that 1.3 million workers were employed 
in motor vehicle and parts manufacturing. With one exception, in every 
year since 2000 total employment has declined so that today only a 
little more than half of that workforce remains. What happened in this 
recession is that a slow but steady decline has turned into a flood, 
with employment dropping nearly 28 percent in the past 12 months.\2\ 
While multiple factors, including rising productivity, no doubt account 
for some of this longer-term trend, 18 months of steadily declining 
auto sales to the current near 30-year lows have played a major role in 
the current strains facing the industry, workers and the communities in 
which they reside and work.
---------------------------------------------------------------------------
    \2\ BLS data for motor vehicle and parts has employment at 
1,330,300 in February 2000, declining to 676,600 in April 2009. In 
April 2008 it stood at 898,000.
---------------------------------------------------------------------------
    The President has recognized that we cannot stand by and watch the 
auto industry disappear. But at the same time the President has been 
clear that we cannot just kick the can down the road and must insist 
that these companies demonstrate a credible path to financial 
viability. By providing additional funding within this tough but fair 
framework, Chrysler is poised to successfully emerge from bankruptcy 
this week and we are confident that GM will also successfully 
restructure over the coming months.
    The steps the President has taken have not only avoided a 
liquidation of these companies--and the hundreds of thousands of jobs 
that would have been lost in that scenario--but have also helped 
stabilize the auto industry. He has committed to provide government 
backing for warrantees of new GM and Chrysler cars. And, under the 
American Recovery and Reinvestment Act (Recovery Act), the 
Administration has implemented a tax credit that could lead to 100,000 
new car sales and save families hundreds of dollars off their purchase 
of a vehicle.
    President Obama also appointed me as the new Director of Recovery 
for Auto Communities and Workers to cut through red tape and ensure 
that the full resources of our Federal Government are leveraged to 
assist the workers, communities, and regions that rely on our auto 
industry. Working with Labor Secretary Solis and National Economic 
Council Director Summers, we have been developing a comprehensive 
effort that will help lift up the hardest hit areas by using the 
unprecedented levels of funding available in the Recovery Act and 
resources available throughout our government to provide immediate 
support to workers and create new manufacturing jobs and new businesses 
where they are needed most. We have also been engaged in an effort, in 
partnership with the business, civil and government leaders in auto 
communities, to create new initiatives to help support auto communities 
going forward.
    My first order of business upon appointment was to get out into 
auto communities to directly hear from workers and communities about 
the challenges they were facing and the economic development plans they 
were attempting to put in place. We have worked to establish an inter-
agency team, including representatives from DOL, DOE, DOC, SBA, DOT, 
DoJ, HHS, EPA, and Treasury, that has accompanied me to town halls and 
meetings to ensure that Federal agencies are hearing firsthand about 
what works and what doesn't for successfully deploying services to 
these communities.
    To date, we have held town halls and meetings in Michigan, Ohio and 
Indiana with hundreds of workers, employers, State and local officials, 
and members of affected auto communities to identify ways in which the 
Federal Government can help and start building strong ties between 
local communities and Federal agencies. Cabinet members and 
representatives from their agencies have actively engaged in partnering 
to these communities and have been figuring out how to cut red tape and 
support these hard hit areas. We plan to continue these sessions in a 
broader range of communities in the months ahead.
    In conjunction with our effort to get out into communities to hear 
from your constituents, we have also been working on initial steps to 
get assistance out to auto communities as workers. As part of this 
effort:

    The General Services Administration accelerated the 
        purchase of some 17,205 new fuel efficient vehicles, adding 
        $287 million in demand for new vehicles.

    The Department of Labor has also been working with the 
        Department of Education to make sure unemployed workers know 
        how to apply for Pell Grants and other Federal financial aid, 
        so they can develop new skills while the economy recovers. The 
        Department is also undertaking an effort to encourage states to 
        review their definitions of ``approved training'' for 
        unemployment insurance purposes so that workers can, if they 
        want, use the time while unemployed to get the skills they 
        need. The President announced these efforts last month.

    Last week, Secretary Duncan announced a $7 million special 
        competitive grant to establish innovative and sustainable 
        community college programs that prepare displaced workers for 
        second careers. This first-of-its-kind grant program will be 
        used to develop national models that can be replicated across 
        the country, especially in communities where autoworkers have 
        lost their jobs.

    Secretary Solis has announced a $50 million Green Jobs 
        training initiative targeted on auto communities. This will be 
        part of the Department of Labor's (DOL) $500 million 
        competitive grant program to support job training projects that 
        prepare workers for careers in energy efficiency and renewable 
        energy industries.

    The Small Business Administration announced an extension of 
        its 7(a) lending program to floor plan financing for auto, RV 
        and boat dealers.

    The President's Auto Task Force has also recognized that one of the 
most pressing challenges is to ensure that auto communities have access 
to existing Federal programs and new funding under the Recovery Act. 
Where we have identified potential challenges to accessing these funds 
or programs, we have taken steps to ensure that auto communities have 
an equal chance at accessing Federal funds. For example:

    Recognizing the emphasis Michigan has placed on green jobs 
        in planning its recovery, the Department of Energy (DOE) held a 
        workshop for county and local municipalities in Michigan to 
        train local leaders on how to apply for Energy Efficiency and 
        Conservation Block Grants, which are being given out both by 
        formula and competitively.

    In order to make sure the new DOE grant program truly 
        served the needs of communities in Michigan, DOE also held a 
        roundtable discussion in Michigan to get input on how the 
        program could best be structured.

    Recognizing the tremendous challenges auto communities face 
        in converting shuttered plants, or brownfields, into 
        redeveloped spaces, the Environmental Protection Agency (EPA) 
        recently announced $10.3 million in brownfields grants for 
        Michigan to help revitalize former industrial and commercial 
        sites.

    The Department of Commerce's Manufacturing Extension 
        Program (MEP)--which we have found to be one of the most highly 
        demanded programs by auto communities--is holding a workshop 
        tomorrow (June 11) in Ohio with manufacturers to help companies 
        diversify their customer base and pursue opportunities for 
        growth. This is part of a series to be offered in numerous 
        locations across Ohio. In addition, the MEP center in Michigan 
        has worked with the Michigan Economic Development Corporation 
        to offer market diversification services to dozens of 
        companies, and this is proving to be a practical approach to 
        helping companies envision and act on new opportunities.

    Likewise, the Department of Commerce's Economic Development 
        Administration has supported regional workshops and provided 
        technical assistance to communities impacted by auto related 
        dislocations to help them to develop and implement strategies 
        to support more diversified, entrepreneurial, innovative, and 
        hence, globally competitive regional economies.

    While these efforts represent discrete new authorities or 
initiatives, the Recovery Act has provided a wide range of supports for 
auto and other communities that both combat the current economic 
developments and begin to build for our future economic success. In the 
near term, the Recovery Act provides families with an immediate refund 
in their paychecks and help for states and local areas to avoid cuts to 
their education spending and maintain their schools, reduce the burden 
of health care costs, and maintain their law enforcement personnel. 
Looking longer term, the Recovery Act is enabling the repair and 
improvement of the country's infrastructure; funding innovative 
research and development initiatives in advanced battery and electric 
vehicle manufacturing, smart grid development, advances in wind, solar 
and other alternative energy sources, and broadband and health 
information technologies; and creating job opportunities for Americans.
    Together these programs represent an investment in transforming our 
very economy. Rather than try to review all of the ways in which this 
comprehensive effort will be affecting auto communities and their 
workers, let me focus on how the Department of Labor has been playing 
an active role in this effort.
    For its part, the Department of Labor's Employment and Training 
Administration (ETA) has already made available to the states 
additional funding to extend the duration of unemployment insurance 
benefits, to increase benefit checks by $25, to provide administrative 
support to State employment services and to make funds available to 
states that modernize their systems. In addition, the Department has 
made $3.47 billion in Recovery Act funds available to support workforce 
investment activities. Such activities include retraining dislocated 
workers, summer employment for youth and community service employment 
for seniors. For states hardest hit by auto industry layoffs, Michigan 
has received $197,117,236 in Recovery Act formula funds for workforce 
investment and employment activities, while Ohio has received 
$153,073,770, and Indiana $67,142,603. These amounts are in addition to 
the regular funding from the Fiscal Year 2009 appropriations that will 
be available to these states on July 1, 2009 for these activities.
    ETA is specifically addressing auto industry layoffs through its 
programs. The Workforce Investment Act (WIA) authorizes National 
Emergency Grants (NEGs) to target additional resources to expand 
service capacity at the State and local levels in response to 
significant worker dislocations. Since January 2009, ETA has awarded 
NEGs, or added additional resources to existing grants, in four 
automotive states--Missouri, Ohio, Minnesota, and Michigan.

    On February 26, 2009, Secretary Solis awarded $2,199,132 to 
        the State of Missouri (of which $1,099,566 has been released so 
        far) to provide training and reemployment services to 
        approximately 574 workers dislocated from 11 auto industry 
        suppliers at 13 different locations.

    On March 27, 2009, an $8,342,245 NEG (of which $5,074,749 
        has been released thus far) was awarded to Ohio to address 
        statewide layoffs in the automotive industry. The grant was 
        later amended to $10,000,000

    On May 18, 2009, Minnesota was awarded $1,320,100 (of which 
        $660,052 was released immediately) to provide services to 
        approximately 307 workers affected statewide by layoffs from 27 
        companies in the retail, service and manufacturing sectors of 
        the automotive industry.

    Additional resources have also been provided to existing 
automotive-related NEGs.

    On May 5, 2009, an additional $771,713 was provided to the 
        State of Missouri to serve 1,200 dislocated workers affected by 
        the closure of the Chrysler assembly plant in Fenton, Missouri, 
        as well as layoffs from Integram St. Louis Seating and Yushin 
        USA.

    On May 7, 2009, $4,125,000 in additional resources was 
        added to Michigan's NEG to serve 1,500 eligible dislocated 
        workers separated from automotive-related companies throughout 
        the State.

    Indiana is the only one of the three largest automotive states that 
has not requested an automotive-related NEG to date.
    In addition to the NEGs, ETA administers the Trade Adjustment 
Assistance (TAA) program, which assists workers who have lost their 
jobs as a result of foreign trade. The TAA program offers a variety of 
benefits and services to eligible workers, including job training, 
income support, job search and relocation allowances, a tax credit to 
help pay the costs of health insurance, and a wage supplement to 
certain reemployed trade-affected workers 50 years of age and older.
    Since June of 2008, ETA has issued over 200 TAA certifications for 
companies linked to the auto industry involving an estimated 34,000 
workers. Companies include the General Motors Corporation, the Ford 
Motor Company, Chrysler LLC., Daimler Trucks North America, and 
numerous part-suppliers. The top three states with auto-related 
certifications since June of 2008 are:

    Michigan, which had 59 certifications and received 
        $51,482,594 in TAA program training funds for 2009;

    Indiana, which had 23 certifications with 2009 TAA program 
        training funds totaling $24,104,904; and

    Ohio which had 20 certifications and $21,976,331 in 2009 
        TAA program training funds.

    The Recovery Act reauthorized and substantially changed the TAA 
program. One of the most significant changes was to more than double 
the maximum annual amount of TAA funds which may be used for training 
nationwide, from $220 million to $575 million. This increase will 
ensure that states have funds available to serve an increasing number 
of trade-affected workers under the reauthorized program. Since the 
effective date of the reauthorized and expanded TAA program (May 18, 
2009), ETA has experienced a sharp increase in petitions under the 
program and expects the demand for the program to remain high. To meet 
this demand, the Department's fiscal year 2010 budget requests $1.8 
billion for TAA, nearly double the $959 million provided for assistance 
to trade-displaced workers in fiscal year 2009.
    And under the Workforce Investment Act, with funding from DOL, 
every State workforce agency is required to create and maintain a Rapid 
Response team. Upon notification of mass layoffs or plant closures, the 
Rapid Response team works with the company to provide immediate 
assistance and reemployment services for affected workers. In order to 
ensure that State Rapid Response programs, which are funded by formula 
resources provided to the states under the Workforce Investment Act, 
are ready to respond to layoffs, on April 29, 2009, the Department of 
Labor convened all of the Rapid Response Coordinators from the 
industrial Midwest at a day-long conference. At the conference we 
assisted the states in conducting readiness assessments of their 
capabilities and shared best practices so that states could provide a 
high quality level of service to impacted workers. Each State developed 
a plan for how to improve its program, with a commitment to work toward 
specific benchmarks.
    Finally, under new funding from the Recovery Act, the Department of 
Labor (DOL) will soon award $500 million in competitive grants to 
support job training projects that prepare workers for careers in 
energy efficiency and renewable energy industries. Secretary Solis has 
already announced that $50 million of these funds will be set aside to 
ensure auto communities have access to these green job training 
opportunities. An additional nearly $250 million in Recovery Act funds 
will be used for construction and repair of Job Corps facilities to 
also incorporate green technologies. Job Corps will also develop and 
implement green jobs training into the curricula of all appropriate 
occupations.
    Green jobs will play an important role in both our economic 
recovery and ensuring U.S. competitiveness for decades to come. Through 
the Recovery Act, the Departments of Energy and Housing and Urban 
Development, the Environmental Protection Agency and other Federal 
agencies will be making large investments in programs and projects that 
will create green jobs. As states receive Recovery Act funding and 
implement training and reemployment strategies, the DOL encourages 
states to recognize opportunities to prepare workers for green jobs 
related to these other sources of Federal funding. The Department and 
other Federal agencies have already begun to coordinate the work to 
strategically implement programs that ensure cooperative interactions 
between investments in infrastructure and research and development on 
one side and job training and worker placement on the other.
    While I have focused on the DOL's role, I want to emphasize that 
the Administration's approach realizes that there is no magic bullet to 
transform economies and that the help for auto communities and workers 
is not uni-dimensional. The challenges that they face did not appear 
overnight and they will not be solved overnight. We recognize that 
credit is needed for businesses to operate, to finance new product 
development and to explore new markets, as well as for new businesses 
to form. We know that towns confronted with abandoned facilities or 
housing need help with clean-up so that these assets can be put back 
into productive use. That high speed rail and other transportation 
projects provide the infrastructure for growth. That without high 
quality schools or access to higher education our children will not 
have the skills they need to compete for the good jobs of the future. 
And finally those communities that grow provide safe streets, invest in 
the development of our children and give us environments where we want 
to live. States and local government have and must play a central role 
in these efforts. Local communities are best positioned to chart their 
own course that reflects their individual assets and desires. What is 
the best course for Dayton, Ohio may not be the way forward for Kokomo, 
Indiana or Huntsville, Alabama.
    Our comprehensive recovery strategy will not only recognize but 
support these heterogeneous efforts. Whether it is through economic 
development planning grants to cities or towns or support to individual 
manufacturers for diversification, our efforts will support a rich 
array of ways auto communities want to grow. Some may look to build new 
industry clusters while others will build on regional strategies. Some 
communities may want to exploit the strengths of their anchor 
institutions such as their colleges and universities, while still 
others may want to foster an incubator environment in which a broad 
array of economic activities are fostered. Clearly, State and local 
governments must take the lead in developing these strategies, but 
local and national foundations have already proven that they can play a 
critical role in helping communities bring the necessary parties to the 
table and chart a course forward. They can provide needed seed money 
and support and an array of growth strategies. At the end of the day, 
however, job creation ultimately comes from the private sector. There 
can be no successful strategy in which they are not at the center and 
want to invest their capital in creating new markets and with them new 
jobs.
    While I have presented facts and figures here today we must 
remember that behind the `numbers' of the economic downturn and the 
auto crisis are human faces; people facing challenges unlike what many 
of us have faced in our lifetimes. I share the President's commitment 
to helping these workers and communities both in the near term as we 
emerge from the recession, but also over the longer term to build a 
base for future growth and to ensure that they share fully in our 
economic prosperity. I thank you for your time and look forward to our 
dialog on this matter.

         RESPONSE TO WRITTEN QUESTION OF SENATOR REED 
                         FROM RON BLOOM

Auto Supplier Support Program
Q.1. As you may know, Rhode Island has many businesses that 
sell parts to direct auto suppliers. These companies are facing 
tight credit and a decline in demand in response to the 
economic downturn's impact on automobile sales.
    While the Auto Supplier Support Program is meant to 
stabilize the supplier network, it is my understanding that 
because only Tier 1 manufacturers are eligible suppliers, these 
Rhode Island businesses that do not sell directly to Chrysler 
or General Motors are not able to request access to the credit 
this program provides. On May 6th, I wrote to Secretary 
Geithner urging him to consider expanding the program's 
eligibility to Tier 2 and Tier 3 suppliers.
    What are your thoughts on broadening the Auto Supplier 
Support Program's eligibility to include manufacturers that 
sell parts to direct suppliers?
    Note: A copy of my letter to Secretary Geithner is 
attached.

A.1. Answer not received by time of publication.
                                ------                                

          RESPONSE TO WRITTEN QUESTION OF SENATOR BAYH
                         FROM RON BLOOM

Q.1. On June 1, Delphi Corporation announced its intention to 
emerge from Chapter 11 bankruptcy protection imminently. Under 
the reorganization plan, General Motors (GM) will absorb the 
obligations of Delphi's defined benefit pension plan for 
retired hourly workers. However, according to Delphi's June 1 
filing with the bankruptcy court, the residual obligations of 
its pension plan will remain substantially underfunded and the 
plan is thus expected to be terminated by the Pension Benefit 
Guaranty Corporation (PBGC).
    I have been contacted by hundreds of my constituents who 
are Delphi salaried retirees and are alarmed over the fate of 
their pensions, as many expect to take steep cuts in their 
benefits as a result of the PBGC's termination of their plan. 
Most of these retirees spent the better part of their careers 
working for GM until Delphi was spun off as an independent 
company in 1999. It seems reasonable that they should be able 
to count on receiving the pensions they were promised.
    Given the fact that GM will absorb Delphi's pension 
obligations to its hourly retirees, would it not be appropriate 
for GM to do the same for Delphi's salaried retirees?

A.1. Answer not received by time of publication.
                                ------                                

       RESPONSE TO WRITTEN QUESTIONS OF SENATOR MARTINEZ 
                         FROM RON BLOOM

Q.1. President Obama has stated clearly that the ``government 
stands behind Chrysler and GM warranties.'' I understand why he 
made this statement in April. However, in the interim, I 
continue to read stories that highlight consumer concern about 
warranties. Lately, those stories include the problems 
presented by the closure of dealerships that can leave 
substantial geographic areas without appointed service 
providers (see attachment).
    We know from experience that 3rd party firms are capable of 
insuring warranties, building out service networks in areas 
where dealerships disappear, and effectuating vehicle service 
contracts, without any government backing. With this in mind, 
my questions relating to warranties are:

  1) LWhy should the federal government be involved in the 
        warranty business? Assuming we will be in the car 
        business for an extended period of time, will you 
        consider private sector solutions to guaranteeing 
        warranty commitments? If you have already considered 
        the possibility of 3rd party backing of warranties, 
        what was the nature of these considerations, and why 
        was the decision made to keep the government involved?

  2) LAs the financial condition of General Motors has 
        degraded, GMAC has been downgraded from AAA to B++. Has 
        the Administration examined the impact of such a 
        downgrade relative to the ability of GMAC to attract 
        financing for vehicle services contracts and the 
        downward pressure that a loss of VSC sales could have 
        on surviving dealerships?

  3) LAdditionally, in April, the Administration announced the 
        warranty commitment program which indicated that 
        facility would be created and administered by a 3rd 
        party. It appears that $360 million has been set aside 
        under this program to guarantee GM warranties. Will 
        money be set aside for Chrysler warranties? Does the 
        Administration still intend to have a 3rd party 
        Administer this program?

A.1. Answers not received by time of publication.
                                ------                                

          RESPONSE TO WRITTEN QUESTION OF SENATOR REED
                     FROM EDWARD MONTGOMERY

Unemployment Insurance
Q.1. I authored legislation to extend UI benefits that was 
signed into law last November. This law has provided 7 weeks of 
UI to individuals who have exhausted their benefits, and 13 
additional weeks of benefits to unemployed workers in states 
that have been hit particularly hard by the economic downturn 
and have unemployment rates above 6 percent.
    In response to prolonged levels of unemployment and the job 
losses resulting from the auto industry restructuring, do you 
think the existing duration of unemployment insurance is 
sufficient? Do you think additional weeks should be enacted? 
Should Congress extend the termination dates of these benefits, 
which the Recovery Act extended to December 26, 2009?

A.1. The economic crisis that the Administration inherited is 
the worst since the Great Depression. The number of people 
losing their jobs is too high and the number of people without 
jobs is too high. While there are some hopeful signs that the 
pace of job loss has slowed considerably in the second quarter 
compared to the first quarter, we still have a long way to go. 
The Recovery Act is starting to take hold and more money is 
going into the economy each month helping to preserve jobs and 
create new ones. As this process unfolds, the Administration 
will look forward to working with the Senator and Members of 
Congress to make sure that our unemployment insurance system is 
providing unemployed Americans with the benefits they need to 
help manage during these difficult economic times.
                                ------                                

         RESPONSE TO WRITTEN QUESTION OF SENATOR BAYH 
                     FROM EDWARD MONTGOMERY

Q.1. On June 1, Delphi Corporation announced its intention to 
emerge from Chapter 11 bankruptcy protection imminently. Under 
the reorganization plan, General Motors (GM) will absorb the 
obligations of Delphi's defined benefit pension plan for 
retired hourly workers. However, according to Delphi's June 1 
filing with the bankruptcy court, the residual obligations of 
its pension plan will remain substantially underfunded and the 
plan is thus expected to be terminated by the Pension Benefit 
Guaranty Corporation (PBGC).
    I have been contacted by hundreds of my constituents who 
are Delphi salaried retirees and are alarmed over the fate of 
their pensions, as many expect to take steep cuts in their 
benefits as a result of the PBGC's termination of their plan. 
Most of these retirees spent the better part of their careers 
working for GM until Delphi was spun off as an independent 
company in 1999. It seems reasonable that they should be able 
to count on receiving the pensions they were promised.
    In the event that the PBGC does ultimately terminate 
Delphi's pension plan, what level of benefits can my 
constituents expect to receive? Are there any programs or 
resources in place to assist these retirees with understanding 
the process and its impact on their retirement security?

A.1. The PBGC recently announced that it will be terminating 
Delphi's Retirement Program for both Salaried and Hourly 
Employees, as well as four smaller plans sponsored by Delphi. 
The level of benefits that an individual participant may expect 
to receive will vary with such factors as age, employment 
status, salary, and early retirement. For instance, the maximum 
benefit guaranteed by the PBGC is $54,000 a year for those who 
retire at age 65 or retired earlier but have reached age 65 by 
the plan termination date. The maximum guarantee is higher for 
those persons retiring at a later age and lower for those who 
retire earlier or elect survivor benefits. There are also other 
limitations on the guarantee. For example, PBGC cannot 
guarantee more than a plan would pay as a straight-life annuity 
for retirement at the plan's normal retirement age, so a 
temporary supplement that ``bridges'' the difference between 
actual retirement age and social security retirement age may 
not be guaranteed or may be only partially guaranteed. PBGC may 
pay more than the guaranteed amount, depending on the plan 
funding level.
    With respect to Delphi's Hourly Plan, on July 21, General 
Motors made the following statement about an existing Hourly 
Plan guarantee:

        As a result of bargaining at the time of the spin-off, General 
        Motors Corporation did agree to top-up pension benefits for 
        certain limited groups of hourly employees and retirees in the 
        event that the Delphi hourly pension plan was terminated. As 
        with other union agreements that it has assumed from the old 
        GM, General Motors Company will honor these commitments.

    The PBGC is currently reaching out to media contacts and 
directing people to the PBGC's website page dedicated to the 
Delphi plan and frequently asked questions. PBGC will 
communicate directly with plan participants when it has assumed 
responsibility for the plans and again when it has made 
preliminary calculations of benefit entitlement, which 
typically takes three to 6 months.
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