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54–510 PDF 2010

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 

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS 

CHRISTOPHER J. DODD, Connecticut, Chairman 

TIM JOHNSON, South Dakota 

JACK REED, Rhode Island 

CHARLES E. SCHUMER, New York 

EVAN BAYH, Indiana 

ROBERT MENENDEZ, New Jersey 

DANIEL K. AKAKA, Hawaii 

SHERROD BROWN, Ohio 

JON TESTER, Montana 

HERB KOHL, Wisconsin 

MARK R. WARNER, Virginia 

JEFF MERKLEY, Oregon 

MICHAEL F. BENNET, Colorado 

RICHARD C. SHELBY, Alabama 

ROBERT F. BENNETT, Utah 

JIM BUNNING, Kentucky 

MIKE CRAPO, Idaho 

MEL MARTINEZ, Florida 

BOB CORKER, Tennessee 

JIM DEMINT, South Carolina 

DAVID VITTER, Louisiana 

MIKE JOHANNS, Nebraska 

KAY BAILEY HUTCHISON, Texas 

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)

(1) 

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 

2 

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 delivVerDate Nov 24 2008 14:53 Jan 29, 2010 Jkt 000000 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 S:\DOCS\54510.TXT SHERYL
3 

ered 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. MoreVerDate Nov 24 2008 14:53 Jan 29, 2010 Jkt 000000 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 S:\DOCS\54510.TXT SHERYL
4 

over, 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.’’ 

5 

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 fuelefficient 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 

6 

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? 

7 

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. 

8 

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. 

9 

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 

10 

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 

11 

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 

12 

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 

13 

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 

14 

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 nextgeneration 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 

15 

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 oneshot 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. 

16 

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? 

17 

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 thirdparty 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 businessVerDate Nov 24 2008 14:53 Jan 29, 2010 Jkt 000000 PO 00000 Frm 00021 Fmt 6633 Sfmt 6633 S:\DOCS\54510.TXT SHERYL
18 

men. 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. 

19 

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 conces- sions 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—— 

20 

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 

21 

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 

22 

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 

23 

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. 

24 

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 

25 

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 

26 

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. 

27 

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 

28 

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 

29 

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 

30 

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 

31 

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 

32 

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 overdealered. 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 

33 

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 firstclass 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: 

34 

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 reVerDate Nov 24 2008 14:53 Jan 29, 2010 Jkt 000000 PO 00000 Frm 00038 Fmt 6633 Sfmt 6604 S:\DOCS\54510.TXT SHERYL
35 

peat 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-toapples 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 

36 

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 posVerDate Nov 24 2008 14:53 Jan 29, 2010 Jkt 000000 PO 00000 Frm 00040 Fmt 6633 Sfmt 6604 S:\DOCS\54510.TXT SHERYL
37 

sible 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 

38 

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 

39 

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—— 

40 

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 

41 

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 heavyhanded 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 

42 

$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 

43 

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:] 

44 

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. 

45 

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 addiVerDate Nov 24 2008 14:53 Jan 29, 2010 Jkt 000000 PO 00000 Frm 00049 Fmt 6633 Sfmt 6621 S:\DOCS\54510.TXT SHERYL
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1The 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. 

tional 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 ChryslerFiat 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 TreasuryNEC 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 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 standalone 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. 

47 

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. 3Memo from Steve Landry, Chrysler, to All Chrysler, Dodge, and Jeep Dealers, Dated June 

5, 2009. 

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 Toy- ota 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. 

• 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

• 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 reducVerDate Nov 24 2008 14:53 Jan 29, 2010 Jkt 000000 PO 00000 Frm 00051 Fmt 6633 Sfmt 6621 S:\DOCS\54510.TXT SHERYL
48 

4While 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.’’ 5Total 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. 

tions 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

• 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. 

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. 

49 

6Source: Deutsche Bank Auto Industry Outlook, May 28, 2009, and FRBNY TALF June Subscription Report. 

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

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 lendVerDate Nov 24 2008 14:53 Jan 29, 2010 Jkt 000000 PO 00000 Frm 00053 Fmt 6633 Sfmt 6621 S:\DOCS\54510.TXT SHERYL
50 

7The 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. 

ing 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. 

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. 

51 

1McAlinden, 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. 

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 foreignbased 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. 

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 

52 

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. 

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. 

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 preVerDate Nov 24 2008 14:53 Jan 29, 2010 Jkt 000000 PO 00000 Frm 00056 Fmt 6633 Sfmt 6621 S:\DOCS\54510.TXT SHERYL
53 

pare 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 

54 

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 afVerDate Nov 24 2008 14:53 Jan 29, 2010 Jkt 000000 PO 00000 Frm 00058 Fmt 6633 Sfmt 6621 S:\DOCS\54510.TXT SHERYL
55 

fected 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 daylong 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 

56 

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. 

57 

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 

58 

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) Why 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) As 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) Additionally, 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 

59 

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 straightlife 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: 

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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.