REP. FRANK: We will continue with opening statements. If the panel will sit, please let's move clearly -- move quickly. Hey, all you people can say hello to each other in Michigan. Let's clear the room and get the panel seated.
As the panel is seated, I'm going to make my opening statement. I ask that the panel please be seated. If you're helping someone be seated, be seated yourself. They seem to have made it to the chairs on their own pretty good.
I have been struck, not happily, in the time that we've been discussing this, at what frankly seems to me an inherent cultural bias. There's a double standard here. Aid to blue-collar employees is being judged by a standard different than white-collar employees.
Now, I have no complaint about white-collar employees. They are my friends and constituents, as are others. But I do not remember complaints -- and I'm not talking about CEO compensation. And let me just add one thing. We have the CEOs with us. People have said, "Well, we're bailing them out. Should we deal with them?"
I do not think any of the three CEOs before us will show up on the unemployment line, no matter what happens. This is not about them personally, and none of them are going to be in any distress. But when people talk about bankruptcy, I am struck that bankruptcy has become, to some extent, the new spectator sport. People are perfectly prepared to watch other people go through it without understanding the stresses and strains it imposes.
But there's been a particular concern raised about the wages of the auto workers. I was here through the entire debate on the $700 billion plan and on other interventions into the financial markets. Yes, there was concern about CEO compensation. By the way, when this committee last year voted for constraints on CEO compensation, it was something of a partisan issue. And while we did pass it in the House, there was a great deal of opposition who said, "Oh, it's just envy and jealousy."
But while there was some talk about CEO compensation, there was none about the compensation of the people who work at these financial houses. And I am sure that even before the concessions in the recent contract, the hourly wage of people at the financial houses that have received assistance through the federal government are a good deal higher than auto workers. I think the average AIG worker gets a good deal more than the auto workers -- probably not the clerical people, but the people at AIG.
There is apparently a cultural conditioning that's more prepared to accept aid to the white-collar industry than to the blue-collar industry, and I think that has to be confronted honestly. Look, the $700 billion and this much smaller amount have in common the following: The justification for them has to be the impact on the broader economy. We have no right trying to help an industry for that industry's sake.
And by the way, for people who say, "Where's it going to stop?" pick up the papers. No one intervened for Circuit City. No one's intervened for many of the retailers that have gone bankrupt. No, we haven't declared that no one can go bankrupt. We have a criterion: Is this of a magnitude that it will threaten the entire economy, and particularly at a time of great vulnerability for the economy?
You know, if we were at 4 percent unemployment, as we were in the Clinton administration, if things were going well, this would be a different thing to contemplate. We have an economy already staggering, both because of our credit crisis and problems in the real economy. Adding to this enormous disruption at this point would be an awful idea. But here's the point. We aid an industry only when it is necessary to do that to avoid much greater harm to the economy as a whole.
In doing so, however, we should acknowledge that while we are doing it because we want to help the whole economy, people in that particular industry do benefit a little more than the average. There's no question about it. That's unavoidable. Why was it so acceptable to do that for the financial industry -- that is, respond to the need to avoid macroeconomic harm by helping the financial industry -- but doing it to a blue-collar manufacturing industry is somehow not right and we have to look at the wage scale, et cetera? And that's the issue that I think the country has to more honestly confront than we have done.
One of the arguments I've heard as well -- "You know, the nice thing about bankruptcy is it'll let them break the union contracts." I want to be very clear. The union and the management have already renegotiated downward, to nobody's happiness. We have already in this country had too successful an assault on the right of men and women to bargain collectively, legally and economically. We have already had too great a gap in income inequality growing and growing and growing.
I do not want to see bankruptcy established here as a precedent which can be used to take away from working men and women what gains they have accomplished. Now, that doesn't mean an endorsement of any particular level of wages here and there, but when you look, as I said, at the -- now, there are people who were against the $700 billion. They have every consistent right to be against this.
But people who were for the $700 billion, who were for an $85 billion injection of capital into AIG by the Federal Reserve without a vote of Congress, and who did not raise the question of the average compensation of people at AIG, or of the people who were the debtors of Bear Stearns -- we didn't bail out Bear Stearns; we bailed out the debtors of Bear Stearns -- it is a little late in the game for people who encouraged that infusion of far, far more money than we are talking about today to suddenly decide that an auto worker makes too much money when it was okay to pour hundreds and hundreds of billions of dollars into helping industries, again, because it was economically necessary, and I don't dispute that, but into industries where the average wage is far beyond what the auto workers make.
The gentleman from Pennsylvania.
REP. PAUL KANJORSKI (D-PA): Mr. Chairman, like many industries in America, the automotive sector confronts dire economic conditions. (What we get to here ?) is a complicated mixture of ineffective management, the lack of innovation, exploding health care and pension costs, a struggling economy, increasing commodity prices, and changing consumer preferences.
Regardless of the causes, the current plight demands dramatic reform. The big three must either adapt to survive or face extinction. To have a chance at survival, some maintain that the government should underwrite these needed changes to protect American jobs and prevent an impending economic catastrophe.
Others counter that government assistance will merely prolong the inevitable failure of American automakers. Some also suggest that $25 billion is not enough to save the industry. Just like we have recently experienced at AIG, the automakers could soon be back at the government's doorstep with a beggar's cup demanding more money in short order.
Most of us surely agree that if the Congress chooses to act -- and that remains, for me, a big if -- any money must come with substantive stipulations. While the draft House bill offers some important provisions, I believe they are insufficient to prevent recipients of taxpayer aid from abusing it.
The draft provides no guarantees that these companies protect American jobs. Nothing prevents them from purchasing foreign-made supplies over American-made parts. Moreover, unlike the 1979 Chrysler bailout law that required concessions by many, the proposal before us contains no similar substantive sacrifices by suppliers, dealers, management and workers. After all, Lee Iacocca symbolically accepted just one dollar in annual pay. Why can't today's CEOs at General Motors, Ford and Chrysler do the same?
Furthermore, I am not yet convinced that the Congress must act so rashly. If one of these companies had a specific dollar amount to prevent its insolvency in a matter of weeks, then we should know that so that we can provide a limited bridge loan. We can then take the time to structure a proper deal that does not sell us a pig in a poke to allow yet even more businesses to behave like pigs at the taxpayers' trough.
The American people expect and deserve careful deliberation from this body rather than a blessing of last-minute expedient deals. Only after the Congress carefully and thoughtfully considers its options can it then draft a solution that not only keeps these companies running for months and years to come, but also helps them to thrive in the next generation.
Even if we consider (this ?) bill, the onus lies with today's witnesses to explain why a direct government loan is a -- (inaudible) -- option. Many have credibly argued that bankruptcy or a structured receivership remain viable alternatives. The successful Chrysler loan guarantee provided a similar plausible road map this Congress could pursue.
Whatever we ultimately decide, we must proceed with caution toward a prudent long-term solution. In sum, the American public expects us to take the time to get it right, even if we have to stay in Washington to do it. I am committed to getting it right and look forward to the testimony.
REP. FRANK: The witnesses will now begin with their opening statements. We had no further requests for an opening statement on the Republican side. And we will begin with Mr. Richard Wagoner, the CEO of General Motors.
MR. WAGONER: Thank you very much, Mr. Chairman. I appreciate the opportunity to speak with you today about this important topic.
I'd like to acknowledge for the committee the audiences that I represent. General Motors employs directly almost 96,000 people in the United States. We have 6,500 dealers who employ another 340,000 people. Last year we purchased more than $30 billion of goods and services from more than 2,000 suppliers in 46 states.
Our pension program covers nearly 475,000 retirees and spouses, and our health benefits extend to about 1 million Americans. We have more than a million registered stockholders, and 70 million of our vehicles are registered to U.S. citizens, 22 million of them purchased in the last five years.
As the recent news coverage has made abundantly clear, many people have a picture of GM that hasn't kept pace with the hard work that our people have been doing. Since 2005, we've reduced our annual structural costs or fixed costs in North America by 23 percent, or $9 billion, and expect to reduce them by about 35 percent, or $14 (billion) to $15 billion, by 2011.
We negotiated a landmark labor agreement with the UAW last year that will enable us to virtually erase our competitive gap. We've addressed pension and retiree health care costs in the U.S., on which we've spent $103 billion over the last 15 years.
As a result of these and other actions, we are now matching or besting foreign competitors in terms of productivity, quality, and fuel economy, and by 2010 we'll match them on labor costs as well.
On the product side, we're building vehicles that consumers want to buy, like the Cadillac CTS, Motor Trend Magazine's 2008 Car of the Year, and the Chevy Malibu, the 2008 North American Car of the Year.
We've made huge progress in developing advanced propulsion technologies, like 20 models in the U.S. next year that will get at least 30 miles per gallon on the highway; six hybrids on the road now, and three more next year; more than 3 million flex-fuel vehicles; the world's largest hydrogen fuel cell test fleet; and the upcoming Chevy Volt extended-range electric vehicle.
In short, we've moved aggressively in recent years to position GM for long-term success, and we're well on the road to turning our North American business around. Last October, following the negotiation of a new labor agreement with the UAW, our stock price climbed to almost $43 per share, based on analysts' views that we have finally overcome the cost competitiveness gap with foreign manufacturers.
Since then, our industry's been hit very hard by the global financial market crisis, and the recent plunge in vehicle sales threatens not only General Motors' ongoing turnaround, but our very survival.
In response, we've moved quickly to keep our company on track. Since June, we've further reduced North American manufacturing capacity, put parts of our company up for sale, suspended dividend payments, reduced head count, and eliminated raises, bonuses, 401(k) matches, and health care coverage for many of our employees, all designed to improve GM's liquidity by $20 billion by the end of 2009.
These actions affect every employee, retiree, dealer, supplier, and investor in our company.
Mr. Chairman, I do not agree with those who say we are not doing enough to position GM for success. What exposes us to failure now is not our product lineup nor our business plan nor our long-term strategy.
What exposes us to failure now is the global financial crisis, which has severely restricted credit availability and reduced industry sales to the lowest per capita level since World War II.
Our industry needs a bridge to span the financial chasm that has opened before us. We'll use this bridge to pay for essential operations, new vehicles, and power trains, parts from our suppliers, wages and benefits for our workers and retirees, and taxes for state and local government.
But if the domestic industry were allowed to fail, the societal costs would be catastrophic -- 3 million jobs lost within the first year, personal income reduced by 150 billion (dollars), government tax loss of more than 156 billion (dollars) over three years, not to mention the huge blow to consumer and business confidence.
Such a level of economic devastation would far exceed the government support that our industry needs to weather the current crisis. In short, helping the auto industry bridge the current financial crisis would not only prevent massive economic dislocation now; it will produce enormous benefits for our country later.
Thank you very much. I look forward to your questions.
REP. FRANK: Next, Mr. Robert Nardelli from Chrysler.
MR. NARDELLI: Thank you, Mr. Chairman, and members of this Committee. I certainly appreciate the opportunity to be here today.
We're asking for assistance for one reason: to address the devastating automotive industry recession caused by our nation's financial meltdown. With credit markets frozen, the average working American can't get competitive financing to purchase or lease vehicles.
Our dealers, many of whom are in the room with me today, don't have access to market-competitive funding to place wholesale orders for new vehicles, which results in the constriction of cash inflow to all of us as auto manufacturers.
At the same time, Chrysler's had -- Chrysler has billions of dollars in cash payment obligations to pay wages, to pay suppliers, to fund health care and pensions, all in the range of 4 (billion dollars) to $5 billion a month.
Therefore, without immediate bridge financing support, Chrysler's liquidity could fall below the level necessary to sustain operations.
Independent research firms have quantified the fallout of a domestic automaker bankruptcy to the overall economy. The impact would be devastating, as Rick mentioned.
This is not a good option for Chrysler and, more importantly, for the auto industry or the broader economy, for the following reasons:
One we believe that retail sales would plummet. The fact is in February of 2007, when Daimler announced the sale of Chrysler, our sales fell off 37 percent. Our existing inventories would need to be heavily discounted. We have over 400,000 units in the field worth about $1 billion.
Given our common supplier base, the bankruptcy of any one automaker could threaten the viability of all automakers. Our factories would likely be idle for a significant period of time while we renegotiate contracts with literally thousands of suppliers and our primary lenders.
The overall amount in cost of financing the restructuring would be significantly higher in a Chapter 11 process than the working capital bridge that we're requesting here today.
And finally, we cannot be confident that we'll be able to successfully emerge from bankruptcy. That's why an industry -- as an industry, we're requesting a $25 billion working capital bridge to survive this liquidity crisis.
We're willing to provide full financial transparency and welcome the government as stakeholders, including an equity holder. We're fully prepared to comply with the current conditions and policies under the recently enacted Emergency Economic Stabilization Act.
Furthermore, our private equity owner, Cerberus Capital Management LP, has made it clear that it will forego any benefits from the upside that would, in part, be created from any government assistance that Chrysler LLC may obtain.
Mr. Chairman, being new to the auto industry, I recognize the need to challenge the status quo and to seek significant change. Change is the only constant we know at Chrysler today and throughout our businesses.
Chrysler is making those changes and since 2007 we have reduced 1.2 million units of capacity, or 30 percent of our installed base. We've identified over $1 billion in non-earning assets to sell, and we're more than 75 percent towards achieving that goal.
This year we've reduced our fixed costs $2.2 billion. And unfortunately, by the end of the year, we will have furloughed over 32,000 employees.
It is equally important that the lack of liquidity to provide loans and leases to customers and financing to dealers in addressing this issues immediately. It's imperative that our affiliate financial companies receive access to competitive liquidity and financing capacity.
At Chrysler, 75 percent of our dealers rely on Chrysler Financial to support their businesses, and 50 percent of our customers finance their vehicles through purchases through Chrysler Financial.
Normally, these loans and leases are securitized and sold in the secondary market to generate fresh liquidity and finance capacity. Today there is virtually no secondary market, and therefore no way to raise capital.
With immediate financial assistance, the lifeblood of the U.S. economy will continue to flow and Chrysler will be able to continue to pay at its current levels.
Mr. Chairman, Chrysler really is the quintessential American car company. Seventy-three percent of our sales are in the U.S.; 61 percent of our vehicles are produced in the U.S.; 74 percent of our materials are purchased in the U.S.; and 62 percent of our dealers are based in the U.S.
Chrysler has a strong (pipeline ?) with a product renaissance coming in 2010, and in September we revealed three electric-drive vehicles, one for each brand, and one of those will be produced in 2010.
Thank you very much.
REP. FRANK: And now, Mr. Alan Mulally, of Ford.
MR. MULALLY: Thank you, Chairman Frank and members of the Committee. I appreciate the opportunity to be here representing the Ford Motor Company.
As you know, the auto industry has been heavily affected by the turmoil in the financial markets. Much of the recent commentary has suggested that our companies need a new business model. I completely agree.
In fact, we at Ford are well on our way to transforming our company and building a new Ford that has a very bright future.
There are two fundamental questions today. First, is there a competitive and sustainable future for our domestic automobile industry? And second, is a government bridge loan through these difficult economic times better for our country than inaction? I believe the answer to both of these questions is yes.
As a relatively newcomer to this industry, I have the benefit of seeing the auto industry and its transformation clearly. I see parallels with what I witnessed at Boeing after the 9/11 tragedy and the steps we took to transform the commercial airplane business.
I can tell you that the transformation at Ford is even more aggressive, and the progress we are making is even more remarkable.
Our plan, for the past two years, has been focused and consistent: aggressively restructure to operate profitably at the current lower demand and also the changing model mix; accelerate the development of safe, fuel-efficient, high-quality new products that our customers want and they value; finance our plan and improve our balance sheet; and work together as one team, leveraging our global assets worldwide.
Our goal is to create a viable Ford Motor Company and a lean global enterprise delivering profitable growth for all.
Few companies have restructured more aggressively. We have taken out excess capacity, closing 17 plants and reducing our workforce by 51,000 vehicles (sic). We negotiated a new contract with the UAW to improve our competitiveness. We shifted to a balanced product lineup offering high quality, proven safety, and good value.
We are delivering the best, or among the best, fuel economy with every new vehicle we are launching today. The speed and the breadth of our transformation is evident by the actions this week alone.
Yesterday we submitted our application for direct loans authorized by Congress last year to help us speed advanced technologies and vehicles to market. Today, at the Los Angeles Auto Show, we will introduce two all-new hybrids. Our new Ford Fusion hybrid beats the Toyota Camry hybrid by at least six miles per gallon. It's just a friendly competition.
On Friday we will end large SUV production at our Michigan truck plant and being converting to fuel-efficient, small car production at that same facility.
To fund our new products and restructuring, we went to the capital markets early and we divested all of our non-core assets. Our Ford Credit business has consolidated abroad to preserve capital in support of our U.S. customers and our U.S. dealers.
We appreciate the recently induced asset-backed commercial paper funding facility, and we anxiously await the administration's term securitization facility (in work ?).
In addition, the FDIC's approval of Ford Credit's pending industrial loan bank application will enable us to meet the financial needs of our dealers and our retail customers.
As a result of all of these actions, we were profitable in the first quarter of this year, 2008, and well on our way to sustainable profitability before the current economic and credit crisis stopped us cold.
We have taken decisive action to deal with the current new crisis. We have reduced production to match the dramatically lower demand. We have further reduced employment, and we have eliminated all raises and bonuses for 2009. We took these measures while protecting the new vehicles that will secure our future.
Now we believe we must join our competitors in asking for your support to gain access to an industry bridge loan that will help us navigate through this difficult economic crisis.
We suggest the loans be structured in a revolving format so exposure of the taxpayer would be limited and, if used, would of course be repaid with interest.
We at Ford are hopeful that we have enough liquidity, but we also must prepare ourselves for the prospect of further deteriorating economic conditions in 2009. In addition, the collapse of one of our competitors would have a severe impact on Ford and our transformation plan, because the domestic auto industry is highly interdependent. It would also have a devastating ripple effect across the entire U.S. economy.
I am more convinced than ever that we have the right plan to transform Ford. We at Ford will continue to deliver our plan to create a thriving auto business for the benefit of all of us. With your help, we will create a safeguard to deal with the growing economic uncertainty.
This is a really important industry. It is a pillar of our economy, and we look forward to working with you to be part of the solution on the road to economic recovery.
Thank you very much.
REP. FRANK: Mr. Ron Gettelfinger, from the United Auto Workers.
MR. GETTELFINGER: Mr. Chairman, on behalf of the men and women of UAW, thank you for the opportunity to testify today on the state of the domestic automobile industry.
The UAW strongly supports legislation to amend -- (inaudible) -- to clarify that the Treasury Department should use the existing financial rescue program to quickly provide a $25 billion emergency bridge loan to General Motors, Ford, and Chrysler to enable these companies to continue operations.
The situation now facing GM, Ford and Chrysler is extremely dire. Because of the credit and financial crisis, overall vehicle sales have plummeted to the lowest level in 25 years. As a result, GM, Ford and Chrysler are burning through their cash reserves at an unprecedented rate.
The stark reality is that these companies could be forced into a Chapter 7 liquidation with their operations ceasing entirely.
If this happens, as we all know, the consequences would be truly devastating. In addition to the hundreds of thousands of workers who would directly lose their jobs at the Detroit-based auto companies, a total of almost 3 million workers would see their jobs eliminated. This includes people who work for auto dealers, suppliers of components and materials, and thousands of other businesses that depend on the auto industry.
Furthermore, retirees from the Detroit-based auto companies and their spouses and dependants, about 1 million people, could suffer sharp reductions in their pension benefits and the loss of their health insurance coverage -- an especially devastating blow to the roughly 40 percent who are younger than 65 and thus not yet eligible for Medicare.
If the automakers' pension plans are terminated, the PBGC would be saddled with unprecedented liabilities and the federal government would be liable for a 65 percent tax credit for the health care costs of pre-Medicare auto retirees.
The liquidation of the Detroit-based auto companies would severely aggravate the current economic downturn. Government revenues would shrink even further, forcing harmful cuts in a wide range of social services.
The UAW submits that it would be far better for the federal government to take prompt action now to prevent the imminent collapse of the Detroit-based auto companies. The human toll will be far less and the ultimate cost to the government will be far cheaper.
The crisis facing the Detroit-based auto companies is not attributable to overly rich contracts negotiated by the UAW. In 2005, the UAW agreed to reopen the contracts mid-term and accepted significant cuts in workers' wages and health care benefits for retirees.
Then, in the 2007 collective bargaining negotiations, the UAW agreed to slash wages for new hires by 50 percent. New hires will not be covered by the traditional retiree health care and defined pension benefit plans.
In addition, beginning January the 1st of 2010, the liability for health care benefits for existing retirees will be transferred from the companies to an independent VEBA fund. The changes in our 2005 and 2007 contracts cut the companies' liabilities for retiree health care by 50 percent.
As a result of all of these painful concessions, the gap in labor costs between the Detroit-based auto companies and the foreign transplant operations will be largely or completely eliminated by the end of the contract.
Thus, the UAW active and retired members have stepped up to the plate and made the hard changes that were necessary to make our companies competitive in terms of their labor costs.
GM, Ford and Chrysler are now facing a crisis, not because of their labor costs, but because of the larger credit and economic crisis that have engulfed our nation, and with it the unprecedented drop in auto sales that has affected all automakers.
For all of these reasons, the UAW strongly urges Congress to provide immediate assistance to GM, Ford and Chrysler to enable them to continue in business and to avoid the devastating consequences that a collapse of these companies would have for millions of workers and retirees across our country.
REP. FRANK: Thank you, Mr. Gettelfinger.
Let me just at this point ask unanimous consent to insert into the record a column by the economist Ben Stein: "We are in an economic tailspin. We cannot allow roughly 3 million workers connected to the Big Three auto industry to fall into the ranks of the unemployed. It is possible that this nightmare could push the oncoming recession into being a depression. This economy is in enough trouble already." And it's an endorsement of this legislation, and I ask that it be put in the record.
And I am now going to forego my five minutes, in the interest of time, and I will recognize the gentleman from Pennsylvania. I'm going to hold everybody to five minutes, so let me advise my colleagues.
If you have a really good question that will take five minutes, you are entitled to ask it. Do not expect an answer. You can look at the clock and know when -- if you want answers, leave time for them.
The gentleman from Pennsylvania.
REP. PAUL KANJORSKI (D-PA): Thank you, Mr. Chairman.
Gentlemen, first of all, let me compliment the UAW, the first time over the last several weeks that I've had the opportunity to hear an adequate defense that this fault is the fault of the labor contract. This is an economic fault.
But I'm not absolutely sure that it's only an economic fault, and that's why I'd like to ask Mr. Wagoner is all -- none of this would have happened if the credit crunch hadn't occurred in Wall Street, or do you anticipate that it would happen or possibly would have happened anyway?
MR. WAGONER: No, sir. I think it's completely due to the credit crisis. And I just give you as an example, sir, I think all of us were well on the way to the plans and -- reflected by stock price improvement and earnings.
And frankly, what happens is the lack of availability of credit at a time when our balance sheets are weakened by borrowing has really hurt not only our ability to fund ourselves, but our consumers' ability to buy cars.
REP. KANJORSKI: In a way of analogy, the Committee, or the Congress, is sitting as a loan officer in a bank, and I propose that we have three rather substantial individuals requesting a loan.
I'm amazed with how little a (depthful ?) sales analysis has been made of what you need this money for, when will it be spent, how will it be spent, what kind of protections are involved for both the workers and for the American public.
For instance, I see nothing in this program that says the day we grant the power for you to make that $25 billion loan, you can't strike a deal of General Motors China and build plants in China or contract out most or all of the parts from China.
Why do you think we should not take the time to make requirements in -- and conditions in this loan, bridge loan, that would protect the American taxpayer, the American worker, and perhaps even some of your equity holders?
MR. WAGONER: Congressman, we'd glad. And I think in our various comments, we've commented on the kind of restrictions that have been suggested or we have suggested. Your point about the money being used, you know, to support our operations in the U.S., we would fully endorse that. So we're wide open to --
REP. KANJORSKI: Then, Mr. Wagoner, then you would be agreeable that we find some methodology to buy some time here. So can you tell me, when will General Motors run out of money relatively in the near future? And what amount of money would you need now to prevent that insolvency so that we can take the three months to really go into the depth of what conditions and how this agreement or this bridge loan should be made?
MR. WAGONER: I don't believe, Congressman, that we have the luxury of a lot of time. And if I could --
REP. KANJORSKI: Why? Tell me, when are you going to run out of money?
MR. WAGONER: I can't tell you that for certain because a lot depends on whether our suppliers will continue to ship us --
REP. KANJORSKI: Accounting-wise, you have to tell us if everybody acted against your best interest, there's a time you can't meet your conditions. Someone has briefed you on that, Mr. Wagoner.
MR. WAGONER: Yeah. The needs are urgent. If everybody who lent money to the industry suppliers asked it to be paid off tomorrow, it would be a tremendous run on the financial position for all of us. So the need for funding actually is quite --
REP. KANJORSKI: What amount of money would you need to take you through March 30th?
MR. WAGONER: We have talked about this 25 billion (dollars) bridge loan. And while --
REP. KANJORSKI: Now, a $25 billion bridge loan is for three auto companies. I'm asking about General Motors. And I'm asking how much money you need today to keep you viable and alive so we can structure a reasonable loan contract by March 30th.
MR. WAGONER: We have talked about an allocation of the 25 billion (dollars) that would be approximately based on our relative U.S. market share which suggests a total availability against that (facility ?) to GM of 10 (billion dollars) to 12 billion (dollars).
REP. KANJORSKI: Maybe I'm dense, Mr. Wagoner. I don't quite understand what the hell you just told me. Can't you just tell me in absolute terms how much money you need to survive, General Motors, from today until March 30th?
MR. WAGONER: Congressman, it's going to depend on what happens with suppliers and the market.
REP. KANJORSKI: I understand that. Give me your worst-case scenario.
MR. WAGONER: Worst-case scenario, the amount of money would be significant. I mean, we have supplier --
REP. KANJORSKI: What is significant?
MR. WAGONER: -- 4 (billion dollars) or $5 billion every month.
REP. KANJORSKI: So what you're telling us is that since you anticipate borrowing 15 (billion dollars) to $18 billion under this authorization, if the market doesn't turn around and the economy doesn't recover by that time -- and I think you'd have to be a wishful thinker to think it will -- by March 30th, you're out of money. Is that correct?
MR. WAGONER: The analysis that we've done is based on an assumption that the U.S. market continues at about the current rate which is a weak level. We don't assume a lot of recovery. We hope it won't get worse. On that basis, with the amount of funding that proportionally would presumably be allocated to us, we think we have a good shot to make it through next year, and that will be our effort to do that.
REP. FRANK: The gentleman's time has expired. In light of what the gentleman raised, I am going to now recognize myself for my five minutes only to take one or two.
The gentleman raised an important question about the possibility that this will fund investments elsewhere. We did specifically anticipate that in the legislation. The bill would create an oversight board, including the secretary of Energy, the secretary of Labor, the secretary of Transportation, the administrator of EPA and the secretary of the Treasury. And it specifically says, later on in the bill, that any of the recipients must report to this oversight board, quote, "any asset sale, investment, contract or commitment proposed to be entered into by such recipient that has a value in excess of $25 million."
And it then says the board may, quote, "prohibit the recipient of the loan from consummating any such proposed sale, investment, contract or commitment." That is, the members of the Cabinet of the incoming president will have the unchallenged authority to veto any investment. And we would expect that to be used to prevent any foreign investment.
Trying to get more specific than that, you get too specific and they come up with a new way. So what we have here in this bill is the Obama Cabinet appointees, by the time this gets implemented, able to veto any investment over $25 million. So if they want to give (under ?) $24 million they're okay. And we did that specifically because of the point the gentleman raised.
And I yield back the balance of my time and recognize the gentleman from California.
REP. JOHN CAMPBELL (R-CA): Thank you, Mr. Chairman.
Gentlemen, before I lost my mind and went into politics, I spent 25 years in the retail car business, most of that time as a dealer principal and dealer owner. Amongst the franchises I held, General Motors, were Saturn, Buick, GMC trucks and Saabs, Fords, Lincoln Mercury and Mazda, sort of quasi-Ford.
Sorry, no Chrysler, Mr. Nardelli.
I know a few things about the car business in that 25 years. But today, I just have a few questions for you. And I'll just list them.
You're asking for a bridge loan. And I think a lot of people want to know, what does the other side of the bridge look like?
With the exception of the one -- well, let me go back. You know, in my 25 years, I lived through gas-price spikes, I lived through credit shortages, and I lived through a recession in my dealerships. Well, we have all three of those at once today, which is certainly the first time, in my memory, that that has happened and, I believe, the first time in my lifetime. And I would argue that that is why the industry has been so hard hit because there have been three different factors all convening, all at the same time.
But that being said, with the exception of the one-quarter that Mr. Mulally referenced -- and obviously, Mr. Nardelli, we don't know -- (inaudible) -- entirely what your earnings were -- but that the three companies were not making money before those three problems hit.
So what are you going to do differently than what you perhaps were planning to do six months ago?
As you mentioned, Mr. Mulally, you had a plan to come out of this. But these things have hit, they've happened. Conditions are worse. We'll recover at some point, the economy will. But you go through a much more difficult time.
What are you going to do differently than was your plan to change the other side of that bridge? And all three of you, in whatever order you'd like to respond.
MR. WAGONER: Okay, I'll start. Thank you, Congressman Campbell.
The things that are being done differently in response to the current crisis are obviously we're all slashing back every expense that's not critical to the business. We're looking to take from our own expenditures over about an 18-month period about $15 billion out. So that means things like a 30 percent reduction in salaries and employment costs, including, frankly, a substantial curtailment of benefits and compensation.
We've moved already to take out a number of additional manufacturing lines and facilities. And so I think the way we'll come out it from a cost perspective is we'd expected to be quite a bit leaner already, we're going to be dramatically leaner.
We have reordered some elements of our product program, so we've pushed back or even taken out spending on things like some of the larger engines and truck-based products. And we've accelerated spending on cars, like the Chevy Cruze which is out new subcompact car that will be built in Lordstown, Ohio.
We have maintained on schedule spending for products like the Chevy Volt, the advanced technology spending. We have to keep those all on track because, obviously, we expect energy prices to go back up, and we expect a lot of pressure to be applied to us to continue to improve fuel economy by our consumers.
So from that perspective, I think we'll have a much leaner business. The weight of our products -- 18 out of our next 19 product launches are cars or crossovers, 13 of our last 15 have been cars and crossovers. So I think you're going to see quite a different sales mix as well.
Maybe I'll stop there and give my colleagues a chance.
MR. NARDELLI(?): Yes, sir. For us, you mentioned, relative to the private equity, we did publicly disclose that through the first half of this year, we had generated over $1 billion in positive -- (inaudible) -- and we had continued to improve our cash position. Unfortunately, this unprecedented drop from an industry of 16 million units down to 10.8 (million units) did catch us off guard.
We have been dramatically restructuring and downsizing. It has cost us a few billion dollars in restructuring, but we are 1.2 billion units less in our capacity. We've furloughed 32,000. We've taken 2.2 billion out. We are going to continue to make sure that we are lean and agile, assuming there is no recovery from our exit rate in this industry.
We also will spend the money to pay suppliers. We will use the money to pay ongoing wages. We'll use the money to develop a product portfolio that was (buoyed ?) based upon the separation that took place in August of 2007. We introduced three new electric vehicles, one of which we will have in production in 2010.
So we have lowered the overall capacity. We've lowered our break-even point. We have paid for that one-time cost impact. It returns in one year. We hope to emerge leaner, stronger and more formidable on the other side.
REP. FRANK: Mr. Mulally, quickly, if you can. Thank you.
MR. MULALLY: I think your question, Congressman, is very, very important. As you well know, having a clear vision of what that future looks like, everything starts there. And in the automobile business, it's just so important that we are making the vehicles that people really do want and they really do value -- most important thing.
The second thing is that you've sized your production to the real demand because the worst thing you can do is make more vehicles than the customers really do want and then force that into the distribution chain, discount them, ruin the residual values and delay the recovery.
So back on the first point, we have seen the future. And as I pointed out in my prepared remarks, we have been on this transformational plan for a number of years. And we have accelerated it over the last two years, and we know it works because we got back to profitability in the first quarter of this year.
And we did that by focusing on the product first. And the most important things the consumer is looking for today is absolutely competitive and great quality. And in Ford's case, we have moved up to the place now where all the third-party people will tell you that, from a quality point of view, we are equal to or better than Honda and Toyota.
Second thing is on sustainability. And with the fuel prices moving up and the awareness about energy security, energy independence, sustainability, the consumer has moved up fuel economy right up to the next to the top on their purchase decision. And it's so important that we bring the enabling technology to bear to satisfy that customer requirement.
And right now, every new vehicle that we make, whether it's small, medium or large, is the best in fuel efficiency.
The given is safety, and we have more at Ford, more five-star quality and safety ratings than any other automobile.
REP. FRANK: Thank you, Mr. Mulally.
MR. MULALLY: And the best value.
REP. FRANK: Commercials can go away. We're in a time problem.
The gentlewoman from California.
REP. MAXINE WATERS (D-CA): Thank you very much, Mr. Chairman.
Again, I thank you for this hearing. It is extremely important that we hold these hearings to find out as much as we possibly can about what's going on in these industries and these companies that are coming before this Congress asking for government assistance.
I'm still traumatized by the hearing that we had yesterday and Secretary Paulson's denial of not paying attention to the loan modifications that we thought we would be getting as a result of the $700 billion bailout bill that we worked so hard to pass.
So on the heels of that, we have here today the automobile companies asking for their share of support from the Congress of the United States, from the people to make sure they're able to maintain their businesses. And what we basically get here are the big boys, the big industries who are well connected, have a lot of influence and basically are too big to fail.
Today and long after today, we're going to hear a lot about arrogance and mismanagement and a refusal by these big automobile manufacturers to recognize that they could not continue to build certain kind of automobiles. And we're going to hear a lot about the refusals to comply with some of our concerns about CAFE standards, on and on and on, ad nauseam.
But in the final analysis, there are people who are going to roll. They're going to roll, and you're going to get what you're asking for. If I had my rathers, the 25 billion (dollars) that we've already given you, I would say take it and run, and we'll deal with the environmental concerns a little bit later.
However, many of our members do not agree with that. So you will probably get an additional 25 billion (dollars).
Here's what I want to ask you. Mr. Nardelli talked about the car dealers. And we just heard my colleague talk about his experience with his car dealerships. I have here correspondence from the National Association of Minority Car Dealers, and I'm going to read you something.
"As you consider the request for financial assistance to the automobile industry, I urge you to also consider provisions to provide financial assistance to automobile dealers, especially ethnic minority dealers. These dealers have been negatively affected by financial and -- (inaudible) -- institutions with their increase in floor planned interest rates, the curtailing of lines of credit, the canceling and/or non-renewal of floor-plan loans and the overall lack of lending to automobile dealers. As a result of this credit crunch, it is estimated that over 600 dealerships and 30,000 jobs have been lost already. Of that 600, it is estimated that over 150 were owned by ethnic minorities. If immediate assistance is not provided to automobile dealers, extremely negative consequences will be felt within the dealer program and the industry, that will directly and adversely affect the economy in the United States, both short and long term."
You basically said that, too, Mr. Nardelli. You talked about the lack of liquidity and the inability to have the floor plan that would provide the capital that's needed, I guess, for inventory to these car dealers.
Having said that, I'm about small business as well as about big business. And I've had enough experience here to know that oftentimes when we help the big businesses, they say that they're going to help the small businesses but it never quite works that way. How many of you would be willing to dedicate a portion of this money, say $1 billion of the 25 billion (dollars), to make sure that there was lending opportunities to these automobile dealerships? How many of you would agree to something like that?
Let me start with Mr. Wagoner.
MR. WAGONER: Yes. What we're trying to do, Congresswoman, is also work on the ability of our finance companies to be able to go back to the kind of traditional funding that they've offered to all of our dealers. And we've been working with the captives, either fully owned or, in our case, partially owned to work with the Fed to get the --
REP. WATERS: Well, GMAC has a letter here to your dealers that says, "In response to difficult credit, market conditions and recent actions by the Federal Reserve Board regarding the federal funds rate, GMAC is making a change to its wholesale floor plan finance program. The following change is effective." It goes on to talk about what it can no longer do.
So what I'm asking you is, in addition to the work that you do with your captives, will you also commit to the floor plans that you're involved with to at least dedicate $1 billion of this money to assist these dealerships?
May I get those answers, Mr. Chairman?
MR. WAGONER: We really need the amount of money we're talking about here for the operating business. But at the same time, as Mr. Nardelli says, we are working with the Fed to try to get better credit availability for our finance companies so they can provide --
REP. WATERS: Mr. Nardelli, would you be willing to dedicate $1 billion of this money to help the dealerships.
MR. NARDELLI: Madame, we would be willing and open to any suggestions from this committee or Congress. But I want to make the point, as I said, this is a parallel request. Your comments are spot on. Our affiliates and captive finance companies are in desperate need -- desperate need -- of access to liquidity. There is no secondary market. And it is causing tremendous hardship. The consumer cannot --
REP. FRANK: Mr. Nardelli, we've got to be more specific than that. We don't have time for --
REP. WATERS: So he basically agrees.
Mr. Alan Mulally, what do you think, from Ford Motor Company? Would you be willing to dedicate $1 billion whether it was the 25 billion (dollars) that --
REP. FRANK: I think the question has been put. We really have to --
REP. WATERS: -- or the 26 billion (dollars).
REP. FRANK: -- be on time. Let's have the (answer ?).
MR. MULALLY: I think that the actions we've taken with the Fed to free up the credit is absolutely the right thing to do which will help all of the dealers.
REP. WATERS: So your answer is yes?
MR. MULALLY: Pardon me?
REP. WATERS: Your answer is yes?
MR. MULALLY: I think the actions are in place right now where the Fed are doing exactly what you are asking for.
REP. FRANK: The gentlewoman from West Virginia.
REP. SHELLEY MOORE CAPITO (R-WV): Thank you, Mr. Chairman.
I want to thank the panelists, too.
I have a question on the sum that we're talking about here. First of all, I'd like to talk about the first 25 billion (dollars) that is for retooling and reworking to modernize. I mean, that was my assumption when I voted for that. What is the status of that right now, just quickly?
MR. WAGONER: Regulations were promulgated recently and I think all of us now have filed our first applications. This is very helpful funding but, as passed, the legislation basically allows you to draw down against credit facilities once you've already spent the money. And it's spread out over a fairly long period of time. So it's helpful, but it doesn't address the near-term cash-flow issues as currently structured.
REP. CAPITO: Well, I think there's been some suggestions that if we were to take the first 25 billion (dollars) and free that, you know, from restrictions that might have been placed on it in the beginning to help you with your liquidity issues, that might be a more immediate way to be of assistance. What's your feeling on that?
MR. WAGONER: Well, from my side, to be honest, we've been, or at least from GM's side, we have been clear that we think urgent funding support is required, and we are not overly prescriptive as to how it can be done. We leave that to the Congress.
REP. CAPITO: Yes.
MR. NARDELLI: Yes. I'd like to make a comment on that. You know, when we did that last year during the 2007 Energy Independence and Security Act, that recognized that all of us were making a commitment to improve the fuel mileage on every vehicle going forward as we move up the CAFE standards. And we all recognized the amount of money and investment it would take to do that, and that's why we put the 25 billion (dollars) in and gave the Department of Energy the responsibility to implement that.
We have been very pleased with their implementation of that. As Rick mentioned, we have all of our requests in to use that, to accelerate the fuel-efficient vehicles. I think it's absolutely critical that that be used to continue to get that done because it's critical to improving the fuel-efficient commitment that we made.
And as Rick said, I think the reason we're here today is that the industry has a critical need right now for liquidity. So I think it's really important to keep that fuel-efficiency investment going.
REP. CAPITO: So basically, you're both saying the double track is what's needed here. But let me go to the figures. Twenty-five billion (dollars) for the first -- this is sort of the little cynic in me -- 25 billion (dollars) for the first, and all of a sudden it's 25 billion (dollars) again. How did you reach the 25 billion figure for this particular request?
MR. NARDELLI: Well, for Chrysler we did -- we looked at an assumption of what the balance of the year will be, and as I said in my testimony, we could be dangerously close by the end of this quarter. We assume that next year's industry rate would match our exit rate. We looked at the continuation of what we'll have to do, and basically our request is for $7 billion.
REP. CAPITO: And then GM was --
MR. WAGONER: Performed a similar sort of analysis and came up with an estimate of 10 (billion dollars) to $12 billion.
REP. CAPITO: And then --
MR. MULALLY: In Ford, we're in a little different position because we believe that the actions that we have taken over the last two years that we have sufficient liquidity in the near term to make it through this economic recession if it doesn't get worse. And so -- and the reason we're here together is if any one of us go under it has such a ripple -- tremendous effect for the whole industry, and we're going to watch it very carefully but if the economy starts to go down, we would have to access that money, too, and how much we would access would be dependent on how far the economy and the industry degrades.
REP. CAPITO: And the reason I'm keying in on this is because on the $700 billion bailout figure, there was a quote round -- and I don't know exactly who it was from -- but why did you pick $700 billion and a quote from an official supposedly at the Treasury Department, "Well we just picked a really big figure." Well to the American taxpayer, that's pretty much a smack in the face. And so, you know, when you see two figures come up with such large numbers that are exactly the same, it makes you -- you know, I'm curious to know if there was a rounding off effect here and I want to make sure that whatever is being asked for is accounted for and it has the oversight for but it is also exactly what's estimated to be able to help the problem because I'm certain the last thing you want to do is to return here in another six months or eight months and possibly be in the same position.
Now I did a little mini survey as I was coming here, from the TSA agent to the guy sitting next to me on the plane, and you can imagine the American pubic is really all over the board on this because I represent a state, West Virginia, that's been gutted by the chemical industry, we've had difficulties with our steel industry, lost thousands of jobs and, you know, nobody -- the government didn't come in and save these jobs in the state of West Virginia. And so you have that kind of feeling, but I think people are empathetic enough to know the job loss across the board, whether it's in your industry or your supplying industry or your ancillary industries or any of these industries is a devastating effect on everybody including those who don't work in that industry.
But thank you all for your testimony, and I look forward to hearing the rest.
REP. KANJORSKI: Ms. Maloney?
REP. CAROLYN MALONEY (D-NY): Thank you, Mr. Chairman, for holding this meeting and this important hearing.
It is unacceptable for America not to make its own cars. And it is unacceptable for America to continue outsourcing manufacturing and jobs. We have lost well over 22 million manufacturing jobs in recent years. No other country would let the major manufacturer, the major industry, fail in their country. Other countries are reporting that they are moving to help their automobile industry. There are reports that China is helping their industry. That Germany is helping their industry. And I believe that we need to help American jobs and American industry. And I believe in the American worker, that you're going to retool, you're going to move into the 21st century and be more competitive in the world economy because that's what we need to do. You need to be fuel efficient. You know what you need to do, and we are counting on you to make those changes and to regain the prominent position of leadership on manufacturing and automobiles that we have held in the past.
Now I will say that there are a number of my colleagues who believe that we should let the automobile makers file for bankruptcy. But as Nobel laureate and economist Paul Krugman recently reported, and I quote, "If the economy as a whole were in reasonably good shape and the credit markets were functioning, Chapter 11 would be a way to go. But because of the current economic crisis a wide ranging default in Detroit would probably mean loss of ability to pay suppliers which would mean liquidation and that in turn would mean wiping out probably well over a million jobs at the worst possible moment." End quote.
So I am supportive of your efforts because I believe it is necessary and all other available alternatives are far worse. So my first question is if you went to the private sector for your loan, you would not be able to get it or could you elaborate? And as I understand the loan starts out at 5 percent then climbs to 9 percent.
I would also like to ask the panelists do you agree with the assessment of economist Paul Krugman on what the impact of what a bankruptcy would mean in your Big Three and our industry and what would be the overall effect, not just for you, but the overall effect for our nation's economy as we are struggling to stabilize our financial markets and to stabilize our economy and move forward? And I ask anyone to respond.
MR. NARDELLI: I think as we said in our testimony bankruptcy would be devastating. I know from Chrysler's standpoint in working with my colleagues, we've looked at all of the various options of pre- negotiation, pre-pack, et cetera.
There seems to be some major misunderstandings of what a bankruptcy allows a company to do. If we don't have to look much further than Delphi for example who went into bankruptcy in, I think, it was 2006. They then in 2005 -- and in 2006 they filed with the courts to basically break their contract. The court sent them back to the table, and I'm sure Mr. Gettelfinger can talk about that. So the -- Mr. Chairman, as you mentioned this has become quite a spectator sport talking about bankruptcy. And I would submit to you that while it might freeze out all of our payables, most of our suppliers would go to cash on hand, which means there would be a significant increase in cash flow prior to our ability to manufacture a vehicle to get reimbursed from the dealer. I think it would turn us upside down faster and deeper than where we are today.
REP. MALONEY: Yes.
MR. WAGONER: I would also like to add the point, there'd be a massive loss of revenue under any scenario. The independent research that's been done fairly recently says of all manufacturers or consumers, 80 percent of consumers said they would not buy a car from a company in bankruptcy. If any auto company lost 80 percent of their volume or even 40 percent of their volume, they would simply be in a massive liquidation. This would spread then to our common suppliers, to our other major manufacturers, dealers around the country, this would be a massive economic devastation.
REP. FRANK: The gentleman from Alabama.
REP. BACHUS: Thank you. From what I can understand and you correct me if I'm wrong, there are two problems with the Big Three and one of them is inefficiencies in some of the model that you're changing. I mean, you, last year and what was it, is it VEBA(ph), you made some changes but they don't go into effect until 2010. So you're not getting any benefit from those. You have had the new hire with the wage scale, and that's going to help. You know, and the longer we go on, that's going to help. So I agree that you're moving in the direction of addressing that. But I think your short term problem is a different problem and that's the problem everyone's facing, and that's not being able to get loans to buy cars, that's consumers. And isn't that your short term problem? Or is it? I mean --
MR. NARDELLI: It certainly is one of the major problems that we're facing today as I've stated. Our consumers cannot get loans, FICA scores of 700 are not common to the average American worker, therefore, and the lack of liquidity for our dealers to get competitive wholesale rates are contributing equally to the fact that as we are resizing our businesses, 30 (percent) to 35 percent, and in fact as we do that, the reduction in cash inflow while we continue to have liabilities and payables to suppliers, et cetera, sir, is what's causing this.
So there is a dual effect --
REP. BACHUS: Well, let me ask you this then. I'm assuming that the other two gentleman agree that have -- you know, the TARP funds are intended for financial institutions but isn't GMAC and Ford Credit and Chrysler Financial, aren't they financial institutions? Have you received funding through those?
MR. WAGONER: GMAC has been able to use the commercial paper backup facility at the Fed recently, that has helped some, but I think all of our banks or all of our finance companies are talking to the Fed about being categorized into different structures of --
REP. BACHUS: And that would help, wouldn't it?
MR. WAGONER: That would help tremendously, yes sir.
REP. BACHUS: And that's something we can do without legislation. I'm not suggesting that there won't be legislation but it -- that would be an immediate help, wouldn't it?
MR. WAGONER: That would help tremendously, yes sir.
REP. BACHUS: And that's something we could do without legislation. I'm not suggesting that there won't be legislation. But that would be an immediate help, wouldn't it?
MR. WAGONER: Yes sir. And I understand those are at various stages of review at the Fed.
REP. BACHUS: Yeah, I would --
REP. FRANK: Would the gentleman -- if the gentleman would yield for just a second --
REP. BACHUS: -- there's some sense of urgency, yeah.
REP. FRANK: I had a colloquy specifically on that point with the gentleman from Michigan, Mr. Dingell, to emphasize that those were fully included in the TARP.
REP. BACHUS: I mean -- you know, I'd be disappointed if that wasn't a top priority of the Fed today.
Let me ask you this. You negotiated a new agreement with labor and union in 2007 and I commend you on it. I think it was a step in the right direction and it required sacrifice on the part of the workers. Things have gotten worse since then, we all agree. And I don't know whether, you know, some of these other things will help, but let me just ask you this. Are there any plans now that we've really hit a storm to at least sit back down and open up those discussions -- at least to explore them? Mr. Gettelfinger?
MR. GETTELFINGER: Thank you for the question, sir. What we've been doing is we have continually -- in negotiations. I know most people believe that negotiations only happen at the expiration of a contract, but right now we're in discussions with the companies -- General Motors, for example, the Janesville, Wisconsin facility. The sacrifices that we made last time was based on product commitment to our plants here for product to be made in America. We're going to lose that plant.
St. Louis South Assembly Plant, another plant that we were hopeful that we would have product in. So we're working with the companies on that. We've -- the Ford Wixom Plant, since the negotiations, has closed down. And a lot of people have the perception that the union and the company only negotiate part of the time. Well maybe it used to be that way but today when we negotiate a contract it's not just the implementation of the contract, it's the ongoing daily negotiations. The current operating agreements that have been negotiated at all of the facilities to make these plants more productive -- and the Harbor Report proves that that is effective. So we have those negotiations ongoing all the time.
REP. BACHUS: Let me say that --
MR. GETTELFINGER: But I might add also that the UAW can't be the low-hanging fruit, the men and women, the only ones at the table. And so while we're at the table we would respectfully request that others come into the party and sacrifice as well because we certainly believe that the men and women, both active and retired, have sacrificed, sir.
REP. BACHUS: And I agree with you. And let me say this, I think it would be helpful as you sell the public is that maybe as some of these agreements or some of these changes are made for more efficiency that you announce those; that the company and the union announce those. And I think it shows good faith on your part.
MR. GETTELFINGER: Thank you for that. And we do try to get that out to the public. But unfortunately oftentimes if we have a conflict they're willing to talk about that but the positive things it's much more difficult. So thank you.
REP. FRANK: Mr. Gettelfinger, there's a lot of that going around. The gentleman from New York.
REP. GARY ACKERMAN (D-NY): Thank you Mr. Chairman. There's a delicious irony in seeing private luxury jets flying into Washington, D.C. and people coming off of them with tin cups in their hand, saying that they're going to be trimming down and streamlining their businesses. It's almost like seeing a guy show up at the soup kitchen in high hat and tuxedo. It kind of makes you a little bit suspicious as to whether or not, as Mr. Mulally said, we've seen the future. It causes at least some of us to think have we seen the future?
I mean, there's a message there. I mean, couldn't you all have downgraded to first class or jet-pooled or something to get here? It would have at least sent a message that you do get it. If you're going to streamline your companies where does it start? And it would seem to me if as the chief executive officer of those companies you can't set the standard of what that future is going to look like -- that you're really going to be competitive and you're going to trim the fat and you don't need all the luxuries, bells and whistles -- it causes us to wonder.
You know, I don't have a dealership but I've driven a car for a long time. Around here, as my colleagues know, I drive the same 66 Plymouth Valiant that I've always had; I can't seem to kill it. I strut my stuff in New York a little bit and I drive a Cadillac. I just bought a new one. I bought it because financing companies are out of the financing of the car businesses. I bought this car a couple of weeks ago and I had some problems with it, and I couldn't get in touch with anybody because the dealership -- which is a great dealership by the way -- couldn't tell me that they had the phone number of somebody at Cadillac to call to fix this GPS system that I had trouble with in the previous car that's systemically built in with a software problem that I can describe but nobody can listen. And if you're going to sell cars that customers want you've got to find out what the problems are and you're not doing that.
I wanted a loaded car in blue. I had to reach out to five states to find one in blue. I said can't you tell them they should be making more blue cars this year? He said we've got no mechanisms to get back to the company to tell them that. Well, lucky for me, you guys are in a crisis and they reached out and called me because you all said to your dealers call your congressmen if you know who they are. And I got a call and I actually had somebody call me. And in this discussion I said, hey, part of the problem is you're not listening to your customers. You've got a problem with this, that and the other thing and this GPS system, et cetera, and I have nobody to talk to. And the answer was: well I think there's a number, an 800 number, in the manual somewhere.
Now when my wife has a problem with the foreign car that she drives, they bend over backwards to try to listen to her and figure out what's going on -- what the colors are, what the bells and whistles customers like. And you all are not listening. And if you're going to sell cars that customers want, you have to find a way to talk to your customers -- or, better, listen to your customers. You have no mechanism; there's arrogance in that. We'd all be out of business in two years -- we've got a time limit also.
So maybe you can tell us what you're actually going to do to sell cars people want and how you're going to do that in real short order. Because otherwise -- you know there's triage; somebody heard that we're giving out free money in Washington and they're showing up all over the place. And we've got to figure out where to put it. And, you know, you don't want to put your last tourniquet on a dead guy. So tell us what's going to be different three months from now. Anybody?
MR. NARDELLI: Well, sir, I can tell you what we've done at Chrysler in the last 18 months. We've installed the first ever chief customer officer. We have methodically gone through 400 line items enhancing, improving the reliability, the durability. As a result of that, our warranty costs have gone down 29 percent. We established the first ever customer council online. Our chief marketing officer is listening. God knows we have a long way to go, and I think we have recognized the first and biggest hurdle -- that of denial, and we are committed to improve our overall product quality and the service with which we provide our valuable customers.
REP. FRANK: The gentleman from North Carolina.
Rep. Walter Jones (R-NC): Mr. Chairman, thank you very much. Gentlemen, thank you for being here -- to your left, I'm on your right. Anyway, politically I'm on the Republican side.
I want to read to you --
REP. FRANK: Sometimes.
REP. JONES: (Chuckles.) Well, I'm somewhat independent -- thank you, Mr. Chairman. The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed -- lest America becomes bankrupt. People must again learn to work instead of living on public assistance.
Let me explain. I took advantage of a quote by Cicero in 55 BC, and instead of "lest Rome becomes bankrupt," I inserted, "America." The people of this country, as well as the 3rd District of North Carolina, which I represent, with the average income of a family of three or four is about $36,000. And after the bailout of Wall Street, they want to know why we need to be bailing out the automobile corporations of America and if it is justified.
Now when I look at these cars -- I'm now going to go through them -- but this is the General Motors Chevrolet Avalanche assembled in Mexico. This is the Fusion assembled in Mexico.
This is Crown Victoria, assembled in Canada. And this is the PT Cruiser, assembled in Mexico. And this is Crossfire, assembled in Germany.
Then I have articles from the latest news from China, Car Times. "Chrysler and the Great Wall to work on small car." Okay, Chinese cars will soon be sold in the United States. This again is a relationship with some of you corporations. And then "Chrysler signs pact." This again is with the Chinese.
The problem is -- with you being here is not the problem. We care about those workers who are American workers. In fact, Mr. Obama carried my state of North Carolina. One of the ads that helped him win was "We are not going to any longer give tax credits to companies who move jobs overseas. We're going to give tax credits to those companies that stay in this country."
And my question to you is, when you're getting this money from the American taxpayer and you keep having these cars assembled overseas in different countries, what is the purpose of this loan? Is it to keep you viable so that you can continue to move jobs overseas?
I speak for the frustrated people of the third district of North Carolina, because Cicero was right. We're in the last days of this country surviving. And how in the world can we find the billions of dollars that we're borrowing from China and Japan to help you stay in business when you're sending jobs overseas to pay those workers less than you're paying the workers in Detroit? What can you do to keep the jobs here?
If anyone wants to answer it, fine. If you don't, fine. But I just wanted to tell you, people are frustrated. You've been helped before, maybe not with billions, but with millions. And I've got those figures too. But you've got to assure the American people that you're going to stop sending these jobs overseas and work with these unions and work with this country and find ways to keep these jobs here, because this country is falling apart. If anybody wants to just --
MR. NARDELLI: I can just take 30 seconds and share time with -- your point is well taken on the Crossfire. One of the things I did in the first 60 days was discontinue that car that was made in Germany; point number one.
Point number two, sir. The articles you refer to about China is part of our attempt to compete in China. As you know, you have to have, based on local restrictions, a joint venture to be able to compete there competitively in that market. So that article you're referring to is more about how do we expand our business globally to try to get more volume to compete in that market, as they are trying to compete in our market?
MR. WAGONER: I would say the auto business has become somewhat more global over the years. And, you know, of our foreign competitors here, in many cases they import and sell more cars in the U.S. than we build here. And I think if you look at the labor intensity of the three of our cars sold in the U.S. versus our transatlantic competitors, it is vastly greater.
I can tell you, from GM's side, we certainly do want to grow in China and Brazil and the places we've been growing around the world. That's good for our business here. But the U.S. is by far our biggest manufacturing site. It remains it. And this is the most important market for us. So we're treating it that way. We do export some to Mexico. We import some to Mexico. But on balance, most of -- we have a huge amount of U.S. content in what we sell here.
MR. MULALLY: I'd just like to add that the Ford Motor Company plan -- we operate, as you know, around the world. Our fundamental plan is to make the vehicles in the markets that we serve. And the U.S. is by far our biggest market. We want to make our U.S. vehicles in the United States.
I really -- I think that the actions we have taken over the last few years, especially starting with the transformational agreement that we made with the UAW, allows us to make vehicles of all sizes, small, medium and large, cars, utilities and trucks, and make them right here in the United States. And that's our main objective.
REP. FRANK: If the gentleman would yield. I think one of the (answers ?) did have, however, a real problem in our trade policy, which, as I understand it, if they want to sell cars in China, it has to be a joint venture with a Chinese partner. No such restriction applies to people here. That's a defect in our trade policy of failing to insist on reciprocity for our own people.
I -- the gentleman --
REP. JONES: Mr. Chairman --
REP. FRANK: Yeah, Mr. Gettelfinger.
MR. GETTELFINGER: I just wanted to thank the representative for his comments, because the gentlemen to my right have all heard that from all three of our vice presidents and myself. But it does go back to us being the most open market in the world. We do nothing to assist or to protect our industry. Our free trade agreements should be fair trade agreements. And they all well know our position on that. So you did an eloquent job stating what we have said to them.
REP. JONES: Mr. Chairman, may I make my statement and then close, sir?
REP. FRANK: Certainly, because I took some of your time.
REP. JONES: The Thursday after the Tuesday election at East Carolina University in Greenville, North Carolina, David Walker, former comptroller general of the GAO, who's now with Pete Petersen Foundation, spoke to over 400 people at the Hilton in Greenville. At the end of his speaking, he was willing to take questions. But in his speech or presentation, he used the word "abyss."
One of the questions from the audience was this: "Explain 'abyss' and how you meant it in your presentation." And he said, "I'd rather not answer because the press is here," but he was saying that jokingly. And then he said, "If this country does not become smarter and wiser with how it spends its money, then I see in four or five years a collapse and a depression."
I yield back.
REP. FRANK: The other gentleman from North Carolina.
REP. MELVIN WATT (D-NC): Thank you, Mr. Chairman. And let me start by thanking the chair and the Senate yesterday for having these hearings, because I think it is absolutely important that we understand better what's going on, but that the American public get a better understanding of the potential consequences of bankruptcy of any of the automobile manufacturers that are based in the United States.
We are in much the same position that we were with the original bailout. We are very much between a rock and a hard place, and the hard place is coming from the public out there who has a great resistance to bailing out anybody else as they did in the original bailout.
So I apologize for having to step out and I hope I'm not being repetitive of questions that were already asked. I did consult with Ms. Waters, and I think both she and the second-ranking member on our side asked some questions about the use of this money, the projected use of the money.
I guess, to some extent, as a bridge loan, this can be used for anything. But I am aware that up and down the chain under the manufacturers, there is substantial stress at the dealer level; a number of them themselves either going out of business, have gone out of business, on the verge of going out of business.
And one of the questions I want to ask is, is there some plan here for a use of part of this money to address their urgent needs as well as the manufacturers' urgent needs? Can somebody address that for me?
MR. WAGONER: You bet. I think it's a very important consideration, because, just like we have ended up over the years with overcapacity in the manufacturers, we also have overcapacity in the dealer network and also in our supplier network. And we have been working together very closely with our dealers and our suppliers to improve their profitability, their throughput, their revenue, their productivity.
REP. WATT: Well, overcapacity suggests that a number of them will go out of business. And my experience is that some of the most marginal, some of the most distressed of those are the newest dealers, and they tend to be disproportionately minority dealers because they've come to the table more recently. What particularly are you doing to address that issue?
MR. WAGONER: Our data says that it isn't associated with how long they've been in business. It's their fundamental business acumen for all the dealers, all of them, not necessarily depending on how long they've been in business. And it's really an important thing that we keep working together, because we've got to get their profitability up per dealership, because it's the only way for them, just like us, to be competitive at going forward. But it's an ongoing thing that we're working on. We've made great progress. And we're going to continue to work it very closely.
REP. WATT: Now, a number of them are also experiencing challenges with the financial services sector because the financial services sector has withdrawn from this industry making any kinds of loans.
You're a lot more likely to get a loan to purchase a car than you are to sustain a dealership, as I understand it because all of the lenders have kind of taken a hike on your industry because they perceive that you are in distress. Will part of this money take up that slack? Or is this just operating money that you're requesting?
MR. NARDELLI: Sir, this is specifically operating money and, as we discussed, possibly when you were out of the room, that our affiliate financial companies, in parallel to what we're asking for here today, must gain access to the TARP funds. They are currently -- they currently have submitted requests for, in one case, a bank holding company. We have requests in for ILC that will allow them to have access to the secondary market to generate capacity and to improve liquidity. That is the most important thing we could do for these men and women, these entrepreneurs, these small businesspeople -- we have about 3,500 across the country -- to get vitality back into their businesses.
REP. WATT: Thank you, Mr. Chairman.
REP. FRANK: The gentleman from Illinois, Mr. Manzullo.
REP. DONALD MANZULLO (R-IL): Thank you very much. I appreciate the opportunity that we have this afternoon. Especially welcome Mr. Nardelli from Rockford, Illinois and graduate of Auburn High School. And the district I represent is the proud home of one of the great Chrysler facilities.
I have two questions. First one is, you're claiming that no one could buy new cars because the financial crisis has negatively affected the captive financing arms of the Big Three automakers. However, yesterday we heard from the bankers, we've also heard from the credit unions that they have tons on money to lend to car customers. What steps are you taking to get the word out to auto dealers and the general public that they shouldn't just use your financing companies to facilitate car and truck sales?
MR. WAGONER: Excuse me, if I could just start with that. We've recently actually just begun a national advertising campaign to do just that, and basically offer through our dealers and the customers can directly go to websites of all potential financing sources because we welcome banks and credit unions. We've actually got some specific work going on with the credit unions to get them more back in the auto finance business. So we're very --
REP. MANZULLO: Those are local credit unions and local banks?
MR. WAGONER: Yes, yes.
MR. NARDELLI: Sir, we have gone to two major banks. We have given one of them half of our country, four of our business centers and to date through this new pilot they've basically have had access to about 1,500 opportunities, 1,500 loans. We have approached Ron Gettelfinger and asked him to help us to approach credit unions across the country to see if they're willing to help consumers get access to auto loans to help create some infusion of cash back into the system.
MR. MULALLY: Yeah, also I have a loan into the FDIC, an application in for Industrial Bank which will help in that also. Plus, we've come to an agreement with the Fed on asset-backed paper for the short-term and also they are now working it for the longer term which will also free up credit. So our Ford Motor credit company, as you've mentioned, can offer the loans to the customers.
REP. MANZULLO: The reason I asked that is you're asking for taxpayers' funds for people to buy cars when, in fact, the private sector already has the money available.
The second question, if you were given the $25 billion today, the additional 25 billion (dollars), exactly what would you do with it? Where would the money go?
MR. MULALLY: Yeah. The money will basically be used as a bridge financing because actually private capital is --
REP. MANZULLO: But where would -- where would it go?
MR. MULALLY: -- is not available to us at this time. So --
REP. MANZULLO: Where would the money go?
MR. MULALLY: -- used for us to continue our capital spenditures on our Ford programs, to continue our product development in research and development to be able to pay our suppliers, employees and retirees.
REP. MANZULLO: Alright. The -- I presume it would be the same answer, it's going for general operating expenses. If you don't have new sales won't you be back here in two months?
MR. MULALLY: We've built our -- as we explained earlier, we built our estimates on the amount of funding we need on an assumed level of auto market sales next year. In our case about 11.7 million light units which we have viewed to be quite conservative, given that that would be the lowest level the U.S. has seen in --
REP. MANZULLO: The reason I asked the question is, isn't it better to give a 3 (thousand dollar) or $4,000 tax credit to any person who buys a new automobile so the money is directly infused into the automobile industry -- no bureaucrats to screw it up, no testimony, such as we had yesterday, that there's no game plan on how to spend the TARP money, no need for testimony. The money would go directly to the -- to all the automobile manufacturers in the country. Isn't that the best way to spend $25 billion?
MR. NARDELLI: Well sir, there's no question -- you know, given where we are, we're open to any suggestions. And certainly a consumer tax credit would be great. The reality of that is the industry has fallen from 16 million (dollars) last month to 10.8 (million dollars). So before that is a benefit, the consumer has to have access to a loan to be able to get credit.
REP. MANZULLO: The consumer has access to a loan, Mr. Nardelli. It's the local credit union and the local bank. The money is there. It's there.
MR. NARDELLI: Well then, sir, the -- certainly the increase in the balance sheet, the reduction in debt to equity in these banks, they need to let it start flowing.
REP. MANZULLO: Well I -- I thank you.
REP. FRANK: The gentleman has the last comment. Did you have a last comment you wanted to make at this time?
REP. MANZULLO: No I just -- the comment that -- Mr. Chairman, thank you, you're very generous -- is the fact that if car sales don't pick up, you're just throwing money at a problem. That's what my union guys are saying back home. They're saying, unless there's a plan -- all you guys advertise on television are the big trucks. Why not the little cars that are made in my district, the Caliper and the Patriot, the finest --
REP. MANZULLO: -- small cars in the world.
REP. FRANK: I think the statement's been made. The gentleman from California.
REP. BRAD SHERMAN (D-CA): It would be insane if this country stopped designing and building automobiles and trucks. It would also be insane if the top executives from the three automakers came here on private jets. I'm going to ask the three executives here to raise their hand if they flew here commercial. Let the record show no hands went up.
Second, I'm going to ask you to raise your hand if you're planning to sell your jet in place now and fly back commercial. Let the record show no hands went up. I don't know how I go back to my constituents and say the auto industry has changed if they own private jets which are not only expensive to own but expensive to operate and expensive to fly here rather than to have flown commercial.
I also though must recognize that you're in trouble mostly because of the economic downturn. The proof of that is that all three of your companies were worth roughly five times what they're worth today at the beginning of this year based on Wall Street and in one of your cases, of course, a private transaction. I don't think Wall Street is -- didn't -- wasn't aware at the beginning of this year of all the problems that we've all talked about. It's the additional problem of these unanticipated downturns that's driven the value of your company down.
I've got three questions for the record. First is the idea of building and buying in America. We've talked about new investments in China -- I'm not worried about your new investments, I'm worried about your disinvestments. Chrysler, in particular, shuts down in Missouri, a shift that it's building the Dodge Ram, while continuing to build the same vehicle in Mexico and then shuts down a plant in Missouri building the Dodge Caravan, while continuing, running three shifts in their plant in Windsor, Ontario. I would hope that you would respond for the record whether you expect to get any bailout money from Ottawa or Mexico City. And if not, whether you'll commit yourselves as you disinvest, as you close down plants, to close down the foreign plants and not those in the United States.
Second, I'm concerned about the consumers. People in my district are buying your cars. They expect that five-year warranty to be there. You go bankrupt, they have no warranty. They're going to figure that out. But even before they do, are any of you willing to establish trust funds with a few hundred dollars per vehicle sold so that if your companies cease to exist there's at least something there to provide warranty service?
Third is to executive compensation. We've already talked about bonuses which are covered in the bill. But your total compensation package includes your salary, your bonus, the stock options as valued by the new accounting rules, ancillary compensation as well. And I would hope that you would be able to respond, for the record, that no one at your companies is going to get more than $1 millionper year in total compensation package, including bonuses, including stock options, including contributions to pension plans.
Now I have a question that I'd like you to respond to orally and that relates to the number of warrants that the taxpayers are going to get if we make this investment, because God knows we may lose it all. Now when Warren Buffett made investments he demanded -- and he was making much less risky investments than what you guys are asking for here -- a number of warrants equal to 100 percent of the number of shares that could be purchased for the amount invested.
A strike price equal to the current fair market value of the stock and a term on the warrants at least as long as the investment remained in place.
Now, I know that you'd like to give less warrants. And you're going to tell me how unfair it is that we don't just give you all the money that you want and not dilute your shareholder's equity. But are you willing to accept a federal infusion of capital where we get the kind of upside that Warren Buffett was able to negotiated, namely the terms I've just outlined?
I'll start with --
REP. FRANK: We won't have time for everyone to answer, but we'll get a couple.
REP. SHERMAN: Let's hear from General Motors.
MR. WAGONER: Yeah. I think we've all been clear that we're very willing to do warrants. To be honest, I shareholders have been dramatically diluted, as you highlighted, and we certainly feel an obligation to be responsible to them. But the most important item on our agenda is this bridge funding, and we respect the government should get fair compensation and are very willing to discuss the kind of terms you laid out.
REP. SHERMAN: If I have time, Ford as well.
MR. MULALLY: Nothing else to add.
REP. SHERMAN: So we're talking, roughly, five times the number of warrants called for in the current draft of the bill. And I'll yield back to the chairman.
REP. FRANK: The gentleman from New York.
REP. GREGORY MEEKS (D-NY): Thank you, Mr. Chair.
I was listening to some of the questions by Mr. Watt, and I'm trying to be clear on the utilization of the money. I'm one who believes that, you know, given the close to 5 million jobs, you know, whether direct or related, that we could lose, that this industry is tremendously important.
But I am concerned about how the money is going to be spent. And I know that, for example, in some places or areas in the country where there's no manufacturing but there are dealerships which employ a substantial amount of people and listening to some of the responses, it is that dealerships are going to shrink substantially. And I don't know whether or not there are any plans with reference to the dollars that the taxpayers will be lending you to help stabilize dealerships and others because that becomes part of the local community on both sides, where they go buy their cars and also employment for them.
And so I'm trying to think, is there any plan, with this taxpayer money, to keep and to preserve dealerships or to strengthen dealerships? That's my first question.
MR. WAGONER: Maybe I could offer some perspective on it. I think, generally, people who look at the industry as that those of us who have been around a long time have probably more dealers than we can support the current volume. The economics of the dealership business now require a higher scale than it did a few years ago, technical training and technical equipment they have to have.
So what we've been doing is working with our dealers. But I highlight, each dealer makes their call whether they want to stay in business or not. We do have a number of dealers who, with the economic downturn, with the change in generations, who have said, hey, I would like to get out of the business. What we try to do in that case is have them work with another local dealer, for example, to try to take over their business, take over their customer responsibilities, although it has to be done in cooperation with individual dealers. So we do need to try to do that on an orderly and constructive way.
REP. MEEKS: And encourage mergers. I mean, this is the day and age of mergers.
MR. WAGONER: And we do provide, in some cases, support for that to be done. But I can assure you, in virtually every significant community in the United States, we have and will continue to have dealer representation in some cases. Rather than three Pontiac or standalone Pontiac, Buick and GMC stores, there might be one store that has all three franchises so the retailer has a chance to make a business profit.
So you know, as part of our normal business, we have some budget to facilitate those kind of things happening.
REP. MEEKS: Yesterday at the Senate committee hearing, I think I heard a number of senators reference Honda made in Indiana as a benchmark for the most-efficient cost to produce and for profitability. How, with this taxpayer money, will our three major industries be able to compete with Honda made in Indiana? Because you know, part of what we haven't discussed is the American consumer, nowadays, a lot of time they're buying what they believe is the best vehicles cost-wise as well as the liability-wise, and that's why others got into our market. How will this $25 billion help you compete so that we're not back here again with Honda made in Indiana?
MR. NARDELLI: Sir, if you're familiar with the Harber Report -- and I think Mr. Gettelfinger has it -- the Chrysler team, long before I got there, had been on a path to improve the overall efficiencies of our manufacturing plants as measured in hours to assemble. This year, I'm proud to say that we are spot on Toyota relative to the hours required to produce a vehicle. If you look at our contract that was just negotiated with the forward-looking rate times those hours, we think we can be extremely competitive.
I would tell you, sir, to your other question, the dealer council that's here with me in the room would say the most important thing we can do for them is to have a financially sound business with a continuous flow of products and the kinds of investments we're making in the quality, reliability, durability (finish ?) of our products where some of that money you questioned would go into 3(00 dollars), 4(00 dollars), 500 dollars per vehicle to enhance the overall aspirational aspects for our consumers.
REP. FRANK: Before I go to the next questioner, let me say -- assuming the indulgence of the witnesses, this is obviously very important, I intend to stay here until every member gets a chance to ask. I assume you can accommodate us. There are facilities just off the hallway there that if you need, you know, the staff will be available. But I do think, given the magnitude of this, other than the Republican conference which, unfortunately, took them away for some time, and they'll be back, there's not a lot else going on. And I think this is important enough for us to stay, and I so intend to.
The gentleman from Kansas.
REP. DENNIS MOORE (D-KS): Thank you, Mr. Chairman. I had a conversation with an auto dealer in my district back in the suburbs of Kansas City on the Kansas side about two and a half, three years ago. And I'm not going to name the dealer because it doesn't matter. I think it's applicable here to the auto industry generally.
I said to him, I said, you know, I'm concerned that auto sales in our country are falling off and the sales in foreign countries are increasing because a lot of the foreign cars are more fuel efficient than the cars in our country. And I said, I'm not saying this because I want to be critical of our industry. I want us to succeed. I want us to win. I don't want us to lose and fall behind the sales of other countries.
He said, oh, I don't think that's a problem. Well, that was two and a half, three years ago. And I think things have changed dramatically since then. That's why we're here today.
I'm here today because I want the U.S. auto industry to survive and succeed. I don't want the industry to fail. The auto industry is a huge part of our job market, provides a living to millions of Americans. We've got to survive, we've got to pull through on this. That's why I'm here today, and I guess why every member of this committee is here today.
The auto industry is a huge and very important part of our job market and our nation's economy. I'm very concerned the United States auto industry learns something here from maybe mistakes that have been made in the past and not repeat those mistakes.
Energy supplies are limited. Bigger and better SUVs are not what every American consumer wants when the price of a gallon of gas increases to more than $4 a gallon, as it did just a few months ago. The price of a gallon of gas has now fallen down to almost half of that very recently. But I think we can expect that there may be similar increases in the future.
Our auto industry needs to be competitive with foreign automakers. I'm glad you're here, that you have -- I've heard you describe some of the new models you have designed to be more fuel efficient. I hope it's not too little and too late.
My questions, I guess, are these. What lessons have we learned? What are the auto manufacturers doing to make sure we don't repeat mistakes made in the past? I've heard about a couple of, again, new fuel-efficient models. Anything else we can expect to see in the near future?
And again, I'm asking this because I want us to be there together.
MR. MULALLY: It's just such an important question. And I think from a lessons learned point of view, being relatively new to the industry, it really surprised me the lack of consistency, the lack of purpose on staying with the vehicle and improving them every year, forever.
This is well known at Ford, but when I first arrived, one of the things I knew about Ford was the Taurus. And when I was at Boeing, we were getting ready to launch the 777 program, we happened to have a member on our board that was also the chairman of Ford Don Petersen.
And he told me that Ford was getting ready to design and launch the Taurus sedan, and would I be interested in getting together and comparing notes on the technology on the digital product definition, the digital pre-assembly, all the manufacturing plants. And I said, absolutely.
So we hosted the Ford team, and for three days we compared notes. They went back to Detroit and created the Taurus, which was the number one sedan in the United States for nine years. Seven million Tauri. A fabulous vehicle. And we created the triple-7, which is the number one commercial airplane in the world.
And so when I was doing my due diligence, when I was recruited by Ford, I thought that I'd be just going home, because here was the Taurus. And so the day I arrived I found out that they changed the name, and they were killing it.
And I said, you know, we're the ones that made it look like a football. Can't we have a consistency of purpose? We had all that brand; we had all that equity.
And so one thing that I think you're going to see from us going forward is an absolute laser focus on every vehicle that we have in our portfolio -- small, medium and large car, utility or truck. And every year we're going to improve the quality. We're going to improve the fuel efficiency. We're going to improve the safety, and we're going to keep improving the productivity so we can offer the consumer the very best value.
REP. MOORE: And be competitive?
MR. MULALLY: And be competitive. And actually -- and like you've -- like I mentioned this morning, we are now competitive in all of those areas; all of the areas the consumer is considering.
But clearly, when we lost that consistency of purpose, there was a brand awareness that was lost. And we are fighting every day to get that awareness out and a message out that we're back.
And Ford is worthy of consideration. We've got these fabulous vehicles. When we had this big void for these number of years, we are still hurt by that.
So I think that consistency of purpose and actually delivering on this brand promise is going to be the most important thing we do on our transformational plan.
REP. FRANK: The gentlewoman from New York.
MR. MULALLY: Thank you.
REP. NYDIA VELAZQUEZ (D-NY): Thank you, Mr. Chairman.
Mr. Wagoner, clearly the $25 billion assistance package that Congress passed in September was not sufficient for the auto industry. You're back again and now you want more and different type of assistance.
My issue is not with providing this assistance, but since the Wall Street bailout, I believe we have learned our lesson. Congress is not just going to hand out money without significant oversight and requirements.
Given this, how will you restructure GM so that it is a more viable business and the taxpayers -- is not left wondering why we gave you this money in the first place?
MR. WAGONER: Thank you. I think I tried to address the business restructuring, the cost restructuring, in some detail in my opening comments. And Mr. Gettelfinger has also talked about what the union does. So I won't repeat that side.
But fundamental is obviously to be cost-competitive. And so we're going to continue on that very aggressive path we have there, including recent additional plans we have --
REP. VELAZQUEZ: So when you mentioned the union side, will that mean, what, pensions?
MR. WAGONER: No, I'm talking about the fact that we have restructured labor agreements, reduced labor rates for new employees. We've spent --
REP. VELAZQUEZ: And besides that, what else would you do?
MR. WAGONER: We are going to continue our focus on new product launches, and particularly -- and in line with the prior question -- commitment to technology leaders, like the Chevy Volt, which can raise the image of the company.
We're going to continue to work on making sure that particularly we keep the car products on time in our portfolio and execute them to the highest standards. And we have continued work to do to make sure we have the right size distribution channels so our dealers can be profitable.
REP. VELAZQUEZ: So, sir, what about marketing and advertising? Will you have an ad at a cost of $3 million per 30 seconds during the Super Bowl this year? Or what about rationalizing the -- (inaudible) -- of GM's product lines -- (inaudible) -- bureaucracy?
Or what about cutting travel costs? I wasn't here, but I understand you travel in a private jet today.
MR. WAGONER: Yeah. We have -- we're not going to do Super Bowl ads this year, frankly, because we're cutting back on everything. And we're actually shifting a huge amount of our ad budget that remains to digital marketing, which is less expensive and more efficient.
REP. VELAZQUEZ: Okay.
MR. WAGONER: And I think it's fair to say every part of our business, cutting back expenses dramatically, including those and all travel expenses.
REP. VELAZQUEZ: Thank you.
Mr. Nardelli, I understand that 80.1 percent of Chrysler is owned by the private equities firm Cerberus Capital Management. Is -- that is the case?
MR. NARDELLI: Yes. There is a --
REP. VELAZQUEZ: Okay. So I understand also that -- (inaudible) -- senior executives at that firm include former Bush Treasury secretary John Snowe and former vice president Dan Quayle. Is that the case?
MR. NARDELLI: Yes.
REP. VELAZQUEZ: Yeah. Both gentlemen strongly support, or supported, free market policies in their government capacities. But now they're asking for, and clearly will privately benefit from, a massive federal bailout.
How do you reconcile that these men, staunch supporters of the free market, are now asking for massive amounts of taxpayers' assistance?
MR. NARDELLI: Well, as I said in my comments, that Cerberus Capital Management has made it clear that they will forego any benefits from the upside that would be contributed from any government loan in Chrysler LLC.
REP. VELAZQUEZ: Thank you.
Mr. Mulally, as you know, several Wall Street firms recently announced that they will forego giving bonuses to their top executives, in part due to the perception that taxpayer funds should not be used to compensate unprofitable companies.
Would you agree to restrictions up front that would prevent any of the federal funds from being used for executive bonuses?
MR. MULALLY: Yes. We've already decided to forego any merit increases on the base salary and also any bonuses. Because when you're in a situation like this, it's just so important to conserve the cash.
Now, having said that, it's just so important that we also keep a skilled and a motivated team. As you know --
REP. VELAZQUEZ: Okay.
MR. MULALLY: -- we're in a very competitive marketplace. But we have a very -- (inaudible) -- motivated team.
REP. VELAZQUEZ: But I understand that you made that commitment. Thank you.
MR. MULALLY: You bet.
REP. VELAZQUEZ: Mr. Nardelli, we have heard you and your peers express your willingness to improve the fuel efficiency of your products, and yet all three of you have stacked your bets on different technologies.
As we move forward a more unified energy policy, are you concerned that the market may favor one technology over another, thus placing your business model at a disadvantage?
MR. NARDELLI: May I answer?
REP. FRANK: Yes. You can finish.
MR. NARDELLI: We did select a single technology. Because of our financial situation, we could not afford to develop multiple technologies. We chose the technology that we had the most experience in and that we thought would have the easiest application for the consumer, and that's electric.
REP. FRANK: (Strikes gavel.) The gentleman from Michigan, Mr. McCotter, is now recognized by members of the Committee for a combined opening statement and questions.
REP. THADDEUS MCCOTTER (R-MI): I thank the chairman. Thank you for your indulgence, and I will have an opening statement and some questions, and I'll try not to take up too much time. And if I cover ground that you already have, please feel free to disregard it and put in your own points.
I come from Michigan's 11th District. My district borders Detroit. Heavy automotive industry. Lot of dealers, lot of suppliers, lot of white collar, lot of blue-collar employees.
One of the first things I would like to make clear that I personally find offensive is the implication that the domestic American auto industry has not done anything since the 1970s to restructure.
If anyone believes that the Big Three were not restructuring prior to the credit crisis bringing them here today, or the CAFE mandates that have brought them here today, I invite you to my district.
I invite you to look at how the fragile fabric of people's lives has been rendered asunder by a necessary restructuring process that has involved give and take on both sides, from labor and management.
I will show you the white-collar workers that are out of work. I will show you the blue-collar workers that are out of work. I will show you the pensioners that are worried about their health retirement benefits being lost. And I will show you the Wixom Assembly Plant that is closed.
I bring this up not for your pity for my constituents. I bring this up to show you that the automotive companies and the UAW have been doing what they believe they possibly can to restructure and become globally competitive and ensure that America has a domestic manufacturing base for the generations to come.
The second point I wish to bring up is why they're here. Throughout the entire process of the restructuring, we would hear rumors in Washington that the Big Three were coming for a federal assistance package, for one reason or another. And yet, as the white- collar workforce and the blue-collar workforce and the pensioners suffered the restructuring, they did not come.
They did not come to Washington with their hands out. They were not here begging, as it has been pejoratively put in the press. They wanted to restructure, without us making it harder for them to do so.
Unfortunately, the first thing we did as Congress was we passed a $100 billion CAFE-standard mandate on the auto industry, which would have been far worse had it not been for the strenuous efforts of the dean of the United States Congress, John Dingell.
Secondly, through no fault of their own, as they went through the restructuring process, the whiz kids on Wall Street, with their computer algorithms, decided to screw up the entire credit market of the United States. This was critical to the restructuring of the auto industry.
And then this Congress, in my opinion, passed a very bad piece of legislation, a $700 billion bailout of the very people on Wall Street who caused the problem. And now you see hundreds of billions of dollars slated to go to, quote-unquote, "healthy banks" to free up the credit system -- that has yet to free up, or they would not be here today.
So the question that the chairman puts before us in terms of the legislation he is proposing is to me not a matter of a bad policy that has already been imposed on the American people and has yet to work. It becomes a question of equity.
If the $25 billion is appropriated for Wall Street -- some of it probably targeted to healthy institutions, financial institutions, however nebulously defined -- a no-vote on a bridge loan to the auto industry means that that 25 billion (dollars) will continue to go to Wall Street and to healthy banks.
A yes vote means that it actually goes to Main Street, not just for the structure of the Big Three, the labor leaders, the auto leaders, but for the very hard-working men and people whose taxes have gone into the $700 billion bailout, which has yet to free up the credit markets.
So we are in the realm of equity here. And while I did not support that bad policy, we had here yesterday Secretary Paulson, who explained that he believed one of the fundamental problems that we face in stabilizing our financial system is the problem with home foreclosures.
I would agree with that. I would agree that the biggest problem we have are real working people's ability to pay to stay in the homes that they have.
If we turn our back on Main Street, if we continue to send all the money to Wall Street, who caused the problem, and the auto industry does have to go into bankruptcy, you will see foreclosure rates in this country skyrocket from people who have played by the rules and are currently paying their mortgages and are not part of the problem that Mr. Paulson says is already big enough to be worthy of addressing.
Finally, I want to issue -- address the issue of labor costs. I have long said that one of the problems Michigan suffers is the fact that we are currently still operating under the industrial welfare model of governance. And this is where the Big Three and the UAW get a very bad rap.
They talk about, quote, "shedding labor costs" that have been duly negotiated, because it makes them uncompetitive. My response to that is, where do those labor costs go?
The traditional model of governance throughout the 20th century of the United States, because we were an industrial power, was that business would pick up some of the benefits of employees and government would pick up some of the social needs of employees. And there was always the tension as to which would do what, but you had two pillars to help undergird American prosperity.
As we move into what people call the new global economy, the post-industrial economy, my question is this: If the business entities, in negotiation with labor entities, decide that they can no longer be competitive with these "labor costs," quote-unquote, where do those go?
They're going to go to the federal government. And so we have another instance where we can be penny wise and pound foolish, and we can say we're not sending a $25 billion loan to help the auto industry survive, and we can let real human beings go into the process of bankruptcy and watch the stresses and strains on their families as they endure that pain.
And you will not have saved the American taxpayers anything, because the pension costs will be picked up somewhere from the retirees who were cheated out of a lifetime of hard work.
You will see the healthcare costs of hard working people that they have enjoyed because of the fruit of their labor put into the federal system. And you will see prosperity throughout the Midwest and the rest of the country crash and you won't have enough worker retraining money to take care of their needs.
And finally, for some of my more conservative friends, I point this out: if America does not have a manufacturing base, a manufacturing base which some may think is not necessary in this new global world, the United States will cease to be able to defend itself. We will be reliant on other nations for the innovative technologies, not only their creation but their provision, from friendly nations such as communist China and others, and the arsenal of democracy in our lifetime will have been dismantled in a time of war.
In the end, this issue is even larger than the Big Three, in many ways larger than the economy. It is what type of nation do we become. Do we become a nation that no longer produces wealth, that no longer has a path to middle class prosperity? Do we remain the America we inherited? Or do we just let it go and watch real people suffer in the process?
And my answer is no. Now if you can find a question in there, my hat's off to you. Thank you. (Applause.)
REP. FRANK: (Strikes gavel.) Now it is to be long enough without that stuff.
Gentleman from Missouri.
REP. WILLIAM LACY CLAY (D-MO): Thank you, Mr. Chairman. And my comments are not as passionate as my friend from Michigan, but I represent Missouri which houses all three factories from your companies. And the 1st Congressional district which I represent also supports this bailout and we are also big supporters of organized labor, too. Welcome to all of you. And I do support the direction that Chairman Frank is going in addressing this crisis. We cannot let the industry collapse.
Having said that, I do have some reservations about this endeavor and want to be assured that we are not just dropping money into a bottomless pit. Throughout the year the numbers of automobile workers have been declining at an alarming rate. If the bailout is approved, what will be the short term effect of addressing the rapidly declining job numbers and are you going to stop farming out jobs overseas and if so, when? And what assurances or guarantees do we have that you are not going to go back to past practices once you are again on your feet? You know, these are U.S. tax payer dollars, and you would think we would target our effort to keep those jobs here and to create additional jobs with those tax dollars.
So what assurances do we have that the $25 billion is not just an installment on your request and do you absolutely know that this request is the amount that is needed to do the job of helping you to retool and reorganize and get this industry back on its feet? And I'll start with you, Mr. Wagoner.
MR. WAGONER: Sure. Thank you.
I want to be candid to your comment about can we tell you with absolute certainty that this is the total amount, that this is the exact amount needed, could it be more, could it be less, and the honest response is I don't think anybody knows that today because we have to assume when the U.S. economy is going to stabilize, when we're going to stop headed down and automotive sales stop going down and when they'll stabilize and hopefully begin to go up. We have to assume that eventually the credit markets and capital markets begin to function, which they don't today. We're here very simply because our revenue has been devastated because people can't afford to buy cars or can't get credit. And the traditional sources of credit that we have relied upon are simply not available --
REP. CLAY: Excuse me for interrupting, but on the point of the credit market and in freeing up credit, will any of this money go towards that effort as far as people getting auto loans?
MR. WAGONER: What we have -- we talked about this a little bit earlier, but based on a -- what we think conservative industry, we feel this amount of money would likely provide for the industry through a difficult industry in '09. And this is what we think we need more or less for the industry itself to be able to pay its bills, keep its capital spending going products, et cetera. A simultaneous effort that we're working just as hard at is to work with the Fed to enable our captive finance companies to have more access to credit and be able to make more money available to dealers and to -- and customers to work on the retail demand side.
So we're trying to work both sides of that.
REP. CLAY: Okay. Mr. Nardelli how do we stop the bleeding of jobs in the industry? How do we save some jobs or even put people back to work?
MR. NARDELLI: Well, sir, the first way we need to do that is to get this economy turned around and to try and avoid a further dip in the recession we are in and the downward spiraling that we're seeing in the auto industry.
So I think as Mr. Wagoner said, certainly through our affiliated finance companies we have to make readily available competitive money available to our consumers to get loans, more competitive rates for our dealers who can then wholesale and floor plan, which then would put orders back into our factories, which would then generate cash.
And to your other point, our request here today is based on a set of assumptions, based on a set of assumptions of what the industry will be, what the unemployment rate will be, and it is our best business judgment of the request. If we continue to see the downward spiral, if the trough gets deeper and longer, sir, I think not only this industry but our entire economy will continue to suffer.
REP. CLAY: Thank you.
REP. FRANK: The gentleman from Delaware is now recognized for a combined seven minutes for opening statement and questions.
REP. MICHAEL CASTLE (R-DE): Thank you, Mr. Chairman. I will try to just summarize a bit of an opening statement.
I, like many of the members here, have some frustration with all this. I spoke not to you all -- you weren't coming to Washington then -- but perhaps seven or eight years ago to a number of your lobbyists. And I spoke about the hybrid products which were starting to be developed in Japan, safety had pretty well been addressed, and I think you've done a good job with that. And we talked about other issues including developing models that the people would want to buy in the United States. And my impression was, you know, that they were hearing what I was saying but they weren't being responsive to it. I felt that the hybrid development was slow in the United States, the understanding that fuel consumption was going to be a problem, it was not there and that was a tremendous issue.
We in Delaware were the first state I believe to help any of you -- helping Chrysler and later General Motors and the two plants there. Chrysler is now closing in Delaware, that's about 1,100 jobs. GM has a plant in Delaware, it is not closing but reducing the employment there by 400. There's an auto parts maker which is closing which is 136 more jobs. So we're very much on the line. And also a lot of auto dealers or whatever who are on the line as well.
So I'm very concerned about what we're doing here. I will not at this point judge whether I would or would not support whatever bailout may be or where it would come from, those are issues we have to resolve here in Congress. But I am concerned even beyond that. The question was raised I think by a previous questioner, what happens after the $25 million (sic)? Is this a downpayment or is this a final number? I don't know if anybody can really answer that question or not, but I've seen the amount of money that's being consumed each month by each of the companies and obviously it's the kind of the that the unions have been involved in this too, and you're all concerned about that.
And my concern is we're going to give you money in some way or another and it's going to last for a period of perhaps less than a year and all of the sudden you're still going to be in trouble.
I still don't know if we have the fundamental questions of do we have desirable products? Some of your products are getting better reviews, they're I think being ready to hire by the public, but do we have desirable products that the public is going to buy or are they going to continue to buy Toyotas and whatever the heck it may be? And are you addressing all the issues of the fuel consumption, you know, and I know about the bolt and that kind of thing but are those being really addressed in terms of where we are going? Do your future plans include real details with respect to how we're going to work our way through this from an economic point of view, and that involves every one of you at this table, as well as the actual selling of product?
And I'll tell you another issue that's not raised much. Jane, my wife, drives a 1999 Jeep, which we talk about getting rid of from time to time, but the doggone thing runs pretty well. It's our major car, we probably have about 150,000 miles on it, and it's still running doggone well. Congratulations, but we're not buying a new car at this point, not sure we could afford it either, but that's all right. And that's an issue, as you develop these cars that are running better and better, obviously you don't go back every three years to buy cars and whatever. All of us are holding on to them longer. That's not necessarily a negative from a consumer point of view, but it's obviously maybe a negative from a corporate financial planning point of view that needs to be addressed as well.
So I think there's a lot of issues out there, and I'm not sure there's an easy recovery. And I am very concerned about just giving you money as we have done with the banks a great deal of equity is being obtained from those banks in terms of preferred stock, and I would hope as we consider here there'd be some sort of security for repayment in terms of a return to profitability at some point in the future.
And that should be a concern for each and every one of us.
I don't need -- I'm not going to make the argument that the union's been a problem or not. I don't think they necessarily have been. But on the other hand, there is still a differential -- maybe not as great as some people will state -- but there is still a differential in terms of some of the union versus non-union plans that needs to be at least factored into the considerations of where we're going and what you are doing.
I think you've probably done a lot more than the public realizes and I give you credit for that -- all of you. On the other hand, we're in a very difficult situation now and we need to look at whatever those ultimate steps are to bail us out from that.
So those are all concerns which I have in terms of where we are going. This planning does not end at a hearing today. It does not end at some sort of a bailout plan which we're going to embrace. It ends when, obviously, you're able to produce cars at a price people are willing to pay. And with the number of people working on them so that there's a profitability to it all -- particularly if people are holding onto their cars for a longer period of time.
I hope together, frankly, together we can work on this and make it all click. I happen to be a great supporter of the automobile industry. I think it's absolutely needed in America for a whole variety of reasons. But on the other hand, I think we have to be very cautious about taxpayers' money in making sure that we have a survival plan that's in place.
So I watched your hearing in the Senate yesterday. I have read your testimony from today and I have been reading what you've been saying about this. But my concern is, you know, are we really getting ready as far as the future steps are concerned?
If you any comments on anything I just stated, I'd be happy to hear them -- or anything to make me or perhaps the public feel better about it, I'd be happy to hear such comments.
REP. FRANK: We have a minute. Go ahead.
MR. MULALLY: I think you really hit on the key parts. And just two areas I'd like to focus on in response is on the revenue side and on the product side. And then another comment about the competitiveness on the cost side.
And you know, clearly, in the Ford Motor Company's case, over the last recent history, we have focused on the larger vehicles -- the SUVs and the trucks. And you know, the wonderful F-150's been the number one vehicle in the United States for 34 years. I mean, it's just a tremendous vehicle that's served a lot of customers.
But clearly, with the way the world's changing -- and especially with the consciousness of fuel efficiency and sustainability -- the consumer -- and also with the fuel prices rising in the United States -- the consumers have really moved fuel efficiency up on the purchase agenda, as you mentioned.
And if we look at the decisions that the consumers are making and what's really important to them today -- quality; sustainability; fuel efficiency; safety, of course; and the very best value -- and over the last few years, we decided that it wasn't good to just have improvements in that area. We needed -- every new vehicle that we brought out needed to be best in class in those four areas.
I'm very proud to be able to say today that over this last couple of years, we have moved into a leadership position -- equal to or better than Toyota or Honda, the best in the world -- on quality. We've also moved into a leadership position with every new vehicle that we are introducing on fuel efficiency. And of course, we've been the leader in safety. So from a product point of view, it's got to be led with vehicles people want and value.
And I'd like to say one more thing about the --
REP. FRANK: Quickly!
MR. MULALLY: With the agreement that we've made the UAW and our productivity improvements, we can make cars, trucks and utilities in the United States and we can do it profitably now.
And so that's the most -- those two things are the most important thing.
REP. FRANK: Thank you.
The gentleman from Massachusetts.
REP. CASTLE: Thank you, Mr. Chairman.
REP. LYNCH: Thank you, Mr. Chairman and ranking member.
I have a little bit of history with the auto industry. I actually worked at the Detroit diesel plant in Michigan back when I was an ironworker. I also worked at the General Motors plant in Framingham, Massachusetts for a while as an ironworker. And I appreciate the job opportunities that has provided.
Also, Mr. Gettelfinger, I think you need to tell that story more. You described a lot of the cuts and the concessions and the work that you've been doing on your end. I think that probably was a surprise to a lot of the people who listen to this hearing and I think you have to just tell that story more about the hardship that people have taken on trying to save the industry.
But you know, I worked at that Framingham plant in Framingham, Massachusetts with General Motors. And I was there at a time when just before GM made their decision to close down that plant and actually, they opened up a few plants in Mexico right after they closed down the U.S. plants. And I saw that devastation -- you know, just the hardship on a lot of families and on that community -- not only from the loss of the direct jobs, but also related businesses and a tax base for the communities there. Framingham and Natick were really impacted quite heavily. And you could see it in just funding for the schools and funding for, you know, public safety.
But now -- so you know where my sympathies lie having seen all of that. I would not care to see that happen again anywhere in the United States. But I also read that GM now has approximately 13,000 employees at four different plants in Mexico. And this makes GM the single largest private employer in Mexico. In addition, GM has 20,000 employees at seven operations in China.
And Ford -- on May 31st of this year, Ford announced that they'd be creating a new Ford factory in Mexico City. And the operation is likely to create an estimated 4,500 jobs in Mexico where car workers earn substantially less than our American counterparts and where Ford has approximately 4,000 assembly plant employees also in Mexico. And at the same time, you plan on making 30,000 job cuts and 14 plant closings in North America by 2012.
Look, you know, I want to see what's best for the American worker here and I want to see what's best for the American taxpayer.
What -- this question's been raised a couple of times here: Number one, given the global presence that you companies have, have you gone to the Mexican government to ask them for a bailout? Have you gone to the Chinese government and asked for a bailout? I want that question answered -- so it's a two-part question.
And number two: What commitments are you making that once -- if you get this $25 billion -- you just won't turn around and lay off thousands more U.S. workers and we will have no chance through the tax base and, you know, taxation from those jobs to recover any of this money that we're loaning out to you.
Two-part question: Have you gone to Mexico -- have you gone to Mexico City and asked them for a bailout; have you gone to Beijing and asked them for a bailout; and what are you going to do to make sure that if you get this bailout, the American worker is going to benefit from these jobs and we're not just going to see this continual drain of American jobs overseas?
Mr. Wagoner, please.
MR. WAGONER: Well, thank you for the question.
As far as asking the Chinese government. We haven't. To be honest, our business in China is still quite profitable. In fact, that business, I think every year for the last nine or 10, has sent significant dividends back to the United States. So to be honest, we appreciate the support that we can provide from our Chinese business here. It's a joint venture. But at least as of this moment, it's still quite profitable so there hasn't been approach on our part to the Chinese government for direct funding support.
In Mexico, the business in Mexico had held up pretty well, I would say, until the last month or two. So again, there our financial position was okay. Our credit availability was okay, so we have not yet gone to that.
We have --
REP. LYNCH: Let me ask you: So in -- and I know. I've been to China. I've seen the Buick Regals selling big over there. Are all those cars being sold into China that are being made in China; and are all the cars in Mexico being sold into Mexico?
MR. WAGONER: In China, basically, almost everything that we sell in China is made there. We export almost nothing from China -- nothing to the U.S. and we actually export some vehicles from the U.S. to China. Buick Enclave would be an example that we actually export --
REP. LYNCH: How about Mexico?
MR. WAGONER: Mexico is integrated completely in our U.S.- Canadian production system. So we build many cars in the U.S. that we sell in Mexico and many in Mexico that we sell in the U.S.
REP. FRANK: We'll have to get the rest in writing, because we're over the time.
REP. LYNCH: Okay. Thank you, Mr. Chairman.
REP. FRANK: The gentleman from Michigan, by unanimous consent, wasn't able to be here for an opening testimony and he'll be recognized for two minutes.
REP. JOHN DINGELL (D-MI): Thank you, Mr. Chairman. I appreciate that.
And to save time, I will associate my remarks with the remarks of Mr. McCotter, who eloquently stated his position, which I agree with.
But I also want to add a few other things. Many of you know me well and also, the gentlemen at the table will be surprised that I'm in support of this initiative, because I have been chastising them for over a decade about not producing fuel-efficient automobiles, not developing hybrids to the point where I think they were refusing to talk to me for a while.
But the point is, that's not the issue. The issue is a major American corporation is in deep trouble and it has tremendous ramifications for the country and especially for my state of Michigan, which is already facing bankruptcy as a state. If any of these companies go belly up, bankrupt -- whatever term you use -- the state of Michigan will be in incredibly dire straits.
The unemployment rate, which has been the highest in the country for several years now, will actually be much, much higher than anywhere else it the country.
If you have a neighbor whose house is on fire, no matter how many disagreements you have with that neighbor, you will call the fire department. You will get the family out and try to help them put out the fire.
We have an industry here that is suffering that type of calamity and we have to throw them the life raft. We have to offer them the help -- but not just for their salvation or the saving of their country -- pardon me -- their company, but rather because of the thousands and thousands of workers who will be devastated. The state of Michigan and several other states will be devastated.
This is an emergency situation! We should treat it as an emergency and recognize they simply -- although I disagree with many of their business decisions -- that is not the total cause of what's happening. The entire credit crunch, which is beyond their control, has really brought this to a head and they simply cannot get the capital they need to recover or even to operate unless we provide to get them over the hump.
I urge that you do --
REP. FRANK: I would ask similarly for two minutes for the other gentleman from Michigan, from Flint, Mr. Kildee.
REP. DALE KILDEE (D-MI): I thank you, Mr. Chairman.
I was a cosponsor, back in 1979, of the Chrysler loan guarantee and the U.S. government made money on that. I learned from that -- we did a saying that what America drives, drives America.
You know, we know it's a great buyer of steel, rubber, computer chips. My car downstairs -- it has more computer chips than the first vessel that landed on the moon. But I can recall Jim Broyhill from North Carolina came up to me around that time and he said, when are you guys getting back to work in Michigan? And I gave what I thought was the right answer. I said, why do you ask, Jim?
And he said, well, my carpet industry in North Carolina is really suffering. When you guys in Michigan aren't producing cars, my guys are laid off at the carpet fiber industry. It's such a broad consumer of the other parts of our economy. So really, the saying that what America drives, drives America is very true.
I didn't speak before, because Fred Upton is the co-chair of the Auto Caucus and the Democratic chair and I thought he could do an excellent job, which he did. But I wanted to speak now that this not just the auto industry or not just Michigan. I couldn't find one district in this country that wasn't affected by the auto industry and that was my job. Jimmy Blanchard asked me to try to find districts. I found out West, ranchers selling their hides to a Ottawa Indian leather company in my district, who in turn sold it to Chrysler -- the company that made the seats for Chrysler. Every district somehow is touched by the auto industry.
Thank you, Mr. Chairman.
REP. KANJORKSI: Mr. Neugebauer.
REP. RANDY NEUGEBAUER (R-TX): Thank you, Mr. Chairman.
I thank the panelists for being here today and I apologize if any of my comments or questions are redundant, but we've been in a little leadership election here.
You know, I think we could line up panelists from now till Christmas -- businesses, business leaders, business CEOs -- that would come in here to testify to this committee that their business is key and crucial to the economy of the United States of America.
So I'm really not going to debate that issue whether this auto industry is important to America. What I am going to say is that our founding fathers 230-some-odd years ago started to move away from a plan where the king picked who the winner was. They said they wanted to found a nation where people could be rewarded for their own merits, for their own ideas, their own entrepreneurialship. They wanted to get away from where the government or the king was picking the winners and losers.
And one of the problems that this Congress faces is that we have injected ourselves -- gone down a road of where we now have the government -- the United States government -- picking winners and losers in various industries. And quite honestly, it's not the role of government to pick winners and losers. Markets pick winners and losers.
And I've heard testimony previously that you have given and you know more than anybody about competing in a very competitive environment. And what we do know is that markets are very efficient. And when you have a good idea and you have a good product and you have a good business plan, you've been rewarded for that. Where you've not had a good product or a good business plan, you've not been rewarded for that.
And as I talk to the people in the 19th Congressional District of Texas that are sitting back home and they're saying, you know what? We're passing out money we don't have. If we give a $50 billion bailout to your industry, we're going to have to go borrow that money. We're going to have to go put the American taxpayers on the hook for those funds.
It's difficult for me as a United States congressman to be able to say, you know what? We're going to put the taxpayers' money not here, because the marketplace that you attract capital is unwilling to put additional capital in your companies. Why is it that this body, this Congress, knows better how to invest American taxpayers' money better than themselves, because in fact, themselves have been reluctant to invest any more money in the current business plan and business models that your companies currently have.
And so that's -- one of the questions I have to you is: What do we say to the people across America, the small business people that quite honestly, while your industry creates a lot of jobs and we're all thankful and grateful for that -- but as most of us know, 95 percent of the jobs in America are created by small businesses all across America. And I was a small businessman in Texas. And you know what? Small businesses every day in America fail, because they just didn't make it. They didn't have the right business plan. They didn't have the right capital. They didn't have the right model. They didn't have the right product.
And how do we say we're going to distinguish and treat you differently than those small businesses all across America that would like to have an opportunity to be bailed out themselves? And that's really the fundamental problem with roads we've started down in this country is that not only are we picking winners and losers is we don't know where to cut the line off.
If people that stood in line to participate in this hearing -- they had to get in line and they only let a certain number of people in the room at the same time. And so the question is, how many more people do we let in the room and where does this stop? Where do we start really having to let the marketplace do what it does best, and that is sort through your business plans, your products, your business models and determine, you know, who to reward and who not to reward.
And so I would ask in the remaining few minutes I have here for you to respond to those people back home that say, where does this stop and why should we give you money, quite honestly, we don't have?
MR. WAGONER: Yeah. I think the way I would respond is the auto business has taken painful and dramatic moves to reduce its cost structure, which was high based on a history of a program where the U.S. government encouraged manufacturers to provide health care and retirement benefits. And it's been a hard adjustment for us to move away from that, but after many years of working on that with the union, we're at the point where we can be fully cost competitive.
We have products that are winning car and truck of the year regularly. We have demonstrated technology leadership in a lot of areas and the industry as a whole has a massive footprint across the U.S. As the congressman said, we're the biggest purchasers of aluminum, of steel, of computer chips, of textiles -- I mean, you name it. So it's a huge industry.
Unfortunately, in the midst of massive plans and significant progress, we have run out of capital and I think it's directly because -- it can be traced right to the financial crisis on Wall Street.
So these are extraordinary times. I can assure you, Congressman, we don't like being here asking for this. And even through June of this year, we were cutting, cutting, cutting ourselves to not have to be here. But the fact is, the collapse of the financial markets has taken not just credit availability, but the ability to go to the equity markets -- dramatically diminished them. And so at this point, without injections of liquidity, I think it's reasonably probable that some portion if not all of the domestic industry will not survive.
So it's not something we like -- I like being here asking, but I think that's the way I would explain it to your constituents; that it's going to prevent the United States from entering into an economic depression, in my view.
MR. NARDELLI (?): Sir, I wonder if I could just offer one thought -- is what makes this different from the examples that you gave us is this isn't about losing a company. This is about losing an industry -- an industry that has an overarching effect on literally thousands of small business, to your point. We call them dealers. Literally thousands of suppliers -- for example, the tanning company that provides the leather for our cars.
So I think this isn't about just a single company and making the decision to let it go down. This is about an entire industry whose tentacles reach broadly from east to west, north to south and will have unbelievable impact on the entire economy and the small businessmen and women in this country.
MR. MULALLY: I think the only thing I would like to add is that it's just so important that we're part of the solution to the economy recovery. We just cannot contribute to degrading the economy further.
REP. NEUGEBAUER: Thank you, Mr. Chairman.
REP. KANJORSKI: Mr. Miller.
REP. MILLER: Thank you, Mr. Chairman.
Much of the debate today and in the country in the last few weeks has been about whose fault is this. Many critics of your industry have said that you have been lumbering when you needed to be agile, that you have fought CAFE standards when you should have been making more fuel-efficient cars -- others.
You all have defended yourselves today. Members of this committee have defended you, said that you have been agile; you have been developing more fuel-efficient cars.
Others, you all have defended yourself today, members of this committee have defended you, said that you have been agile, you have been developing more fuel efficient cars.
Imagine, however -- but have criticized other industries and other companies -- but imagine an industry or a company that about whom those criticisms might be valid. How do we hold them accountable? Americans were very unhappy with their government, and in the last two elections, they have changed their government. And my party will be held accountable too if we do not meet the expectations of the American people. I know we praise small business, but we've got to have massive economic undertakings to perform complex manufacturing. We have to have companies of your size, and ownership of those companies necessarily is going to have to be very diffuse. There's, you know, individual investors, mutual funds, retirement funds, but it seems that the bigger the company is and the more diffuse the ownership, the more impervious the leadership of that company is to any challenge.
There have been a lot of shareholder rights groups that have suggested there needs to be changes in the way that stocks shares' (street name ?) are handled. The principal opponent of those changes or those reforms have been the Business Roundtable, which I assume the three of you belong to. Do you think we've got a problem with a lack of accountability by corporate leadership, the lack of the ability of the Americans who actually own the companies -- and you all are employees; you may own a piece of your company, too, but the reason you're sitting there is you're employees, just as Mr. Gettelfinger's members are employees. How do we -- how do we hold these companies accountable? Do you agree that there is a problem?
MR. WAGONER: My personal view is we have from the GM shareholders over the years received a number of shareholder proposals through our annual meeting process. And while it's true that I think most of the time the recommendations of the board are accepted by shareholders, it's not always true. In the last four or five years, there's been at least three or four instances where the shareholders have voted for changes in bylaws or whatever. And so when we get those kind of directions from the shareholders, we try to be responsive.
So my sense is that, at least as I've observed at operating first hand, we get a lot of input from our major shareholders and really from all of them. They do submit and are quite active in submitting shareholder proposals as part of our regular meeting process. And you know, on occasion a shareholder proposal will be adopted by a majority of shareholders and we try to respond to it. So at least in our case I feel like we get a good voice from the shareholders and we try to respond to it.
REP. MILLER: Anyone? Mr. Nardelli?
MR. NARDELLI: Obviously we're in a slightly different position as being the first privately held auto company in 50 years, but I can tell you that our owners have been very supportive, very encouraging of change and to move quickly, to move decisively, to try and save one of the iconic brands in the auto industry -- Chrysler, Dodge and Jeep. So we are totally open. We want to be totally transparent in this process. And we believe that coming forward and asking for this support would allow Chrysler and its brands to be able to continue to be a viable entity and hopefully contribute to the recovery of the auto industry.
MR. MULALLY: Sure. Clearly, as a publicly traded company, our number one priority is to create value over the long term. And you only do that if you have products people want and value and you know a cost structure that in a productivity that's competitive. And I think all the actions that we have had a chance to lay out today and the actions we've taken over the last few years to dramatically transform this company are a direct result of the principles of creating value for the long term for all of us.
REP. MILLER: Mr. Gettelfinger, you're making common calls of management today, but many of the labor movement have been among those who've criticized the accountability of corporate management. What is your -- what is your thought on this?
MR. GETTELFINGER: Well, I think what we do if we look back at the conclusion of negotiations last year -- and as Mr. Wagoner pointed out earlier, and look at the value of their stock then, which was over $42 -- it begs the question, why is the stock where it's at today? If you look at the subprime mortgages, you look at the stock market, you look at what's happened across the board to our economy, this major downturn -- I'm not one right here that's focused on reflecting where the problem originated in the past. I think that we have to focus on where we're at now, look at the improvements that have been made, look at the innovation that's being -- that's under way, and look at the direction that we're trying to go in.
And I'm not bashful to criticize this management, and every one of them will tell you privately our union tells them exactly what we think. And to me, I sit here with glee at some of the comments that are made to them because I'm sure it echoes what they've already heard from us.
So I'm not here focused on that. I'm focused on the bigger picture, which is what happens if this industry goes down and the spiral effect. And I just noticed here on these companies, the number of parts that they buy compared to the foreign brands that are manufactured here, and what it would mean if it were just cut back. If they just cut back to the content of the manufacturers that are here today, it would create a loss of thousands of jobs. So this is an important industry to our country, and that's why we're here standing with them on behalf of our membership to appeal to Congress to give this a most serious consideration possible.
REP. KANJORSKI: Gentlelady from Illinois.
REP. JUDY BIGGERT (R-IL): Thank you, Mr. Chairman.
Like Mr. Ehlers that just asked a question, for years many of us in Congress have been pushing for technologies in our national labs like Argonne in my district that can help you, I think, provide what the consumers want, which is energy efficient cars. And I think many of us grew so weary of the lack of progress that we voted for CAFE standards, which is something I thought I would never do.
But Americans don't want to buy the expensive cars, pay for the high fuel cost, and be dependent on foreign oil. In fact, I had a Jeep for 11 years, which served me well, but when I wanted to buy a new one I couldn't get a hybrid; no Jeeps were made for that.
So why should we be bailing you out now when, you know, you've really been dragging your feet, I think, on the kind of cars that are in the 21st century and aren't being made? So are you not selling cars because no one wants cars that get 12 miles to the gallon or because of lack of financing? I'll start with you, Mr. Nardelli, since I talked about the Jeep.
MR. NARDELLI: We have -- we have six or seven cars that are getting over 28 miles per gallon. Our Caliber is getting 30 miles per gallon. We are working feverishly -- we'll spend probably in excess of a billion dollars this year on technology to improve our fuel efficiency on the combustion engine. We spent over $350 million in our efforts to develop a hybrid. We'll spend almost an equal amount as we announced in September three electric vehicles, one from each brand -- Dodge, Chrysler and Jeep. And one of those vehicles will be in the marketplace in 2010.
REP. BIGGERT: But that's still two years.
MR. WAGONER: We have 20 models that get more than 30 miles per gallon highway, more than twice any other manufacturer today. We have six hybrid models. We'll offer three more next year. We're the global leader in biofuel vehicles. And obviously we have a significant commitment to the electric vehicle with cars like the Volt and fuel cells. So I think we have a good story to tell and we're going to keep trying to tell it. Many of our new cars, like the Chevy Malibu in the midsize class, have better fuel economy than the Japanese competitors.
So I think we're very -- very much -- (off mike).
REP. BIGGERT: Mr. Mulally.
MR. MULALLY: Yes, nothing else to add on the competitiveness. We have a terrific lineup. And to your question, the entire industry is down and all the manufacturers, whether they are the three Detroit companies or the Japanese, all have -- their sales are all off, along with the credit and the economy. So I think we're all in this together.
REP. BIGGERT: Then what -- would a bailout loan to your companies go to your finance or to the operations arms? Just want to go down the line.
MR. NARDELLI (?): We're talking about now is support for the operating side of the business.
REP. BIGGERT: Okay. What percentage of a loan would go towards financing consumer auto loans, to start moving inventory?
MR. MULLALY (?): Right now none of the money that we're asking for today would go towards loans. We are working a very aggressive and parallel path with our affiliate finance companies to either get bank holding status, to get ILC approval, to be able to gain access to the window so that they can reach the secondary market, increase liquidity, and gain capacity.
REP. BIGGERT: Okay. Well I've heard that some of the loans that are being made are 9 percent loans, but that somebody has to have a 750 FICO score to qualify for those loans.
MR. WAGONER: I think it's fair to say that the consumer -- the requirements for consumers are much tougher today to be eligible for loans. That's absolutely true.
REP. BIGGERT: Wouldn't that -- then how are you going to sell cars?
MR. WAGONER: Well we're, that's one of the things that's contributing to the lower industry sales, but as Mr. Nardelli said our finance companies cannot access significant credit.
And then the ability to sell -- what they usually do is take these loans, package them together and sell them into the financial markets. And that ability -- the asset-backed security market has radically shrunk and is very demanding on only buying high-credit paper. So it's part of a system problem, and we're doing everything we can to try to help people be able to afford cars.
REP. BIGGERT: Well, how would you do that? And I mean, if you're going to take a bailout to make sure that -- for the operations and yet you're not going to have to people that are going to be able to afford to buy the car even if you -- you know, if you improved this.
MR. WAGONER: What we're trying to do is work with other potential sources of credit; we talked earlier about working, for example, credit unions, which traditionally have wanted to be bigger players in automotive finance. And we've got some positive input from that. But if we're successful, for example, in our case of achieving a bank holding company status at GMAC, then they will be able to take more deposits, reduce their costs of funds, and be significantly more aggressive in consumer financing.
REP. BIGGERT: Just one other quick question. How many of your dealers are not getting paid? Are they all being paid or is there -- are you withholding any of the money from them?
MR. WAGONER: No.
REP. BIGGERT: They're all being paid on time?
MR. WAGONER: Yes.
REP. BIGGERT: Okay. Thank you.
I yield back.
REP. DAVID SCOTT (D-GA): Thank you very much, Mr. Chairman.
I think that we really at this point need to put this in perspective. This big -- this picture is much bigger than all of us. It's bigger than General Motors, Chrysler and Ford. The issue before us is not whether or not we can afford to help you; the issue before us is whether we can afford not to help you. This is a big, big issue facing the survival of America. It's an American issue.
We are at a time similar to the Titanic. If you recall it wasn't because the Titanic ran into the iceberg; the problem with the Titanic was it didn't turn in time. And on the bleached bones of many past great civilizations and nations are written those pathetic words: "too late."
Where are we now? Here we are at a time where I hope we don't vote too late. What are our options? They're very small, and I think we should focus on them.
One is we have a bundle of money that is available, Congress has approved -- not 700 billion (dollars) but 350 billion (dollars). Now, the Treasury secretary has seen fit to already spend and allocate 290 billion (dollars) of that, and in a way that was not the way that many of us had first designed, to get the troubled assets. That leaves us with $60 billion. The two most crying needs as I see it are to stop the drain on the housing foreclosures and to help the auto industry. And we got just enough money to do that.
Now, ladies and gentlemen, the big picture is that we're moving into the most critical time in this economy, when clearly 48 percent of the retail sales will be made during this next six weeks. You think we've got problems now, if we come out of this period in January without consumers spending money or having confidence enough to do so, we really are going to be up the creek without a paddle.
I think that two best signals we can send -- and I would hope this Congress would realize that the American people are watching us to see whether or not we will do like the Titanic and move to turn the ship too late, to help the consumer.
Now, we've thrown $290 billion at the banks. They got theirs -- some of them didn't even want it -- to try to get them to lend it -- and they're not even lending it to your dealers, many of whom are on the verge of going out of business. That's who the consumer deals with, the dealer.
So I want to take just a moment here to ask each of you if you would agree that if we give you this money -- and by George, I hope we do because I think -- not only do I think, I know you need it. I represent a district in Georgia in which the Hapeville Motor Plant was closed, Ford -- you know where that is, in my district; the Lakewood General Motors Plant closed, that's in the middle of my district; and then on the north end the Doraville General Motors Plant closed. That's three. But something funny has happened; we've had several Kia plants open.
And now we're sitting on a deal in foreign affairs that we're fighting tooth and nail that says we want to increase our trade. And nowhere is our picture more clearly defined than on this fact: last year, 700,000 Korean automobiles were imported into our country. You know how many American-made cars were exported from us into Korea? Less than 5,000. We got a terrible problem here.
And so I want to ask you, because we talked about the dealers, if you would agree to setting up -- if we give the 25 billion (dollars) -- to get assurance from the Treasury Department that we could have a billion dollars in a receiving or revolving loan fund that could range from seven to 10 years at the low-market rates -- in other words, have a mechanism that will allow dealers to obtain access to critically needed capital directly though the Treasury Department. Your dealers need that. The banks are not lending the money. If we don't put some mechanism in here to help you, to make sure that some of this money -- $1 billion is not that much of it to set aside to help the dealers.
And then secondly, if you would declare or help us make sure -- you take the lead. You're asking for the money. None of your dealers are suffering as are the minority dealers -- the African-American, the Hispanic, these guys that are just coming on. We need to make sure if we give you this money that you would ask that either the president or SBA director would declare ethnic minority disaster loans under the current SBA authority.
If we do those things, we will be helping most directly not only the overall industry, but I would like to ask if each of you would just simply -- I know my time is out, but if you could nod your head or say, yes, we will support getting this capitalization and available capital for our dealers.
Is that yes? Good.
Is that yes? Good.
Is that yes? Excellent.
Thank you very much.
REP. KANJORSKI: Thank you, Mr. Scott.
Mr. Hensarling, you are allotted seven minutes.
REP. JEB HENSARLING (R-TX: Thank you, Mr. Chairman.
My apologies to you, gentlemen; I missed most of your testimony and earlier questioning. I think you know by now that this hearing was scheduled against the leadership election. So my comments may be redundant; my questions may be redundant. Forgive me, but it's you who are asking for the money.
You need not convince me of the tragic economic circumstances to our nation should your three funds go belly up; I don't need to be convinced of that. But I do need to be convinced that if you get an additional $25 billion that somehow that's actually going to make the difference. What I haven't seen come across my desk, come across my transom, or what I have not heard is a plan that convinces me that with the $25 billion that you will achieve sustainability. How do I know that you will not become the next AIG -- 25 billion (dollars) now, 25 billion (dollars) next month, 25 billion (dollars) the month after that?
And I'm sorry we're in this tragic circumstance. There are people in my district who will be affected by this. But you know what? It's not the fault of the taxpayer. It's not their fault. It's not the consumer's fault. If there's any fault that lies here, it's with you gentlemen before me and your predecessors.
And Mr. Nardelli, I drove a 1998 Jeep Cherokee here to work. I've had it for 10 years, great vehicle -- small problem with the back hatch staying up and we can talk about that afterwards. I like the car, but clearly a lot of Americans don't.
There's no doubt that your labor costs are substantially higher than your competitors. And there's no doubt that on most consumer satisfaction surveys the big three are scoring towards the bottom. Again, it's not the consumer's fault.
And so I wonder -- when I look at the 25 billion (dollars), I ask myself several questions. Number one, this is the second 25 billion (dollars.) I want to help you. I may not want to help you the way you want to be helped, but I want to help you.
I may not want to help you the way you want to be helped, but I want to help you. It wasn't 60 days ago that you already received $25 billion. Now, you've got environmental goal posts that you have to negotiate.
I'd be more than happy to stay here with my colleagues and try to work on legislation that would give you access to that money for your immediate needs. But I haven't heard that from you. And again, forgive me; maybe I missed that in your earlier testimony.
I would be willing to help you with your health care costs. I'd be willing to help you with your tort costs going forward. I know that we have the highest tort costs in our manufacturing of any of our competitors. We've got the most expensive tort system in the world. I'd be happy to introduce legislation today -- frankly, I've already introduced it -- zero out the capital gains tax for two years to invite capital off the sidelines to invest in your firm.
But what you're doing is you're asking for $25 billion out of a pot of money that I did not support in the first place. And so I asked myself several other questions. Twenty-five billion and $25 billion is a lot of money. And right now, all across America, and certainly in the fifth district of Texas, the major employer is small business. The average capitalization of a small business in America is $25,000.
With the amount of money you have either received or are receiving, we could start 2 million small businesses in America today. Or maybe we could save 2 million small businesses that are on the verge of going bankrupt. Now, we haven't heard of their names. They don't have representatives or lobbyists who are walking our hallways. But they're out there.
This money has opportunity costs. And if we give you $25 billion, that's $25 billion that can't go to small business. I hear the argument of "too big to fail." Well, I come from Dallas, Texas. American Airlines is headquartered in Dallas/Fort Worth. They've gone through some tough economic times. They may go through future tough economic times. Are they too big to fail? If we give you the money, are they next in line? And who's after that? At what point does Starbucks get in line? Who doesn't get in line for the $700 billion? These are questions that have to be answered.
I have other concerns. Again, I understand the credit crunch, but what industry hasn't been impacted by the credit crunch? And at some point, when as a nation do we decide we're going to quit borrowing money from the Chinese and send the bill to my five-year-old son and my six-year-old daughter and all the children and grandchildren across America?
These are questions that I have. So you can clearly tell which way I'm leaning, but I hope I still have an open mind. It is not an empty mind, but it's an open mind. I still stand ready to be persuaded.
So the first question I would ask is, number one, where is the written plan? And if you have the written plan, are you willing to make a commitment to the United States Congress and the American taxpayer that if you get this money, you will not be back? I'll start with whoever cares to answer the question.
MR. WAGONER: I, prior to your being here, commented on that matter, that we, like all businesses, build our plans on key assumptions, the best ones we can come up with, starting with what's going to be the state of the economy, what's going to be the state of the credit market, what's going to be demand in the auto sector, for example.
So what we try to do is put together a pretty -- what we think is a conservative plan for the next year and figure out how much funding, based on the best guess we have today, would be required in view of the absence of the availability of traditional funding sources we've relied upon to get us through that time period. So, you know, it's through that process that we individually and then as a group come up with this amount of $25 billion.
Congressman, I'd like to guarantee you that that is, under every circumstance we imagine, enough money. I can't make that statement. I don't know. I know, based on a reasonable scenario, that I think it is enough.
REP. HENSARLING: Well, Mr. Wagoner, maybe I missed it, but what plan have you or are you willing to put on the desk of members of the United States Congress to convince us that at least there is a fighting chance that you will achieve sustainability? Where is that?
MR. WAGONER: We have developed a detailed plan, I think, the nature of it. Traditionally those kind of things are highly competitively sensitive, and SEC disclosure matters and things of that. But we will be glad, with the right kind of format, just to make sure we're aligned with SEC requirements and others, be glad to review that kind of data with the appropriate people.
REP. FRANK: The gentleman from --
MR. WAGONER: (We have ?) detailed plans, sir.
REP. FRANK: The gentleman from Texas, Mr. Green.
REP. AL GREEN (D-TX): Thank you, Mr. Chairman.
Mr. Chairman, in a metaphorical sense, I rise to speak on behalf of union workers. I speak on behalf of union workers because I understand the importance of unions and what unions have done for the quality of life and the standard of living in this country.
I understand that, but for unions, we might not have a 40-hour work week. But for unions, we might not have child labor laws. But for unions, we might not have the health care system that we have. But for unions, we might not have the pension programs that we have. But for unions, we might have wages that we relate to in terms that are unpleasant -- slave wages.
Unions have made a difference in the quality of life for all of us. And I rise on behalf of unions, because this debate has turned on whether or not unions have created a problem. Unions have worked to make life better, and in so doing, not only for their members, they've done it for the rest of us, who may not be affiliated or associated with a union.
I am of the opinion that unions of all kinds do us a service. This is why I support the Chamber of Commerce. It's a union. I support business people having the right to organize and do what's in the best interest of business. And by the way, they don't have to get the consent of workers to do it. They don't have to have a vote of the workers to unionize. And I support that.
I also support workers having the right to unionize without the consent of management. Freedom of assembly, freedom of association, is a very basic, fundamental right.
So I rise to speak on behalf of unions and working people. And I can find no fault in working people wanting to enjoy the quality of life that they create. Many people in this country work full-time and live below the poverty line. Many people in this country have multiple jobs and work many, many different places in the course of a week so that they can make ends meet. I think unions are a blessing, and we ought to be appreciative that we have the standard of living that unions have helped to create.
I will close with this. I am deeply saddened that we are now claiming -- some of us, not all -- that blue-collar workers are making too much. We have CEOs who make more in one week than some union workers make all year. There is a gap, a disparity, between the wages of the top earners and those at the bottom. That is continually widening. And that has to be closed.
I don't think we will close it without the help of unions. I ask that we, as we consider these issues, that we not put the blame on the working people who have helped to produce the quality of life that they would like to enjoy.
And I yield back the balance of my time.
REP. FRANK: I just want to announce, I think 2:30 is a reasonable time to release them. So I am going to cut this off; 2:30 will cover everybody who's in the room now. And I would say to my colleagues who aren't here, we will not miss you greatly if you don't join us at this late date, and we won't be able to accommodate you if you do, in fairness to the staff and the witnesses and the next panel.
Ms. Bachmann for seven minutes; an opening statement as well.
REP. MICHELE BACHMANN (R-MN): Mr. Chairman, thank you. And thank -- (audio break) --
REP. FRANK: Mr. McHenry for five minutes.
REP. PATRICK MCHENRY (R-NC): Thank you, Mr. Chairman.
Most large corporations that would be facing similar situations that the three of your companies are facing, they would be at work on a reorganization plan before they would file for bankruptcy. And this is what the discussion has been on the news. And it's been intimated here that if you don't get this money, then you'd file for bankruptcy.
So what are your -- what's the state of your preparations for bankruptcy?
MR. NARDELLI: Let me -- excuse me. I can speak for Chrysler.
As you know -- obviously as we're looking at this economic trough we have looked at all aspects of whether its prepackaged, whether its pre-negotiated, whether its bankruptcy. And every aspect of that sir, I can tell you is certainly more negative and more costly than what --
REP. MCHENRY: That's not my question. So you do have plans, yes?
MR. NARDELLI: I would say that we have gone through and have outside advisors to help us think through the various aspects should our liquidity become an issue.
REP. MCHENRY: All right. Mr. Wagoner.
MR. WAGONER: Because of our studies on the ramifications of bankruptcies on consumers we have concluded that we should put virtually all of our effort on any actions we can take to avoid bankruptcy because the consequences would be devastating, we think --
REP. MCHENRY: So you have no plans for how you go through that process -- either Chapter 7 or Chapter 11, you have no plans?
MR. WAGONER: It is my view, based on the research that I've done and our experts have done, that Chapter 11 would be unlikely outcome of a filing by one or more of the auto companies.
REP. MCHENRY: So therefore, you have studied it?
MR. WAGONER: We have -- our experts have knowledge in this area, yes, sir.
REP. MCHENRY: Okay. Mr. Mulally.
MR. MULALLY: Yes, we have studied that option. We believe it's not a viable option. So we have no plans for bankruptcy.
REP. MCHENRY: A far more positive comment from you. But -- so as a potential vote on whether or not to lend you money I believe it would be a fair assessment to say that you should turn over those plans on how you would enter bankruptcy and what your state of preparation is for Chapter 7 or Chapter 11. As somebody that you are seeking money from, I think I need to have that information in order to make a proper assessment whether or not you're credit worthy. Because the truth is, doom and gloom of Mr. Wagoner, he says, you know, this is not what -- it would be devastating it would go to Chapter 7 therefore, what you're telling me and what you've said in your testimony is that you would go into liquidation. Well that's a hell of a thing to ask, to tell somebody before you ask them for money. Therefore, you're telling me that inherently you're not credit worthy, therefore, we should loan you money. Explain this to me.
MR. WAGONER: I think you're significantly misinterpreting what I said --
REP. MCHENRY: Well you said you have plans for Chapter 7 --
MR. WAGONER: Let me be clear, I did not say that, in fact. I said that my expectation was, based on independent research which indicates that 80 percent of consumers would not buy a car from a company that was in bankruptcy. Whether one initially went in to 11 or not the likelihood would be you would end up liquidating the company, very simply, because you wouldn't have revenue. What we are doing with all of our actions, including our own $20 billion worth of actions since the beginning of this year through the end of next year to try to do everything humanly possible to stave off the risk of bankruptcy, is to avoid that dire consequence because we think our basic business model based on my opening comments will be quite viable under a normal circumstance --
REP. MCHENRY: Okay, reclaiming my time, I would submit to you that there are many industries in America that are watching you now and they're going to be next. We have retailers that employ more people than the Big Three combined. We have full-service restaurants that employ multiples of the automotive industry. We have gas stations even that employ more people than you representing your industry today. They're next. So you're encouraging them to come forward because of the tough economic times to ask for a bailout.
I would conclude by just commenting that in my region we lost textile and furniture industry jobs and there was no bailout. We employed tens of thousands, in fact, hundreds of thousands of people in this country without a bailout. That industry's gone. There was no help from the government.
I'd finally say to you that many in America today are watching the fact that you flew here on your jets -- and I'm not an opponent to private flight by any means -- but the fact that you flew in on your own private jets at tens of thousands of dollars of cost just for you to make your way to Washington as a bit arrogant, before you ask the taxpayers for money.
REP. FRANK: The gentleman from Missouri.
REP. EMANUEL CLEAVER (D-MO): Thank you, Mr. Chairman. I have six questions, I think we can get through them if you cooperate with me, with very concise answers. The first one, why 25 billion (dollars)? I mean, why not 26 (billion dollars)?
MR. NARDELLI: From our standpoint, as I said earlier, we looked at the balance of this year. We looked at our cash position. We assumed our exit rate this year would be the industry rate next year.
REP. CLEAVER: Okay, thank you. So are we going to divide three into 25 (billion dollars)?
MR. NARDELLI: No we are asking for 7 billion (dollars).
REP. CLEAVER: So we're going to do --
MR. NARDELLI: Chrysler.
REP. CLEAVER: No, no, Chrysler, General Motors, Ford -- 7 billion (dollars) a piece that's 21 (billion dollars).
MR. NARDELLI: No sir, we're asking -- Chrysler is asking for 7 billion (dollars).
REP. CLEAVER: Okay what is General Motors --
MR. WAGONER: We had indicated against the suggested package of 25 (billion dollars) that proportionate to our relative market share would be 10 (billion dollars) to 12 billion (dollars) for GM.
REP. CLEAVER: Ford? Sir?
MR. MULALLY: It would be the rest based on the market share calculation.
REP. CLEAVER: (Laughs.) This is a -- I mean we're just spending $25 billion loosely. I mean this is loosey-goosey -- whatever's left, I'll take. Okay, thank you.
Now, secondly, the question that is somewhat troublesome is what Jerry York, former GM board member said this morning on one of the news talk shows, he says that Ford has more money in their coffers as a result of an investment in the market they made a few years ago, than GM or Chrysler. And he goes on to say that GM turned down a deal with Nissan a few years ago that would've arguably given them a cash flow that would not have made it necessary for you to be here. And he said Chrysler seems to be in difficulty whether they get money in a rescue package or not. Any of you have a short response to what Mr. York said?
MR. WAGONER: I can speak in the case of GM that it's an inaccurate, completely inaccurate conclusion.
MR. NARDELLI: I can say not in -- relative to his comments Chrysler, I think, has made pretty public that we are looking for alliances, partnerships, opportunities to get further synergies across the auto industry, certainly here in the U.S. or on a global basis. So we are totally open to any recommendations or thoughts that would result in a more efficient, more viable and more productive auto industry, whether it's consolidation in technology or in manufacturing or in purchasing et cetera.
MR. MULALLY: His summary was very accurate. We went to the markets early and aggressively to be able to fund our transformation plan. The progress we've made on the product and on the productivity has gotten us in the position today that I think we can make it through this recession if it doesn't get worse. Or absolutely with our partners in the industry, that if this gets worse we would like to have this vehicle in place so that we can save and be part of the solution of the economy recovery going forth.
REP. CLEAVER: Okay. GMAC receives a part of this money although they are a non-depository institution -- I mean, it's a lending institution. And I was at a dealership two weeks ago and, it's a GM dealership, and the owner told me that GMAC had sent out a letter to all of the dealers telling them not to even send them any potential customers whose credit rating was below 700. Now if we're putting more money into the market to, we're trying thaw a frozen credit market, what in the world is going on if we're putting money into GMAC and they're still not making loans.
MR. WAGONER: Just to be clear, we own 49 percent GMAC so don't have control at this point.
REP. CLEAVER: Okay. But you ought to be really angry with them or some -- I mean, whether you control it or not, I mean, the point is they're not making loans.
MR. WAGONER: Yeah, the issue is they have just as we have been significantly unable to raise credit. The availability of credit to them in the markets has been dramatically reduced. So unfortunately in order to manage their cash flow to be able to fund wholesale at dealers and to be able to fund some customers, they've had to severely tighten their credit conditions. They would like nothing better than to get broader access to credit, which they're working on, in this case to try to perhaps become a bank holding company to expand their deposit base to enable them to provide more credit. So they would like to do nothing better, if they can get that credit, than to be more proactive in the marketplace. We are working with other lenders who have little more availability to see if they can help us, help our customers out.
REP. FRANK: The gentlewoman from Minnesota is recognized for seven minutes, combining an opening statement.
REP. BACHMANN: Mr. Chairman, thank you. Once again our committee has convened to hear the pleas of yet one more industry to ask the taxpayers for a bailout. This time from our great industry of the automakers, the Big Three, Ford, GM and Chrysler.
My family and I currently own a GM and a Ford and one of our favorite cars was a Chrysler minivan. So it's with great love for your vehicles that we want to see you succeed.
But it's also appropriate that we, again, total the taxpayers current bailout tab -- 29 billion (dollars) for Bear Stearns this year; 200 billion (dollars) for Freddie and Fannie; 300 billion (dollars) to expand the Federal Housing Administration; $150 billion for AIG -- who knows where that will end; 700 billion (dollars) for the Paulson plan, plus another 110 billion (dollars) in sweeteners to pass that plan; then you have to add on the original bailout bill, which would be the stimulus package that was 168 billion (dollars) earlier this year; and then we had also the deficit spending of this Congress, in the 110th,of 455 billion (dollars). That's a whopping $2 trillion, and recognize that only 40 percent of Americans even pay taxes.
Secretary Paulson and Chairman Bernanke chose to start this bailout mania over eight months ago. But since then the American people have been told over and over that the woes of our financial markets will subside -- they haven't. Yet after bailing out bad decisionmakers time and again to the tune of over $2 trillion, the financial markets seem to remain in even more turmoil than before. What we're asking now is for the American taxpayer, who was never a part of these initial contracts, to solve the spiraling problem that's facing the City of Detroit.
We share in the grief that Detroit has had to deal with and, in fact, the entire state of Michigan. It's not pretty. No one would want the problems that you have to deal with. But we are looking at other problems as well. And the American people suspect that there are long term management issues at these companies and productivity problems as well. I don't know that we want government bureaucrats -- and certainly I wonder if we want to have members of Congress -- giving you orders for how to run your companies.
It's been reported for years that CEOs at Ford, GM and Chrysler have not made the necessary changes to rein in labor costs and have not downsized facilities to ensure the companies' long term viability. Again, I don't want to see Congress second-guessing your business decisions, but these are concerns that the American people have. In fact, the Big Three are paying on average $30 more per hour than your competitors -- that's what we're told -- and that you support a large number of retirees under what are now considered outdated contracts. GM, for instance we're told, actually supports more retirees than they support current workers.
The auto industry has also been criticized for failing to invest in enough competitive innovative products that American consumers want to buy. And what we're also told is that the Big Three has failed to look to the future and take steps to prepare for the rise in gas prices -- although I don't know how anyone could do that. Taxpayers are again being asked to throw their hard-earned money behind a short term unproductive investment, which may perhaps only prolong your companies' failures at a cost that could even be later down the road.
I've received no assurances to date that this money will not simply go down a rabbit hole -- none of us have in this committee -- plus much of the urgency that would force the Big Three to make tougher structuring choices would be reduced if the federal money is made available to you. That's an interesting conundrum. Like AIG, it's easy to predict that you will be back at the taxpayers' trough in no time at the rate that money is being burned in Detroit.
Some say the bailout is needed under the premise that consumers just can't get access to car loans due to the broader credit crunch and that this is causing your companies to suffer. But there are other automakers that have remained profitable even through these tough times. Toyota, Honda, Nissan -- they're Japanese-owned, but they operate huge manufacturing firms here in the United States in Kentucky, Tennessee and Ohio. These companies also employ thousands of American workers who are paying their taxes and struggling to put food on their families' tables. When we take money from this group of taxpayers to save the three ailing companies before us, it's not only unproductive, it's just plain wrong. This Congress has already spent $2 trillion in bailouts this year, and if we move forward with this proposal I don't know where or when this bailout bonanza will end.
I think there's other alternatives that we can consider. For instance, if the Big Three would restructure and reorganize -- under bankruptcy of course -- it's possible that you could be saved without a taxpayer bailout and that you could fix your long term management and labor problems. If you file for Chapter 11 bankruptcy, it doesn't mean that your company has to go belly-up and that all jobs will be lost, it would mean that the company actually might have the ability to make structural changes to keep itself afloat without threat of outside losses and through a comprehensive payment plan. The taxpayers just want to know.
My question that I would have, Mr. Chairman, would be for Mr. Wagoner from GM and it would be two things: one, I've noticed today you wrote an editorial in The Wall Street Journal on why GM deserves support. And you said that we know we can't just slash our way to prosperity. And my question for you would be this: isn't that just a Draconian way of stating the realities of supply and demand marketplace -- that your company needs to adjust in good times and in bad if you're smart and looking for the future? Shouldn't your companies be treated the same as other separate companies who have to make those vagaries of life decisions? And also in your testimony, sir, you reference that what exposes us to failure now is the global financial crisis. Well, if the global financial crisis is the sole cause of your current troubles then why aren't we seeing the other car manufacturers in other countries reaching out to their respective governments with similar requests for cash? And, similarly, why aren't we seeing Toyota, Honda and Nissan here at the table today?
REP. FRANK: There's seven seconds left for the response.
MR. WAGONER: Many other countries are discussing with their automakers funding support -- would be the first answer. It's happening in countries all around the world that are being affected. And virtually every manufacturer in the world has slashed their earnings forecasting, cash generation forecast, in view of the plummeting demand in the auto sector globally. Frankly we came into this with a very weak balance sheet because we had over the period of 75 years accumulated a huge retiree and health care benefit that was part of the policy of this country at that time -- not the policy of most of the countries that we compete against; by the way, they're paid publicly. And so we put $105 billion over the last 15 years to fund that. And so our balance sheet is weaker than it would have been. People say, well why didn't you stiff the retirees? We didn't think it was the right thing to do. We felt we had an obligation.
REP. FRANK: The gentleman from Colorado.
REP. ED PERLMUTTER (D-CO): Thanks, Mr. Chair. And gentlemen thank you for your time today. You've had a lot of questions, you've heard a lot of comments and we appreciate your perseverance.
First, there are a couple of places where I differ with the chairman. One, just as full disclosure, I'm a Chapter 11 lawyer so I don't see that as, you know, the absolute end of the world; that there are plenty of ways through an 11 through pre-packaged -- as you said, Mr. Nardelli -- kinds of approaches to deal with this. The second thing is I do see a difference between manufacturing and underwriting or supporting the manufacturing industry as opposed to trying to keep the banking industry in some kind of shape that would facilitate our economy. So I do look at this a little bit differently.
These are my questions. But I did want to say, and I do want to applaud, all three companies for really having moved into this century with you votes and your escapes and all your different cars that are much more fuel efficient. And I know you've put a lot of money into that R&D and that development. So thank you. The first question, and this goes to you, Mr. Wagoner: what was in the third quarter of last year -- make money or lose money, 2007, and what was it?
MR. WAGONER: Third quarter of 2007 I don't remember the specific quarters but I believe that's the quarter where we had to reverse the deferred tax assets. So I think we had a significant loss is my recollection.
REP. PERLMUTTER: Okay what about the third quarter of this year?
MR. WAGONER: We also recorded a loss.
REP. PERLMUTTER: How big?
MR. WAGONER: The total was, as I recall, about $2.9 billion net- net.
REP. PERLMUTTER: Okay, what's your forecast for this fourth quarter?
MR. WAGONER: We don't provide financial guidance in earnings.
REP. PERLMUTTER: I mean, this is an interesting way to negotiate a loan, wouldn't you say? I mean -- you're asking us to be your lender and you're asking The United States of America to be your lender. I'm just saying do you have a forecast based on -- well let me ask you this. How do your sales in November compare to your sales in October?
MR. WAGONER: I would say it looks like at this point industry sales are running about the same level.
REP. PERLMUTTER: So still down steeply -- 50 percent or -- ?
Mr. Wagoner: Well ours aren't' down quite as much. We had a strong prior September so we had a little weaker October. But we're not down quite that much but we think the industry is going to be still running in the 11-ish range, maybe a little less, maybe a little more; so very weak by any standards.
REP. PERLMUTTER: Mr. Nardelli, what was your quarter like this past third quarter?
MR. NARDELLI: We lost money in the third quarter.
REP. PERLMUTTER: How much?
MR. NARDELLI: We burned about three billion dollars in cash.
REP. PERLMUTTER: What's your break even on a monthly basis?
MR. NARDELLI: On a monthly basis relative to --
REP. PERLMUTTER: What are your operating expenses? How much do you got to do to pay your salaries, no bonuses, everybody's get paid?
MR. NARDELLI: We have about a 4 (billion dollar) to $5 billion obligation.
REP. PERLMUTTER: So 4 (billion dollars) to 5 (billion dollars)per month.
MR. NARDELLI: Yes, sir.
REP. PERLMUTTER: And Mr. Wagoner, I meant to ask you that.
MR. WAGONER: Well our total expenses in let's say North America maybe in a normal industry would run around $80 billion so divide that by 12 would be, you 6 (billion dollars), maybe ($)7 billion would be a rough guess.
REP. PERLMUTTER: And Mr. Malally, how'd you do last quarter?
MR. MALALLY: We lost ($)4 billion.
REP. PERLMUTTER: Okay. And what's your monthly net?
MR. MALALLY: In the third quarter we had a run rate of seven point seven, but we think that going forward, it'll be substantially less than that because we bought down the production of a number of our vehicles, so it was kind of an extra ordinary corner.
REP. PERLMUTTER: Okay. I think somebody mentioned and it may have been you, Mr. Wagoner, that taking a conservative look going forward you need to sell 11,700,000 units or to next year is something you're projecting or you --
MR. WAGONER: That was an industry forecast, U.S. industry forecast, light vehicles, yes.
REP. PERLMUTTER: Okay.
MR. WAGONER: Hope it's better than that but --
REP. PERLMUTTER: Okay. Because what I saw or at least as of October the annualized rate was like 10 million something or another units.
MR. WAGONER: It was 10.8 in October, right, which is significantly the worst month of the year but obviously very concerning to us.
REP. PERLMUTTER: If there were a bankruptcy, and this goes to you, Mr. Gettelfinger, one of the things I've been thinking, do we put the money in up front and allow things to go forward and hope that the economy improves and we don't have to come back, you don't have to come back for more money, or do you take a Chapter 11, set the legacy benefits on the side and then we underwrite that through PBGC?
MR. GETTELFINGER: I think if there's a Chapter 11, first of all one of the companies it will drag at least one other with them, if not all of them. And I do not believe Chapter 11 is where it will end, it will go to liquidation. I firmly believe that. I would not be sitting here with these executives today because again I want to stress we brought in Steven Girtsge (ph) who is or was the top auto analyst in this country for 17 years. He's now at Centerbridge. He had worked at General Motors at one time and we asked him to come in and assist us and that's why I'm here today because of the urgency of this crisis that we're in. And again I firmly believe Chapter 11 leads to Chapter 7 which is liquidation.
REP. PERLMUTTER: Thank you.
REP. FRANK: The gentleman from Illinois.
REP. : Thank you, Mr. Chairman.
REP. FRANK: Five minutes.
REP. : Can you tell me gentlemen the three of you what the terms of the loan are that you're suggesting? Is it into perpetuity, is there a date certain and is it with interest, without interest, just sort of in a nutshell, maybe just choose one among you?
MR. : We had talked about an interest bearing loan, five percent for the first four years I think and then at five percent for the first five years and then nine percent after that. And you know, warrants, things of that sort, additional compensation opportunities for shareholders if we're, tax payers if we're successful.
REP. : Thank you.
What is it that animates the hope in you that sales are going to be robust enough to put you in a position to repay the loan?
MR. : Well I think things are difficult today. It is the lowest level that the industry has run in the United States on a per capita sales per capita basis in over 50 years and post World War II period, so I think it's fair to say this is an extraordinarily difficult period. So what we've tried to do is say well let's assume we don't stay at the bottom forever but assume after a year or so we begin to see some gradual improvements. So we've assumed a rather slow improvement from let's say roughly 12 million units, 13, 14. The industry was running about 17 million units, 17 to 18 for six or seven years in a row, we think that was actually probably in retrospect higher than a normal trend because of the low energy costs and the cheap credit. So we've assumed the industry will gradually return and our, we believe we can generate positive cash flow and be a profitable business under an assumption.
REP. : Okay. I get it. So you're assuming that we're essentially at the bottom of that, that there is a better --
MR. : Yeah. We expect to stay there for awhile but yes.
MR. : We're taking I think within Chrysler a more conservative approach. We took out $2.2 billion of fixed costs to change our break even point. We're planning for a much flatter, more of a bathtub curve relative to the economy coming back and as I said before, we're not only trying to restructure ourselves for a leaner period, but we're certainly open to any kind of collaboration, consolidation, sharing facility, sharing synergy, to make sure we do get through this economic trough.
REP. : You know one of the things that you essentially the three of you open yourselves up to is incredible public scrutiny of yourselves when you're here, you get the joke, right? I mean, it's you're here and it's not a pleasant experience for you, but it's not a pleasant experience for a member of Congress to contemplate authorizing a loan for people who are highly compensated. So it's my understanding, and I wasn't here earlier, but it's my understanding that Mr. Nardelli has made a commitment that he's willing to essentially walk away from compensation for a year or something.
And that's a demagogue but I just want to have really clearly what you're offering at a personal level. And just as an aside the symbolism of the private jets is difficult, you know, you're talking to people that are schlepping back and forth, going through all the drama in the airports every day along with the American public. My suggestion is that those types of symbolic things, they really matter and they really set a tone. So Mr. Wagoner, could you tell us what if anything you personally are willing to do in terms of your compensation --
MR. WAGONER: Yeah, I'm willing to continue to do what I've been doing. I've had no cash bonuses three of the last four years, basically I have a significant amount of General Motors stock including a lot which I've bought myself which basically is valueless. I voluntarily reduced my own salary a few years ago, 50 percent, and so in the spirit of sacrifice, I will be glad to participate in that as well.
REP. : Okay. Are you willing to go the other 50 down to a dollar?
MR. WAGONER: I don't have a position on that today.
REP. : Okay. Mr. Mulally?
MR. MULALLY: We have eliminated all of our bonuses also and also any salary increases. We think that's absolutely appropriate, plus on the other assets, on all of our assets, we have reduced and consolidated all of our assets on the travel, too.
REP. : Okay. Are you willing to go down to the dollar?
MR. MULALLY: I think it's, I understand your point about the symbol and clearly the intent of what you're asking, but I think not just for me but we are trying to field a skilled and motivated team, also. And it's just important that as we do this plan that we have the team that we need. So I understand the intent, but I think where we are is okay.
REP. : Okay. And just so I'm clear, I'm not asking about the team, I'm just asking about you.
MR. MULALLY: Understand.
REP. : And the answer's no?
MR. MULALLY: I think I'm okay where I am.
REP. : Okay. And Mr. -- time's up? Okay. Thank you.
REP. FRANK: The gentleman from Indiana. We have three more, gentlemen.
REP. : Thank you, Mr. Chairman.
Sometimes the toughest time to see that there's headway being made is in the middle of a storm. And we've had all the sources, or many of the sources of credit collapse for you, extraordinary difficulties from end to end, but I don't want the American people to think that you haven't been working on this. And that's the point that I think has been made is that in fact when we've heard everybody say, you know, why are we not cost competitive? And it's been said time after time that was addressed in the last contract, including the retiree benefits which have been mentioned by many. And my question to the folks from Chrysler who came to my office the other day because they're such a big employer in my district was, well how are you going to be cost competitive with Honda and Toyota? And that's what Americans want to know. And the fact is that this contract should do that.
Additionally what you hear so many times is why don't GM and Chrysler and Ford make fuel efficient vehicles? I think that's been laid out. So what I am hopeful and what these things have indicated is that we're a lot closer toward the other side of the shore, toward completion of this, than we are from the start. And so we are in extraordinarily stormy waters right now, but I am hopeful that as the volume picks up, that we're in a position to succeed. Because in my state of Indiana and in my Congressional district, we have 15,000 people just in my district who work in automotive related products. It would be an extraordinary calamity for this country not only my state but this country to see our manufacturing base be destroyed. And when we look at the TARP funds of $700 billion, $700 billion, what you're asking for which is hard working tax payer funds, this is four percent of that. And I think our manufacturing base, which has been the heart and soul of much of this country, is worth four percent of what we have allocated to get through difficult economic times.
And so things have been done, work has been made to create this progress and I guess the question I'd ask you is $25 billion has been allocated already under Section 136.
And so things have been done; work has been made to create this progress.
And I guess the question I'd ask you is $25 billion has been allocated already, under Section 136. If those funds were used by you now for these purposes, to get to January or February -- if an additional 25 billion (dollars) were allocated in January or February for the 136 purposes, in effect, a swap -- is that something that can help you get there and continue in operations to achieve success?
There's 25 billion (dollars) in the Section 136 funds, the retooling funds.
MR. WAGONER (?): Yes, sir.
REP. : If you use that now for the operational purposes, if we gave authority to do that, the things we wanted to do in retooling and others, could that wait till February? In effect, a swap of the funds?
MR. WAGONER (?): Well, the legislation as written for 136 doesn't permit that --
REP. : Well, that's what I'm saying. If an adjustment was made, is that the kind of thing that could work? You mentioned before it's interchangeable to you. Is that across the board?
MR. WAGONER (?): I think it could work, yes.
REP. : Okay.
MR. WAGONER (?): A lot of the spending that we'll do under 136, we're sort of starting right now. So it's not a huge amount of money that we would otherwise be spending on 136 over that relatively short time frame.
REP. : Okay. And then the next thing is, in my district -- and we're really proud to make Chrysler transmissions in our district, and they have worked hard to meet the China prices, Mr. Gettelfinger and Mr. Nardelli knows.
But we sure don't want to see these funds used and then a month from now hear that there's been a merger, that these funds were, in effect, used to help merge two of the three companies.
Can you give us an assurance that's not on the horizon?
MR. WAGONER (?): Well, I can tell you what we've said, when we had a chance to talk to the speaker and her leadership group recently, was that because of the urgency in the funding crisis, we've sort of set aside any consideration of that.
And as we looked at an opportunity to merge, without naming potentially with who, we identified that there were significant potential cost savings that could conceivably make the business more viable.
And so I guess what I would say is we -- if we think in the future it makes sense to do it, we would be glad to come back and review the rationale with any -- oversight board or whatever, and let them provide counsel as to whether that's acceptable or not.
REP. : Mr. Nardelli?
MR. NARDELLI: Yes, sir. I would say that the 25 billion (dollars) that we're asking for is to meet the immediacy of liquidity needs. I would hope that this Committee and Congress certainly wouldn't restrict us from looking at opportunities to make our companies and this industry even more competitive by sharing resources, sharing technologies, sharing our purchasing power in a collective way.
So I can assure you this is not funds for restructuring and mergers, but I would not want to misrepresent that those are certainly opportunities we should have an open mind to, to strengthen the auto industry.
REP. : But as of right now, your plans are to move forward as individual companies and achieve success as such?
MR. NARDELLI: We are doing everything humanly possible to survive this current period.
REP. KANJORSKI: Thank you.
Ms. Speier, you have five minutes.
REP. JACKIE SPEIER (D-CA): Thank you, Mr. Chairman.
I want to thank you all for being here and for weathering a almost three-and-a-half-hour hearing. And I've sat through most of it. And I'm going to just give you what I think the public is seeing right now.
The public is seeing that basically Mr. Wagoner, GM is on the ropes. Mr. Nardelli, Chrysler is on the ropes. Mr. Mulally, you somehow have made it work.
And for those of us here as members of Congress now, we are -- for the twisted set of circumstances, have become the people's bank of the United States. And you're asking us as bankers to assess your viability as credit risks.
Now, let me just share with you a couple of things that have been said about you. This is from Deutsche Bank, and it's about GM: A government bailout not likely to help shares. Even if GM succeeds in averting a bankruptcy, we believe that the company's future path is likely to be bankruptcy-like. We believe that the U.S. may ultimately need to provide GM with at least 10 billion (dollars) in loans to keep the company afloat through 2009-10, and potentially as much as 25 billion (dollars) to fund GM's cash burn and restructuring.
And then JPMorgan says the following: Absent liability reform, the GM bailout alone could easily reach $30 billion. D.C. should not be fooled into believing GM simply needs enough to get to 2010. Its 2010 operating cash burn will be 5 (billion dollars) to 7 billion (dollars), by our estimates. Also, the GM bailout will be as much as 30 billion (dollars), absent liability reform.
So my questions to you are the following: The people of this country need to get something out of this. I'm not absolutely convinced we should give it to you, but if we do give it to you, we are a bank and you need to think of us as a bank, and we need to have some level of security in knowing that this loan is going to be paid back.
This is -- you reference it as a bridge loan. If you read some of the investment banks and what they're saying, it's more like a life raft.
So my question to you is the following: In 2007, the Congress passed new CAFE standards. They were watered down because of what was going on in Detroit, for the most part. I have -- I, for one, want to see those standards met by 2015.
And my question to you is if we give you this loan, will you make a commitment to meet those standards by 2015?
MR. WAGONER: To be clear, you're talking about the -- moving the 2020 standards to 2015? Yeah. I -- to be honest, I'd love to be able to tell you yes. But I have to be honest in saying our teams are working right now to meet the standards as they're laid out. And frankly, they're requiring all of our technologies, massive amounts of retooling.
And I think at this point, we could commit that we are going to do our best to meet them as stated. It'd be very difficult, in my view, to advance them a full five years.
REP. SPEIER: Mr. Nardelli?
MR. NARDELLI: I would say, in a similar fashion, the only thing that would allow us to advance those is a major breakthrough, as we're trying to do right now with our electric vehicles.
And what we're trying to do is put that technology into existing platforms so that we aren't spending money for new top hats, but we're able to put our precious few dollars into the technology.
If that's successful, obviously, we're going to continue to go as fast as we can in retrofitting what we have. We also have the hybrid that's coming out in a truck. We have the new diesel coming out in our truck. So we're doing everything we can.
We aren't pacing ourselves to the 2020 guidelines. Obviously, it would be in our best interest to produce the most fuel-efficient, most environmentally friendly vehicle, assuming the consumer is going to buy them. We'd be foolish not to do it.
REP. SPEIER: I understand that. What I'm saying to you is if we linked the 2015 date to this bailout, would you accept the money?
MR. NARDELLI: I really don't know that -- again, sitting here today, I can tell you we are open. We'll look at it, and we'd be happy to come back and give you our point of view on that, our technical capability of doing that.
REP. SPEIER: Thank you.
MR. MULALLY: Well, as a technologist, I'd like to offer you a thought on that. I thought that what we did together on the 2007 Energy Independence and Security Act was phenomenal work that included all the industry -- not just GM and Chrysler and Ford, but also Toyota and Honda, the entire industry.
And where we ended up was a very, very aggressive plan to use every bit of enabling technology to meet the standards that we committed to. I don't think it's technically possible to move that ahead.
REP. FRANK: The gentleman from Massachusetts will be the final questioner.
REP. MICHAEL CAPUANO (D-MA) (?): Thank you, Mr. Chairman.
Gentlemen, thank you for doing this, but I figure for three and a half hours, 25 billion's (dollars) not a bad deal. (Laughter.)
Gentlemen, I am inclined to want to help, but I will tell you I don't want to help for almost any of the reasons I've heard you say. I'm really not interested in which companies survive. As far as I'm -- the last car made in my town was an Edsel, so -- it didn't go over too well that time -- and I'm not really worried about that.
I'm worried about one thing, and that's the gentleman at the end. I'm worried about jobs. American jobs. And up until now, I really haven't heard any of the Big Three talk about jobs in America.
Look, I'm all for international stuff and all -- I love all that stuff. But the truth is, if there aren't things being built in America, I'm not really terribly interested in helping.
It is interesting to me that you're being criticized by the very people that we just gave $700 billion to. I kind of figure that's a little strange. Why don't they open up their wallets and help you out, if they're so smart? If they're so caring about society?
But I want to tell you very clearly the people on Wall Street that we just gave the money to, I did it. I voted for it -- hesitatingly, like most of us -- because we all know we have a problem.
We know we have a problem in the auto industry. And it's really not (for the ?) the industry. Again, it's the jobs that you represent that I'm interested in. I understand that. I want to save those jobs.
I'm not interested in a race to the bottom by taking wages away. Anybody who hears that today or any other day that the problem is that we pay our workers too much, well, then my answer's been why don't they individually leave the middle class? Because as far as I'm concerned, the auto industry was one of the leaders in creating the middle class, by negotiating good wages. I'm not interested in a race to the bottom.
I am very interested in my constituents who basically do not trust you. They really don't trust me all that much, but they really don't trust you. (Scattered laughter.) And they don't trust you for lots of different reasons.
I've only been here 10 years, and in that 10 years, all you did, the industry -- and that includes the union as well -- you fought me on CAFE standards.
You said no, we can't do it. Yet you just said we need more fuel-efficient vehicles; we want to sell them. Well, if you had listened to us, you would have had them.
All you did was ask us for tax cuts for gas-guzzlers. For all intents and purposes, you were giving away vehicles that got three miles a gallon because we stupidly -- not this side; mostly the other side of the aisle -- allowed tax incentives that gave away trucks for nothing. And you didn't say a word. You said thank you, shh, quiet, don't talk about it. You should have been here.
I need some assurances. My constituents need some assurances that you're not just going to blow this again; that you really did get the message. And the truth is, all the things you've talked about today so far of what you cut, we're not sure we trust you. I'm not sure it really matters all that much.
My fear is that you're going to take this money and continue the same stupid decisions you've made for 25 years. That may not be you; it may be your predecessors. I don't know who it is. I don't care. It's the industry.
I want to want to buy an American-made vehicle again. I want that. I don't trust, necessarily, that you will provide that. I'm afraid we're going to do this. It'll be a short-term bailout, and you didn't get the message.
Give us the cars that we want that other companies have been able to give us. If you can do that, maybe some people in the Senate will actually listen to you. I think over here you'll probably get enough people that want to help.
But damn it, I don't want to help again and get it stuffed back in our ear at home that you took the money and you blew it. How can you reassure me -- and more importantly, my constituents -- that you won't do it again? That you really did, honest to God, this time you got the message?
Go right ahead. Any one of you. Just jump right in.
MR. MULALLY: Well -- (chuckles) -- I personally -- I couldn't be more aligned with you. I've dedicated my professional life to fuel efficiency in airplane design, for 37 years. And the most compelling thing to me, when I was invited by Bill Ford and the Ford Motor Company to join Ford to help, was a vision of sustainability in fuel efficiency, in high quality cars based on safety, to get people where they wanted to go safely and efficiently.
And I also was attracted by an American icon and a global icon. And it's about America. It's about jobs in America. I can remember when we sat down in the negotiations with Ron, and I can remember the day, and we agreed that we were going to work together to do whatever it took to increase our competitiveness so that we could make cars of all sizes -- small, medium and large -- the most fuel-efficient, the highest quality, the safest vehicles, all sizes, in the United States, for the Americans. An agreement that we did absolutely is going to deliver on that promise.
And as we talked about earlier, we put that plan in place. We have now probably the best lineup of small- and medium-size vehicles to match our wonderful SUVs and trucks that we had before. But we have a terrific balanced portfolio. They're competitive with the best in the world. And we're doing it with the productivity to be competitive.
So I am very, very positive about the future of the automobile industry. The fact that we're in the worst downturn that we've ever been in as far as the economy and the credit is something we're all dealing with.
But when it comes to us having a vision of a viable and exciting and a sustainable automobile industry, I think you can look at our past performance and say that we're absolutely going to continue to deliver that vision.
REP. FRANK: The hearing is ready to move on to the next phase. The witnesses are excused, and we will call up the next panel.
Let's move out quickly, please. Please let the witnesses move out quickly. You can be nice outside. (Strikes gavel.) I want people to -- let's move out quickly so the next panel can sit down. We've been here long enough. (Strikes gavel.) Let's clear the room, if you're going to leave.
I cannot think of any reason why people should be standing still right now. They should be either walking towards the door or sitting in a chair.
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