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Big Three CEOs on Capitol Hill; Bailing Out the Auto Industry

Aired December 04, 2008 - 10:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

HEIDI COLLINS, CNN ANCHOR: Live this hour now on Capitol Hill, Big Three CEOs come back with a plan. Their cost for a bailout more than before. Will Congress be buying with your money? The hearings right here. You see those live pictures.
It is Thursday, December 4th, I'm Heidi Collins. And you are in the CNN NEWSROOM.

The Big Three bailout. Automakers are back on Capitol Hill this hour looking for taxpayer loans. The price tag has gone up. Today they're asking for $34 billion instead of 25. Ford, Chrysler and G.M. have submitted their survival plans. And unions are offering some money-saving concessions now. Now among them, contract changes that could save billions of dollars. The car companies also offering big cuts in executive pay and bonuses. Nonetheless, skeptical lawmakers appear to be in no big hurry to write a massive check.

The Big Three bosses trying to avoid those potholes of their last trip to Capitol Hill. You may remember, lawmakers scolded them for flying their corporate jets to issue their pleas for those loans. Well, this time you see a photo there, all three CEOs drove to a hearing using their company's hybrid vehicles. Good idea.

This is General Motors as you saw a minute ago there, CEO Rick Wagoner on the road. Just minutes ago Wagoner did step out from the hybrid and talk to reporters as he went into the building on Capitol Hill.

(BEGIN VIDEO CLIP)

RICK WAGONER, CEO, GENERAL MOTORS: The auto industry is an important one for the economy and obviously it's under tremendous pressure in part because of the global financial crisis. So we put forth a plan which we think adjusts our business to a smaller market, but I think it's very important for the U.S. to have a home team in this global auto industry. We're going to be changing technologies like the one you see here. And it would be a shame for the U.S. to fall out of that race. Because basically the technology development is almost all cases done in the market where the company is domiciled.

And so I think having a company like G.M. which has tremendous technical depth is the one that is going to be very important, huge job creation opportunities, goes really across the entire country. So we're sorry to be asking for this support. We wish the market conditions were better. They're not. So this is what we need to do.

(END VIDEO CLIP) COLLINS: Wagoner says the survival plan submitted by the Big Three should assure lawmakers that the taxpayer loan will be repaid.

CNN's money team as you would imagine covering all the angles today. In New York we have Christine Romans. Brooke Baldwin is just outside Detroit and Brianna Keilar is on Capitol Hill.

Let's go ahead and begin with you. Brianna, good morning once again.

BRIANNA KEILAR, CNN CORRESPONDENT: Good morning, Heidi.

We're expecting there to be a fair bit of grovelling going on today as these chiefs of the automakers coming with hat in hand to Congress, really trying to make what could be one of their final cases for this. We're going to be hearing from them, talking about these proposals they brought forth on Tuesday for changes they're willing to make to get these bailout loans.

We'll also going to be hearing from the president of the United Auto Workers union talking about the concessions they're willing to make in order to help automakers cut down on costs and we'll be hearing from auto suppliers as well as retailers which include you know so many employees who rely obviously on the industry of the automakers.

You know something that struck me as I was outside watching Rick Wagoner, G.M. CEO come here to Capitol Hill, was a question he was asked, something he was asked twice actually, what happens if this doesn't go through? What happens if you can't get Congress to help you out?

COLLINS: Right.

KEILAR: What is your Plan B? That is the question, right? And he twice basically would not answer the question and said we're concentrating on plan a. And at this point, coming from lawmakers and also from the CEOs, we're not really hearing a lot of talk about what Plan B is at this point.

KEILAR: Yes, I mean it makes you wonder if they have one. I mean have to be honest, I understand why he wouldn't want to talk about that publicly. But it does make you wonder if there is any Plan B whatsoever. All right. Brianna Keilar on Capitol Hill for us this morning.

So bailout or bust? The automakers say their very survival depends on these taxpayer loans. It's one of many blows to the nation's sputtering economy. CNN's Christine Romans is in New York for us this morning to talk a little bit more about it.

So Christine, I was listening moments ago here as I'm sure you are too to Rick Wagoner and when he talked about the markets. You know we're sorry that we're asking for this money. We wish we weren't in this situation. We wish the markets weren't the way that they were. Is he blaming this whole thing on the markets? CHRISTINE ROMANS, CNN BUSINESS CORRESPONDENT: Well he can't. He just can't. I don't think he was, but he certainly can't. Because we know that this is an industry that has been in trouble for some time.

COLLINS: Right.

ROMANS: It's been facing more and more competition from foreign automakers. It's been facing all kinds of issues in terms of declining sales and declining market share for American cars, for sales in this country. So you can't say that it's just this financial crisis. Clearly the financial crisis, though, comes at a horrible time for this industry. I mean, people are having a terrible time getting credit for just about anything.

This is not the time when you're watching all these job losses that consumers are walking into their local car dealer and saying, I think I'm going to get a new car or truck for next year. People just aren't doing that. So you know that's the issue here. When you look at the auto sales last month, they were at a 26-year low.

I mean think of it. A 26-year low for automakers. Things have really changed a lot in the past 26 years. We know there are a lot of brands. These American companies have so many name plates there. They sort of scattered out. I mean G.M. in particular says it's going to focus on its core brands as part of the viability strategy. Chevy, Cadillac, Buick, GMC is going to pare down sort of the Pontiac line. It may have to eliminate or sell Saturn, Saab, Hummers.

It's going to close some more factories. There will be more job losses. It's asking for $12 billion in total loans. But then it may also need a $6 billion line of credit.

So let's be clear we're talking about bailout. When we say bailout, and I think most Americans know that, it's not free money for any of these industries. These are low-interest loans. But you know just by having to ask the taxpayer for these low-interest loans, some people get it, some industries don't get it. I'm certainly not getting one. So that's what makes people just so -- gosh just so unhappy about the whole idea of bailouts overall.

Another thing about this -- you can see the live hearing room here, that's Senator Chris Dodd. You can see this reminds me a lot of the overall $700 billion financial rescue drama. And it was dramatic. Remember that? We're doing it all over again here today. I mean everyone is getting on the record. And these same people were really, really criticized for passing that $700 billion financial industry rescue. Clearly at home they heard it in their constituents. I'm sure they're worried about that again.

COLLINS: Yes. In fact, I think we want to go ahead and listen in for just a moment here now. Christine Romans. Thanks for that. Obviously the chairman, Senator Chris Dodd now has taken to the microphone.

Let's listen for a moment.

(JOINED IN PROGRESS)

SEN. CHRIS DODD (D), BANKING COMMITTEE CHAIRMAN: ... interested people and then so we moved the hearing to this room this morning. I want to thank my colleagues. I know many planned obviously to be probably elsewhere this week, but I'm very grateful to all of you for being here for this second hearing on the subject matter. And I'm going to take a minute or so this morning and just explain sort of some housekeeping provisions and then some opening comments on the subject matter.

We're here obviously examining the state of the domestic automobile industry part two, if you will, of these hearings. This could quite possibly be, I point out to my colleagues, the -- I say that with some hesitation, the last hearing of this committee on the 110th Congress. I want to just take a moment, if we could, all of us here to recognize the service and valuable contributions of some of our colleagues who will be leaving, Senator Chuck Hagel. I've asked a dear, dear friend.

We served on two committees together over the years, the foreign relations committee and this committee. And you've been a valued friend and a wonderful member of the United States Senate. We thank you immensely Chuck for your service.

Elizabeth Dole a good friend from North Carolina. We thank you for your service in this committee as well. And you and Bob's wonderful contribution. You're very much part of the Senate family and have been for a long time. So we thank you immensely. And of course, Wayne Allard, my good friend from Colorado, we thank -- he's not here. He is coming. And we thank him very, very much as well for his service and their staff. Members on this committee to (INAUDIBLE), you've done a great job. And I thank them for this, for your service.

Let me make a couple of housekeeping points if I can. First, given this is the second hearing on the auto industry and given the large number of witnesses we have before us this morning, I would like to propose that Senator Shelby and I make our opening statements and then move immediately to our witnesses, as a way of moving along here rapidly given the number of people that will be testifying before us.

And secondly, the automobile companies represented here this morning have provided this committee and the Senate with extensive information about their status and their plans. In the case of one company, in the case of Chrysler, some of that information is proprietary in nature, it's private company, not a public company. We left it up to that company to provide that information to each interested senator in a manner that both parties deem consistent with protecting the privacy of proprietary data.

Should any questions be raised today that might trigger a request for proprietary information, I would ask that these questions be answered by the auto companies to the member's satisfaction in a manner that preserves the confidentiality of the information sought. Today the committee meets, as I pointed out, for the second time in as many weeks to consider the state of the domestic automobile industry.

As we consider the challenges facing this industry, I want to be clear that Congress has already given the Bush administration the authority to stabilize this industry. I would like to take note that I invited the Treasury Department and the Federal Reserve to testify here this morning. And they have declined to do so. Yesterday I sent a letter to Chairman Bernanke requesting his comments on the industry's plans and whether there is anything that prevents the Federal Reserve from lending any of these domestic auto -- providing any lending to any of these domestic auto manufacturing companies.

When we last met, I said that the fate of the industry is an important subject matter obviously for our committee's consideration. That statement, even is truer today than it was a few days ago. In fact, the very purpose of this hearing is fundamentally to answer three very straightforward questions. First, are the automobile companies in dire straits? Are they in danger of failure? Second, if they were to fail, what would be the consequences for our overall economy? And thirdly, if the economic consequences would be severe, does the American government have a responsibility to do anything to help?

In just two weeks' time, the clouds on the economic horizon have grown even darker and greater in number. Just this week we learned that what many of us have believed for a long time, our economy is mired in a deep and sustained recession. A recession that began some 12 months ago, a recession that has contributed to the greatest loss of manufacturing jobs including in the automobile industry in over a quarter of a century, and a recession that was in many respects precipitated by massively irresponsible actions by those in the financial sector. Including lenders who are now the recipients of hundreds of billions of dollars in federal taxpayer bailout assistance.

Amid this backdrop of intensified economic turbulence and uncertainty, the leaders of the domestic automobile industry are here once again to explain why they're seeking assistance from the committee and from the Congress of the United States. None of us relishes this task we are asked to consider. Yet who among us believes we should risk the consequences of the collapse of one or more domestic automobile manufacturers? Make no mistake about it. Those consequences would be severe and sweeping. Tens if not hundreds of thousands of jobs would be lost in the auto industry itself. More would be lost among suppliers, dealers and all of the other businesses from restaurants to garages and others across our nation in ways large and small that depend on a domestic auto industry for their livelihoods.

Moreover, at a time when taxpayers are already bearing an extraordinary burden in funding economic recovery efforts, that burden would only increase in the event of a failure of one or more of these companies. Pension obligations alone could run to the tens and maybe hundreds of billions of dollars. A partial and complete failure of the domestic automobile industry would have ramifications far beyond the manufacturing -- far beyond manufacturing and pensions. It would affect virtually every sector of our economy. That includes the financial sector which is a particular focus of this committee. A collapse within the auto sector would unquestionably worsen the credit crisis.

By some estimates, the domestic auto companies already comprise more than 10 percent of the high yield bond market in one of the largest sectors in the leverage finance for banks. The Big Three have hundreds of billions in outstanding debt liabilities including tens of billions in short and long-term debt obligations.

In addition to their outstanding debt, these companies hold billions in credit default swaps. A failure in the auto industry could trigger obligations by manufacturers and counterparties that could have financial firms reeling. Ultimately the ability of those firms to inject credit and liquidity into the overall economy, could be impaired, stifling job creation and further economic, further income growth.

None of us, none of us wants to see that outcome. So let us be clear this morning, in my view we need to act, not for the purpose of protecting a handful of companies. If that were the extent of the issue, I would let them fail. I acknowledge that those who advocate such a course on the assumption that pressure from the outside will produce the desired results.

My concern with such an approach is that it plays Russian roulette with the entire economy of the United States. Inaction is no solution. Inaction would only add more uncertainty and instability to our economy. These are the ingredients that currently we have in overabundance, ingredients that are contributing to the crisis of confidence that has gripped the markets and precipitated the worst economic crisis since the great depression.

It seems to me that the requests being made by the automobile industry, while large by any measure, is modest in comparison to what this committee has lately witnessed in the financial sector. If the Federal Reserve and the Treasury Department under President Bush can find $30 billion for Bear Stearns, if they can concoct a $150 billion rescue for AIG, if they can commit $200 billion to Fannie Mae and Freddie Mac and if they can back Citigroup to the tune of more than $300 billion, then there ought to be a way to come up with a far smaller dollar figure to protect this economy from the unintended consequences that would be unleashed by a collapse of the automobile industry.

With regard to the automobile industry, certainly we should not throw good money after bad, nor should we subsidize ineffective performance and inefficient production. We must demand that the auto companies demonstrate their commitment to reform. We must insist if they're going to be backed by the American taxpayer, they owe it to those same taxpayers to make vehicles, to make vehicles that are far more environmentally and economically sound manner.

The latest plans submitted by these companies over the last several days which I've read completely, all three of them, are not perfect by any means, but on average I think they represent a commitment to that kind of necessary reform that Detroit must adopt if our economy and our country is to have an automobile industry the 21st century. Some of the companies ought to be commended for going back to the drawing board, making tough decisions and stepping forward today. You've come a long way in two weeks I would say. Some may ask whether these proposed changes go far enough.

In addition, I think these plans leave many questions unanswered. In particular, will taxpayers assistance truly ensure long-term viability for these companies? Or will they be back here within weeks seeking more taxpayer assistance? But let's be clear. There is no doubt that the automobile companies have done far more, far more, I would suggest, than the financial companies to show that they deserve taxpayer support. The Treasury Department has given the nation's largest lending -- lenders hundreds of billions of dollars as pointed out in this graph here behind me demonstrates.

Even now, weeks after the fact, Americans are still waiting for most of them to show that they deserve the dollars they've received, still waiting for them to appropriately increase lending to consumers and businesses, still waiting, still waiting for them to more aggressively act to mitigate foreclosures in our country, and still waiting for these lenders to reign in bonuses and other forms of excessive compensation while the American taxpayer is sacrificing on a daily basis.

The nation's largest financial institutions are among the largest culprits in causing the credit crisis. Yet Secretary Paulson and the Treasury, despite being given complete authority to condition aid to financial institutions have in no meaningful way insisted that these banks and insurance companies adopt tough reforms to ensure the kind of shabby lending practices they engaged in will not happen again. On the contrary, the Treasury Department's largest with the taxpayers funds has been remarkably free of conditions placed on the recipients of those funds.

Indeed, in the spirit of the season, Secretary Paulson has given the nation's largest financial institutions the biggest holiday present in the history of American capitalism. In my view, if we're going to insist on reforms by the auto industry as a condition of receiving capital funding, we ought to do the same for the financial companies. For that reason, I will do all I can to insist that any auto company bill also place tough conditions on any loans to financial firms including provisions that require tax dollars to be used for responsible practices like lending that requires lenders to get much more aggressive about attacking the foreclosure crisis that is still at the root cause of the larger financial crisis and that prohibits executives from paying themselves obscene sums while they are essentially receiving a welfare check for the American taxpayer.

At a time when the average Americans are sacrificing mightily for the sake of our nation's economic recovery, we must, I believe, insist that companies benefiting from those sacrifices act as if they deserve them. At the same time I believe we need to take action to help our domestic auto industry in order to protect our nation's economy and America's workers. Finally I want to respond to recent stories indicating that the administration is considering asking for access to the final $350 billion we provided in the emergency economic stabilization act. We passed a bill that gave this administration broad authority to use funding to address the economic crisis we find ourselves in.

Regrettably they have misused the authority in two ways in my view. First, they're not doing what we clearly expected them to do. Most importantly, they're not using the money to help homeowners in distress. The FDIC has put forth a program that would help two million homeowners keep their homes. The Treasury Department is refusing to fund that idea.

Secondly, they have spent the money. They have spent the money, they have done so in an ad hoc and arbitrary manner in my view. They seem to be careening from pillar to post, both the Treasury and the Federal Reserve have spent trillions of taxpayer dollars without adequate controls and without adequate transparency. I do not believe this administration should seek the use of this additional funding unless they can present to the Congress and the American public a comprehensive, coherent plan for addressing those concerns.

Let me thank all of our witnesses again this morning for appearing here.

We look forward to hearing from each of you. And with that I want to turn to my colleague from Alabama, the former chairman of the committee, Senator Shelby.

SEN. RICHARD SHELBY (R) RANKING MEMBER, BANKING CMTE.: Thank you, Chairman Dodd.

Only two months ago Congress passed a bill that gave the secretary of the Treasury unprecedented authority to spend $700 billion to address the credit crisis. At the time I expressed grave concerns with this approach and questioned then whether it would be an appropriate use of taxpayer dollars. The erratic implementation of the T.A.R.P., its questionable efficacy and now the GAO report highlighting a number of deficiencies in the program's administration and oversight have only confirmed they original concerns.

My primary focus in these deliberations was and continues to be the interest of the American taxpayer. With that in mind, I oppose the creation of the T.A.R.P., applying the same standard I intend to oppose bailing out the Big Three auto manufacturers. Industry analysts contend that the firms continue to trail their major competitors in almost every category necessary to compete and to make a profit.

When we last met, the CEOs of the car companies were unable to convince this committee that they had done enough to reverse this trend. They were asked to come back -- to go back to the drawing board and devise a plan to transform their respective business models and return them to profitability.

Now that they have each submitted a plan that proposes to do so, I am once again interested to hear how they plan to deal with current management, labor, cost and quality control and product development shortfalls. How do they plan to address changes in the marketplace such as long-term reductions in annual sales? On what do they base their forecast, and what happens if they're wrong? Why do they believe their proposed actions will reverse the continued loss of market share to other car companies? How are their plans structured to adapt to an international market that demands greater efficiency and flexibility? Do the additional changes that they propose go far enough to ensure that taxpayers' dollars are being used to transform an industry and not just prop up a failed business model for a few months?

Finally, how is the money going to be used? And how do we account for it? And I guess lastly, how are you going to pay it back to the taxpayers? At our last hearing, I asked whether this was the end or was it just the beginning. We now have an answer, I believe. In just two short weeks, the price tag has jumped from $24 billion to $34 billion -- $25 billion to $34 billion in two weeks. I'm interested to hear what changed and why we should believe that things will get better as our economy continues to contract.

A recent report by Standard & Poor's states that all the automakers, "face a similar array of threats in the near term" and that any government assistance will be viewed, "as buying more time for the automakers rather than solving the fundamental business risk especially deteriorating demand globally." Each of the automakers have based their plans on what I believe are optimistic sales forecasts. Today's witnesses need to assure this committee, and I believe the American people, that their plans can account for the unexpected, which seems to be the norm rather than the exception in today's economy. It has been argued that a great deal is at stake in this debate. I couldn't agree more.

The strength of the American economic system is that it allows us to take risks, to create, to innovate, to grow, to succeed and sometimes to fail. Every time government endeavors to alter any of these dynamics, it undermines and distorts the forces at work in all of them. I believe that this can impose a cost that is too high to pay as well. I also believe that adversity can present opportunities. The question is whether one is prepared to seize them. I look forward to hearing if what the automakers are proposing demonstrates that they're truly prepared to do so. I have my doubts.

Thank you, Mr. Chairman.

DODD: Thank you very much, Senator Shelby.

As I mentioned earlier, we're going to go right to our witness. I want to welcome Mr. Gene Dodaro, the acting comptroller general of the United States Government Accountability Office. Mr. Dodaro has worked for over 30 years in a number of key positions at the GAO including chief operating officer of that entity and has strong experience in this area.

We welcome you to the committee. And we'll look forward to your testimony. Let me also say to you and for the record, that any documentation or supporting materials that you wish to have submitted to the record, consider them accepted, both from this witness and other witnesses as well to compile our necessary record. That would also be true with my colleagues as well as witnesses.

The floor is yours.

GENE DODARO, ACTING COMPTROLLER GENERAL, GAO: Thank you very much, Mr. Chairman. Good morning to you ranking member Shelby and all the members of the committee.

I'm very pleased to be here today to assist your deliberations on the automakers' request for federal assistance. GAO has been involved in a number of federal rescue efforts and bailouts dating back to the 1970s, during the Chrysler-Lockheed-Martin assistance. And over the years we've developed three fundamental principles that we think can help guide decisions on the Congress in this matter.

First is clearly identifying what the problem is we're trying to solve. In this case we've got short-term liquidity problems with the confluence of fundamental restructuring of the industry. It's all occurring against a backdrop of an uncertain economic climate.

The second fundamental principle is making a clear determination that it's in the national interest to provide federal assistance. And if that policy determination is made, that there are clear, concise, federal objectives for the assistance and a clear exit strategy to return the companies to their normal status.

Lastly, the third fundamental principle is protecting the government's interests. Here there are several principles. First is concessions, concessions by all parties. In this case, management, labor, suppliers, dealers and creditors of the affected industries seeking assistance, that there also be clear collateral and at the federal government be put in a first lien holder position and senior creditor status for whatever assistance is provided, that there be compensation for risk on the part of the federal government and if the entities benefit, that the taxpayers share in that benefit through warrants or other means going forward, and there be controls over management.

In this case, there'd be limits on compensation, but there be clear and consistent federal control over the disbursement of the money, the monitoring of where the money goes for and also you know the ultimate effect of whether or not the money is achieving the objectives of the program.

Now, there are two points I'd really like to highlight this morning before I take questions. One, if the Congress determines that federal intervention is needed here and federal assistance is provided, there needs to be a rigorous board put in place to oversee this process and to have clear decision making authority about when and how the money is to be disbursed to the companies. There needs to be -- the board has to have access to all the information it needs from the entities in order to provide that type of oversight on behalf of the Congress.

The board needs to monitor the situations, particularly important in this case because you have a lot of changes undergoing with the economy and the changing circumstances of the entities. The board has to have the ability to protect the taxpayers' interest, has to have the right leadership, the right expertise and the right resources to succeed.

And you know my clear message here today is the fact that this board has to be established in order to succeed in this particular endeavor if the decision is made to move forward. It's also very important to deal with the timing issues here. Many of the needs of the companies put forth in their plans are going to occur while we're having a change in a transition to a new administration. And so whatever administrative apparatus is put in place, there has to be some continuity during the period of time when there's a change in leadership.

And I have some ideas on how that could be addressed. I'd be happy to talk about it further in the questions. Lastly, I would say the other fundamental point that we would be making here is because of the urgency of some of the requests, that if there is a decision to move forward and to provide assistance to the automakers, that Congress may want to consider a short-term and a longer-term type of approach. And that the money be phased in and dolled out in increments overtime rather than large up front commitments. This is where the board would play a particular role in making sure that there's enough justification and due diligence done on the part of the government with the companies' records to make sure that the loans, or whatever other assistance provided, is warranted.

So with that, Mr. Chairman, that concludes my opening statement. I'd be happy to address questions. I'd also want to underscore GAO's commitment to the Congress to work with the Congress in providing all the help that we can in making this difficult and very important decision.

DODD: We thank you very much for your testimony this morning. I have a couple of quick questions for you. And then I'll turn to my colleagues as well. We thank you for your involvement.

There are a number of ways in which we can address this issue. And obviously, the one which has received a lot of attention is whether or not Congress will act. And obviously there are various proposals, both from the House, some various ideas that have been surfaced here. And obviously given the time constraints and others, if Congress is going to act, it's going to require some significant effort over the coming days. The majority leader has suggested that we try to do something next week if we can to come together. But there are alternatives to that.

And the two other alternatives are, one, under the Emergency Economic Stabilization Act, which this Congress supported back around October 1st, granted broad authority to the Treasury to respond to situations involving the economic difficulties in our nation. And while a lot of focus was paid to financial institutions, the underlying point was to get economic recovery.

Would you please share with us your analysis as to whether or not, one, the Treasury has the authority under that legislation to respond to this by utilizing the so-called T.A.R.P. funds in this case, and has the authority to condition those resources in a manner that they might see fit, given the authority under that legislation?

And secondly, under 13.3 of existing law dealing with the Federal Reserve, as you saw them respond to the AIG situation, do they not have the authority under that provision of law that would allow them to respond to this situation? In effect, which I've written to the chairman of the Federal Reserve, Mr. Bernanke, asking that question. But I'd like to hear from the GAO this morning.

Does that authority exist in your mind in both cases?

DODARO: First, as it relates to the authorities under the economic stabilization act for the secretary of Treasury, we believe that that legislation is worded broadly enough that would permit the secretary of Treasury to provide the assistance using T.A.R.P. funds. And the secretary has broad discretion to set whatever conditions on the assistance that he would determine necessary.

I would comment, though, that in my opinion, if T.A.R.P. money is used, there needs to be still additional changes in the board oversight structure. Senator Shelby mentioned our recent report on the T.A.R.P. program where we pointed out that fact that there are many critical management issues that aren't yet addressed as a part of that oversight over that program.

DODD: I'm going to get to that within a minute here, about the oversight.

DODARO: But on -- and I'll answer on the Federal Reserve question, we also believe that the Federal Reserve has the authority, under the statutes that you cite, to do this provided that there's a supermajority vote of the board of governors, the fact that there's certification, that credit is not available through any other means to these companies and that there's a clear ability on the companies to repay the assistance.

So there are some determinations that would need to be made by the Federal Reserve in order to exercise that statutory authority. But both of those vehicles are potentially available.

DODD: Just on the second question related -- I thank you for your answer to the question. That's been the view of this senator for a long time, over the last number of weeks that this matter has been discussed. There's been a debate obviously as to whether or not that exists. But I appreciate the clarity from the GAO on that question. The authority clearly exists and the right to condition that assistance as well, which gets to the point of a trustee or a board, an oversight board.

And I agree with you totally on that. I think having this dispersal of resources occur not on a lump sum basis but rather conditioned on the performance of how things are moving forward of the various ideas that we're hearing from the industry itself. Tell me, though, in terms of the GAO's assessment, in reference to the oversight board, how do you -- one, did they require greater public scrutiny? I believe we did, obviously there. And what's been the GAO's assessment of that scrutiny?

DODARO: In terms of the oversight boards generally, Mr. Chairman, we would point to a couple of models that have been used before. All the members here will recall the airline stabilization board that was put in place to provide loans to the airline industry following September 11, 20001. That board was made up of the chairman of the Federal Reserve, the secretary of Treasury, the Department of Transportation was an ex-officio member, the GAO was a non-voting member of that board as well. That board hired expertise, it brought in resources, and in our view worked fairly well.

A similar type of oversight board was put in place for the Chrysler loan guarantee program during that period of time.

So, our view in this case, you'd want to have a board that would have not only financial expertise -- and our experience has shown over time, when an oversight board is set up, you want it to have the Federal Reserve and the board of governors and Treasury as members of the board in any case. But you also want to have industry expertise, in this case it could be the Commerce Department. Energy is already developing a loan program under separate legislative authority given to the Congress, and they've hired expertise up, we understand, and would be available to help in this regard as well.

So our view would be you'd have to have a board composition. And we'd be happy to give you specifics on that with conditions. But those would be our views on the best way to address this particular situation.

DODD: We'd ask you to do that right away if you would as well. And just lastly, on that point, is it the GAO's opinion that there's been adequate oversight of the Treasury's investments?

DODARO: We think there are critical management shortcomings and we made a series of recommendations that we believe Treasury needs to implement quickly in order to address those issues to make sure that there's proper transparency and accountability over the use of the money that's been provided already, that the conditions that have been put on for executive compensation and payment of dividends, et cetera, are adhered to. We also made a series of recommendations about the capacity of the Treasury Department to staff up, to adequately monitor and oversee and implement the program going forward.

And those are listed in our report. I'd be happy to submit our report for the record to document that, Mr. Chairman.

The other point I would make, you know, a lot of our recommendations go to ensuring an effective transition given the upcoming change in the administration. And one of the suggestions that we might have in this case is if Congress would create a board, if they make the determination that federal assistance is needed, that the one entity that's not going to have a change in leadership is the board of governors of the Federal Reserve. And it could be set up where there are members of the board and serve as an interim status as chair until a new secretary -- if it would be secretary of commerce or one other person -- is to chair the board, until the new leadership team is confirmed during the next session.

This is really important because, as you point out, you've read the plans, as have I, and a lot of the assistance is being requested during the next several months when this is going to occur. And so you're going to need some continuity during this period of time with the proper expertise and resources if the government's interests are going to be adequately protected.

DODD: You raised a second set of issues, and that is the transparency of the Federal Reserve and the assets they're holding. And this chairman intends to take a good look at how the Fed has handled its investments. They have a lot more than Treasury has handled, and frankly I have a lot of concerns about the opaqueness, to put it mildly, of the Treasury -- of the Federal Reserve's handling of those assets. That's for another hearing, another time.

But let me turn to Senator Shelby.

SHELBY: Thank you. Thank you Chairman Dodd.

I appreciate that you were brought into this, the GAO was brought into this, without much lead time. And it's my understanding that the GAO may not have very deep auto industry expertise. In fact, it's my understanding that the GAO does not presently employ auto industry analysts on its staff. But even if you do not have auto-specific expertise, can you extrapolate from your experiences conducting other analytical projects and provide your assessment regarding the effort required to adequately assess the financial condition of the automakers?

In other words, is one day enough time to prepare?

DODARO: Well we've been making the most of that one day, Senator. But you could use more time, obviously.

SHELBY: Sure.

DODARO: And you could need more detailed information from the companies. First of all --

SHELBY: To make a good decision?

DODARO: Yes, yes. And that's why we think a board apparatus is a really important issue.

In this case, one of the companies is not a public company. And Chrysler is owned by a private equity firm, so you don't have the formal disclosures that you do for the other two companies. We've tried to get as much information as quickly as we could in this case. But this is the type of thing that we believe the board could do. The board could assure the Congress that credit is not available elsewhere, that the cash flow needs of the particular companies are justified, from a timing standpoint, et cetera.

SHELBY: But we're not at that point yet, are we?

DODARO: Well, as the chairman mentioned in his remarks, there are questions about the plan. There's a need for additional information. It provides a high level view, and as it looks into the future, there are some assumptions that are being made, both from an industry standpoint, overall economic standpoint, but also in concessions that would need to be negotiated with other parties.

For example, in a couple of cases, swapping equity for some of the debt that's held by the companies. And while that's a laudable objective, exactly how that's going to work out and play out as well as other negotiations in the upcoming period of time, let alone changes in general economic conditions, would remain to be seen. And that's the type of thing that a board would monitor closely to protect the government's interests.

SHELBY: The bottom line is, the more information one has, a board has, you have, we have, the better informed decision we can make. Is that correct?

DODARO: That's absolutely correct.

SHELBY: And you're not telling us this morning that you have all the information you would like to make a decision today, have you?

DODARO: Well, we're auditors, Senator. We always like more information.

SHELBY: Absolutely.

DODARO: And I believe it's always in the government's interests to have everything it needs.

SHELBY: Yes, sir.

You noted that the assistance program -- that these assistance programs from the government -- pose significant financial risks to the taxpayer. The magnitude of that risk and the company's need for the money can only be assessed if we have detailed information about what the financial state of each company is and what their plans are for fixing their problems.

Could you tell the American people today that the auto companies have provided the General Accounting Office, in short time, with sufficient information to make those assessments of such magnitude today?

DODARO: Well, there's definitely information in their plans, if you take it as self-reported basis, that show that they are -- they have some financial difficulties that seem to be clearly pointed out by them in that data. We have not had time to do any independent verification --

SHELBY: To assess all of it. DODARO: To assess it. But if you take the information on a self-reported basis, obviously there are issues that need to be addressed. That's why we were suggesting a short-term approach and (ph) a longer-term approach to deal with the critical issues.

I mean the Congress is in a difficult position right now because of the urgency that's being expressed over the need for this particular assistance. And we think, if there's a determination made to provide that assistance, there could be some short-term issues. But you need to get the board in place as soon as possible.

SHELBY: What would some of the possible benefits of Chapter 11 reorganization be for these companies?

DODARO: Senator, that's another area where we don't have a lot of experience at the GAO in that area. But there are obviously clearly defined legal procedures there that are in place --

SHELBY: Chapter 11?

DODARO: Yes. Yes.

SHELBY: Chapter 11 basically is for restructuring companies, is it not?

DODARO: That's correct.

SHELBY: If they're worthy of restructuring?

DODARO: Right, that's correct.

And there's a lot of pros and cons of those issues. There's a lot of risk associated with that as well, given the general economic environment, the size of these companies, the interrelationships with the suppliers that they have.

SHELBY: OK. I want to touch on something to see if I understand what Senator Dodd was asking you and your answer in dealing with the Fed.

Were you saying a few minutes ago that you believe that the Federal Reserve board, led by Chairman Bernanke, the board of governors, has the power now, if they so wanted, thought it was necessary, to put money in these financial -- auto companies just like they did with AIG and others? Do you believe they have the power, legal authority, to do that if they deemed it necessary?

DODARO: Yes. Yes. We believe they do. But they'd have to make the determination that --

SHELBY: So they could do that without the Congress doing anything, could they not?

DODARO: Historically that authority has been used for financial institutions. But in our view is it's pretty broad authority and it could fit this circumstance. But they'd have to make the determinations that the credit is available.

It requires a supermajority vote of the board of governors to make it have a high threshold, and it has to involve a determination by the Federal Reserve that they would -- the companies would have the ability to repay. But those things are present, and we believe it's broad enough authority that they could --

SHELBY: They could do it if they wanted to do it?

DODARO: Yes.

DODD: Let me just say, because I don't have the language of 13.3 right in front of me. But believe me when I tell you that it's not specific to financial institutions. It can be any entity.

DODARO: I was pointing out historically.

DODD: But I want to make sure that we're not confusing here.

DODARO: Right, right. I understand.

DODD: It can be any entity at all under 13.3.

SHELBY: Senator Dodd, one last question. You've been generous with my time, but if the Fed were to do something like that, looking at their history, they have historically been a good taskmaster over the money, how it was spent, how companies were run -- in other words, a board, you referred to. And that would be positive as opposed to us loaning money to auto companies that I personally doubt that will ever be paid back.

DODARO: Well, the Federal Reserve does have the expertise necessary to be able to do some of the things that were associated with the board, or any board or any entity, could contract for additional expertise that they may not have resonant in their entity.

SHELBY: Thank you.

COLLINS: All right. Quickly here, I want to just give you a little update on all we have seen.

Obviously, we've been hearing the opening statements from Senator Chris Dodd and also from the ranking Republican, Senator Shelby, as well. A really interesting discussion going on right there now with the Acting Comptroller General, Gene Dodaro, talking about the power of the Federal Reserve and whether or not they actually, potentially do have the authority to give this money with Congress possibly not having to do anything. And we heard from Gene Dodaro just say, yes, he does believe that they have that authority.

Very interesting discussion. Said that it of course requires a supermajority vote well down the line here. But it could be a very interesting development, interesting discussion to say the least.

So we will continue to follow that. We're going to take a very quick break right here. And we will be back in just a moment to be hearing from the actual heads, the CEOs, of all of the Big Three.

And we will also be hearing in "THE SITUATION ROOM" from General Motors' and Chrysler's CEOs. They're going to discuss a little bit more about why they deserve this bailout. And you can get involved in that.

Go ahead and send your questions to ireport.com/situationroom.

Plus, we will be continuing to bring you this live coverage of the auto hearing right here on CNN. Back in a moment.

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COLLINS: All right. Quickly, we are looking more at some of the proceedings that are taking place. We have moved into the questioning of the witnesses phase if you will. And right now we are seeing some questions being asked of the Acting Comptroller General, Gene Dodaro. Had a lot to say about kind of what he thinks should happen next.

In the meantime, before we go back to these proceedings when we actually begin hearing from the CEOs of the Big Three and also from the UAW president himself, want to talk with Christine Romans who is standing by now in New York to discuss a little bit more.

To me, Christine, and maybe I'm wrong here, but what I just heard Gene Dodaro talking about could be, potentially, pretty huge, couldn't it? About -- saying that the Federal Reserve may actually have the authority, and he says, of course, the expertise, to deem whether or not this loan should take place, this emergency aid, if you will, should take place, and then given the supermajority vote, could go ahead and give that money without bothering Congress.

ROMANS: And that's sort of what I was getting at a little earlier in the hour. We were talking about this is a whole big spectacle, if you will, here before Congress.

But Senator Chris Dodd even said when -- he said he'd Bernanke, the Fed chairman himself, whether there was anything to prevent the Fed from lending directly to the auto industry, the Federal Reserve doing it. The Federal Reserve is already lending to Fannie Mae and Freddie Mac, to Bear Stearns, to a whole host of companies, both financial companies and nonfinancial companies, loaning directly to companies hundreds of billions of dollars actually. The Federal Reserve has been loaning to corporations of all stripes in this economy. So why not? It would be logical to think, why wouldn't the Federal Reserve be able to step in here?

No indication that the Federal Reserve is --

COLLINS: Right.

ROMANS: -- has been considering it, that the administration has been thinking about it at all. Chris Dodd raising it here today. And now the GAO raising it as well. It's an interesting twist to this. Can you just bypass Congress?

Some other companies have received a -- quote, unquote -- "bailout" without having to go to Congress to get it.

COLLINS: So what does that look like for the people sitting at home? What's the diff (ph)?

ROMANS: Well, a couple of things here. First of all, people should be aware that it's so much more than just $700 billion of your money that's been deployed in this economy. It has been hundreds of billion, trillions of dollars, from the Fed, from the Treasury, of your money that has gone on to all different kinds of the economy to try to prop it up. And low-interest loans -- we've been loaning money, the government has been loaning money like crazy trying to loosen up this credit market.

The difference between -- the difference between the rest of that and this industry is this industry was already in trouble before this financial crisis. And this industry, as Senator Chris Dodd said, he wants to know for sure that it's not just throwing good money after bad and this industry is actually even viable. So that's part of the difference there.

The numbers are different, too. $34 billion in low-interest loans when you compare that with some of the other money that's been going around, a lot of money has been spent.

COLLINS: Exactly.

ROMANS: That doesn't make it right, though. It doesn't make it right if there aren't transformational plans that are ready from these car companies. And I think that's what we're going to hear. We're going to hear from these auto executives if they are transformational plans and if they can convince a skeptical Congress and skeptical public that they have the right mix to survive.

It's a tough situation all around. Every state has auto facilities and auto workers. At the same time, the American public is incredibly pessimistic about the good that bailouts in the form of loan interest loans can do for the auto industry.

COLLINS: Yes, and is it a fair thought to put out there that perhaps the reason why Ben Bernanke did not offer up a plan here is because of what you and I were talking about earlier, which is where does this all stop? We continue to go to the Fed for monies like this, anybody who is in trouble is probably going to go ahead and write that letter to the Fed and say, what about me, what about my business?

ROMANS: It's true. And it's an incredibly activist Fed sort of against its will. All of this has happened and all of these things -- there's been a lot of criticism that there's been an ad hoc way of sort of solving or combating the financial crisis. A lot of my sources who are top economists -- they tell me that it feels like we're playing defense here and we're going to continue to play defense and so that's why it feels so ad hoc.

Where does it end? And do you have the Federal Reserve of the United States lending money to the auto industry, the once powerful, mighty auto industry -- then how far have we come? You have to draw the line somewhere.

So I don't know. I would be very interested to see what the Fed chief and what the Federal Reserve, what kind of position they would take on some of these suggestions in these hearings, that maybe they're the lender here, not -- they don't need Congress.

COLLINS: And also, a little earlier, we heard Brianna Keilar who is there on Capitol Hill today, kind of mention an interesting point about a Plan B. What happens if they don't get this bailout? I believe that Rick Wagoner was asked the question, then what are you going to do? What's your Plan B?

Do you find it interesting that there is no talk of that yet? Or is it just a little too early?

ROMANS: I don't know. If they came and said they had a Plan B, would that be any more likely to get the money? I doubt it.

The other thing, Heidi, I think is interesting, is there's a $700 billion shadow over this whole thing, and that is the T.A.R.P. You listen to the opening statements, and the first thing they're talking about is the money they've already passed for the financial system before they even start talking about the auto industry.

So these two things are all tied up together, this whole thing is all tied up together. And there's great skepticism that maybe they've been really -- that they didn't do the right thing with passing the $700 billion and they're worried about doing the same thing again, albeit on a much smaller scale.

COLLINS: All right. Well, Christine, we sure do appreciate your thoughts on that. We're going to continue to watch this proceeding obviously throughout the morning here. Still waiting for those CEOs of the Big Three to come to the microphones. Also going to be hearing, I believe next, from the UAW president himself.

Thanks for watching everybody. I'm Heidi Collins.

You can join us again tomorrow morning starting at 9:00 Eastern. And for now, we'll continue this coverage -- CNN NEWSROOM with Tony Harris.

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