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Big Three Make Bailout Case to Congress
Aired December 4, 2008 - 13:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
SEN. RICHARD SHELBY (R), ALABAMA: What you would do with it?
ROBERT NARDELLI, CHAIRMAN & CEO, CHRYSLER: Yes, sir. We have spelled out exactly what our obligations are, relative to supplier payments, payroll, et cetera; and we've also put in 2012, in the cash proforma, the first $1 billion repayment back to the taxholder -- to taxpayers.
SHELBY: Ford, would they do the same thing?
ALAN MULALLY, PRES., CEO, FORD MOTOR COMPANY: Of course.
RICK WAGONER, CEO, GENERAL MOTORS: Yes, sir, Senator Shelby. We have that data. We'd be glad to share it. Some of it is confidential.
SHELBY: We know that.
WAGONER: So we'd prefer to share it directly with your staffs or yourself. Be glad to do it.
SHELBY: We've been talking from time to time about the 1979 Chrysler bailout. You were not there then?
NARDELLI: No, sir.
SHELBY: And -- but the last time Congress bailed out an automaker, as I said, was in '79. That legislation conditioned government assistance to Chrysler, providing a restructuring plan that met very specific requirements, including minimum concessions from its creditors, suppliers, workers and dealers.
A lot of us don't believe your plan comes up close to providing the same level of detail. How does your restructuring plan that you provided to the committee compare with the financial reports you provide to prospective investors? Is it the same, or is it different? And if it's different, why is it different?
NARDELLI: No, sir, it's not different in our case.
SHELBY: OK. You're speaking about Chrysler?
NARDELLI: Yes, sir. It is not different in Chrysler's case. We had to present, again, exactly the same proformas when we became organized back in August of 2007 to all of our institutional lenders, certainly the largest ones.
And in fact, every month our CFO has a full disclosure, a full report to all our investors, even though we're private. They are just as demanding as shareholders and have the same expectations.
SHELBY: Do you basically -- I'll address this to all three. Do you usually provide prospective investors with detailed proforma financial reports showing how any financing would be used in the business and how the money would be paid back? Mr. Wagoner?
WAGONER: Yes. We would, if we were doing, for example, public financing and equity rays. We would lay out that sort of thing. We'd be glad to do it for you, as well.
SHELBY: Would this be as public as you could get the taxpayer?
WAGONER: We'd be glad to provide anything you would like, sir.
MULALLY: You -- the way you described it is exactly the way we approached our business plan in the past, and everything that we have presented to you is what we've also presented to the banks. When we went for additional credit to finance the transformation of Ford.
SHELBY: Dr. Zandi, you stated in your testimony, your written testimony, that the Big Three automakers would need between $75 billion and $150 billion to avoid bankruptcy. At $150 billion, the bailout would be more than 1 percent of the GDP of this.
Would you discuss why your estimate is so much higher than the $34 billion estimated by the Big Three? I think you're on the right track.
ZANDI: The estimate is $75 billion to $125 billion, but $25 billion among friends, yes.
SHELBY: A hundred and twenty-five billion.
ZANDI: It's a function of many variables. There are three key variables. The first is expectations for total vehicle sales. I expect in 2009, 11 million vehicle sales. I think Chrysler is very close to that. The other two are higher than that, in their base line expectations.
Second variable is market share. What share of the total market they should expect to capture, and that is...
SHELBY: The numbers we're looking at, Ford and Chrysler's actually are the same at GM's in those predictions. At 11, right?
NARDELLI (?): For 2009, 11.1 is our projected start.
SHELBY: And the other one is 11. Is that the same, or is it 12?
UNIDENTIFIED MALE: I thought it was higher.
WAGONER: GM's at 12. I think. MULALLY: Our base is 12, our down side case is...
SHELBY: GM is at 12, Chrysler is at 11.1 and Ford at 11.
ZANDI: OK. Fair enough.
And then the third variable is price. You know, how much can you get for a car? And that will affect your market share. So just three of the variables. And by my calculation, using my expectations for the economy, what it means for sales, market share for pricing, I'm skeptical, doubtful, that it's going to end at $34 billion.
NARDELLI: Mr. Chairman...
SHELBY: Yes, go ahead.
NARDELLI: Our share projection in our recovery plan to you is that our share is flat through the planning period. And quite honestly, while not as robust as my colleagues, our share has been about 10 percent of the industry for the last decade. We've had pretty much relatively flat share, again, for the past decade. And we're not assuming any share growth in our plan, or any positive pricing.
SHELBY: Mr. Fleming, you testified, and one of your phrases was kind of troubling to me, and I believe I've got it right. You said, a bailout here would give us, the automobile industry here, some time to try to adjust. I have the problem with "some time to try to adjust." In other words, give you breathing room or something.
But I think we have to have more than that, you know, here to try to balance the taxpayers' interests here with everything.
Mr. Gettelfinger also said, and I thought you were tentative in this -- of course, if any plan works, it's got to be management concessions. I don't know how -- I'm not a management expert, but I can tell you if you, if you're not making money, there's a problem. Is it in management? Is it in labor? You know? Is it a combination ever both? Is it lack of innovation in your product? I don't know this, but I know there's a deep structural problem here.
But you said, we may need -- may need, to do so and so. I think that's ambiguous. Kind of tentative. And I believe any plan to work, any plan, you're going to have to have restructuring of management. You're going to have to get rid of a lot of people to save a lot of jobs. You're going to have to do the same thing at the UAW.
And the question is, I hope that, you know, you realize you're in this together. And if you're not, if you're not going to give the concessions, and the management's not going to give the concessions, and suppliers are not going to give concessions, we're wasting our time and the taxpayers' money, big time. That's my thought of it.
I want to ask you -- this is just an aside -- because there's been a lot of big talk about, you flew up here before. I understand that, and you drove up here. Did you drive or did you have a driver? Did you drive a little and ride a little?
And secondly, I guess, are you going to drive back, and some of us want to ride Detroit, can we ride with you?
DODD: Where'd you stay, what did you eat?
SHELBY: No. Wait a minute, Mr. Dodd.
UNIDENTIFIED MALE: Mr. Chairman...
SHELBY: The Chairman wants to make light of this. But I can tell you this, are you planning to drive back?
UNIDENTIFIED MALE: Yes, sir.
SHELBY: All the press releases you drove up here.
NARDELLI: Yes, sir. And I did have a colleague drive, and we rotated. We drove -- left Tuesday night and drove until midnight. And then got up at 5:30 the next morning and drove the rest of the way in. And we did rotate, and I do plan to drive back.
SHELBY: What about you?
MULALLY: We carpooled. I drove, and I'm driving back.
SHELBY: You didn't carpool with him, did you?
MULALLY: No. Carpooled with our Ford team.
SHELBY: OK. What about you?
WAGONER: I drove with a colleague. We split it up about 50/50. We drove down yesterday and I'm going to drive back myself Friday or Saturday.
SHELBY: Mr. Zandi, one last question. Part of your testimony, you said that there is no better way to ensure that the Big Three are around, and if they are significantly restructured in Chapter 11 bankruptcy...
KYRA PHILLIPS, HOST: So what do you think? The three big CEOs of the Big Three automakers asked how they arrived at the hearing today. They all came by vehicle instead of $20,000-a-pop private jet. When was the last time you think they took a road trip? College? Family vacation?
Of course, they were making light of it. Pretty smart PR move. Consider all the publicity that happened, when we were talking about all the money that these guys make, in addition to how they travel, while you know, the business of the Big Three, in dire straits right now, which leads us into this whole politically-correct transportation to Washington reality check.
We're talking about $34 billion from taxpayers, not quite yet, but the Big Three CEOs are back. You see them right there. It's two weeks after the lawmakers lectured, rejected and ridiculed them. You saw a little bit there once again, talking about the private jets that they in rode in on last time.
Well, this time, as you may have seen live here on CNN, the heads of Chrysler, Ford and GM appeared before the Senate Banking Committee with detailed plans for a turnaround, but they've also added $9 billion to their original request for $25 billion, and those would be loans, by the way. Not gifts.
And their cause got a major boost yesterday when the UAW pledged major concessions on job security and health care.
Now, the current crisis, the future administration, Jennifer Granholm is intimately tied to both of those. She's the governor of Michigan, and she's one of President-elect Barack Obama's economic advisers.
Governor Granholm joins me now from East Lansing.
And I appreciate you staying with us, Governor. Because we've been rolling on the testimony here, listening to the three CEOs. I know you've been listening as well, being very patient.
And let me just get right down to -- Senator Dodd spoke for quite a long time before we got into this back and forth in the middle of the testimony, and he laid it out pretty much about if something isn't done, that we could see a much bigger crisis here. Let's go ahead and listen to what he said.
(BEGIN VIDEO CLIP)
SEN. CHRIS DODD (D), CONNECTICUT: 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 to 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.
(END VIDEO CLIP)
PHILLIPS: So what do you think, Governor? Is he right?
GOV. JENNIFER GRANHOLM (D), MICHIGAN: He's absolutely right. If we let these auto industries fail, it will turn a recession into a depression. One in ten jobs are affected by the auto industry. In year one, we'd lose 3 million. You heard say Mark Zandi saying 2.5 million. There's another study that says 3 million, another study that says 5 million. Do we really want our nation's economy to take a further deep dive?
This is so significant, not just for the jobs, not just for these companies, but for the nation and our future, especially when you consider our goal to be independent of foreign oil. And that's where the auto -- an American auto industry and the technology and the battery that goes into it is so critical. So for the future of our nation, and the jobs, and the industry, and manufacturing, it is critical to save this industry through a loan. And it's only a loan.
PHILLIPS: OK. And let's talk about that, because we were saying, bailout. And now we have to say bailout loan. And these CEOs and workers within are saying, "Look, it's a loan. It will be paid back."
Now, I asked Senator Carl Levin this question yesterday, and Governor, he snapped at me, because I said to him, "How can you trust these guys and know that they will pay back the loan?"
He said, "Well, Kyra, read the plans."
And I said, "I did. But I'm asking you a very blunt question. How do you know that they will pay the loans back? Because what's the collateral? It's not like getting a mortgage, where you lose your house if you don't pay the loan. What's the collateral?" What is...
GRANHOLM: And here's the -- the kicker is for the United States, and if they have an oversight board in the same way that the Chrysler Corporation, as they've been describing, in 1979, not only did it pay back the loan, but it paid it back with interest, and the American taxpayer was to the benefit, about $300 million.
So this is the idea. The U.S. government has a lot of leverage to make sure that it gets its money back. There's a huge amount of assets associated with these industries, with every plant, with every supplier. You name it. There are -- there's a huge amount of assets attached. So there's plenty of collateral.
But, really, the collateral damage from not doing this would be devastating to the U.S. economy. And frankly, I just don't think that we've all -- the U.S. auto industry, and all the suppliers, up until this moment, I don't know that we've done a good enough job getting the word out and explaining to everyday citizens and communities across the country what it -- why this is important to them: for them, for their jobs, for their -- their economy, their personal economy. They do not want to see the national economy move into a depression.
PHILLIPS: This leads me into my next question, because there -- a poll, a new CNN poll came out showing that 61 percent...
PHILLIPS: ... of Americans, governor, say, "Hit the road, jack. You know? We don't -- we shouldn't have to give you any more money. You put us in this bad position."
And you know, that the taxpayers are going get killed once again through something like this. So what do you say to those skeptics? I mean, you just mentioned they're not totally convinced. What do you say to them?
GRANHOLM: Right. And they aren't totally convinced. So here's what I would say.
First of all, it's really important to note that the auto industry didn't put us into this position. The auto industry is a victim of the financial meltdown, just like everybody else is. When people can't buy cars because they don't have access to credit, and when the auto industry can't borrow because it doesn't have access to credit, it means everything stops. It's the financial meltdown that has impeded the particular plans that they have to take the nation to energy independence.
So, one, they are the victim of this financial meltdown. All they're asking is for the ability to put forward these aggressive plans that are very robust that lead -- that lead this nation to energy independence. It's a national security issue.
It's an issue that affects every community. If you know somebody who is a trucker, if you know somebody who works in the railroad, somebody in advertising, if you know somebody who is in a business that manufactures one of the thousands and thousands of tiny parts, in the most sophisticated, technologically advanced, mass-produced product in the world, which is your car, then you will be affected and your neighbors will be affected. This will take down the economy.
And that's why it's so important for all citizens to realize the importance. One in ten jobs affected, you will know people who are affected. But more importantly, it's going to affect everyone, because the economy will sink.
PHILLIPS: And just a last question quickly, because we're going to get back to the hearing.
GRANHOLM: Yes, yes.
PHILLIPS: Governor, do you think if one of these companies goes down, then that's it? Do all three have to survive in order to get out of this?
GRANHOLM: Well, I think that right now, all three have to survive. Will there be strategic alliances with Chrysler? They have said in their plan that they're looking for that. But because the supplier base affects all, not just these industries but all -- not just these companies, but the international automobile companies, too. The supplier base, the thousands of companies that supply to the auto industry as a whole are serving more than one company. So if one goes down, it takes down a major customer, there's a ripple effect that is catastrophic.
PHILLIPS: Michigan Governor Jennifer Granholm. Always great to talk to you. Sure appreciate it, Governor.
GRANHOLM: Thanks. Thanks so much. Appreciate you having me on.
PHILLIPS: My pleasure.
Let's get back to those hearings and listen to the three auto execs. MULALLY: ... asked for is a very conservative realistic scenario, and that's what we based our request for a potential need of the $9 billion. So we think that's a good number.
SEN. MEL MARTINEZ (R), FLORIDA: Well, let me just say there is -- I understand that answer. There is a gulf between $34 billion, which grew from $25 billion, which is what we were told was necessary, for viability, to $75 billion to $125 billion.
And my concern is getting our arms around this in a way that we know the totality of the situation and can meet -- none of you could operate -- well, if you operate a company like this, you're not going to succeed. It we operated as fiduciaries to the taxpayers like this, we cannot succeed.
It's what's happened with the TARP program, where we're throwing money out there without having a sense of a strategy of understanding what is necessary, in this case, to assure viability.
Let me ask two final questions. Are you all committed truly -- and you have to be committed -- because as far as I'm concerned, there are going to have to be conditions placed, to the type of fundamental transformational change that is necessary for you to survive? Are you truly committed?
You know, Mr. Wagoner, Saturn was your previous commitment to that, and then you largely walked away. And you know, so that's a past example. You know, are you truly committed to that?
And lastly, can you tell us, of those groups that are out there that already see the taxpayer bailout funds, how many of them are holding your -- a good part of your commercial debt?
And the final comment I'll make -- I just want to say to President Gettelfinger, you know, leadership is really tested in difficult times. And I appreciate what you have been willing to do, to come forth. And it's never easy for a union leader to come forth and make very serious concessions and even talk about getting to the table more.
But it cannot be done simply by the union. There have to be all the elements here to achieve the goal: the suppliers, the creditors and others. Otherwise, the union can't solve this problem on their own. And I know some would like to break the back of the union here as part of their goal, but this is not going to be achieved just simply through that.
Could you just answer those questions?
NARDELLI: Senator, if I could start, please. Again, in our base plan that we submitted where we're asking for $7 billion, which is the same amount we asked for last time, we're opening 2009 at $11.1 million. And that grows to $13.7 in 2012.
Our downside scenario -- and we end that period at $12.5 billion in cash, which includes $1 billion, starting the repayment to the taxpayers for this bridge loan.
In our most conservative approach we start at 10.1 next year and grows to 12.7. And we do have a deterioration in cash of about $2 billion, given the volume reduction.
As indicated, our assumptions on share is flat. We've had a relatively flat share over the last decade. We've built negative price into our plan.
The one thing that hasn't been mentioned here that I would like to make sure we're clear on and transparent is we have baked in here some of the 136 funds that we have requested, assuming that they will be approved concurrent with our expenditure, submission of the invoices and then to be repaid.
But we haven't -- we haven't started to show that infusion of funds for advanced technology until 2010. So, again, while it's been submitted, 1231 this year is my understanding, is the first toll gate, for submissions that could be approved for redistribution. We've elected to take a very conservative approach in that plan.
And Senator Shelby, I would -- I would say, in your comments to Ron Gettelfinger, there's certainly nothing, I think the term wishy- washy, about 32,000 people have already lost their jobs, and 5,000 walked out Wednesday before Thanksgiving, which represented a 25 percent reduction in our salary workforce.
So we take this very seriously. We understand our fiduciary responsibility. I can tell you I understand the weight of this meeting and tomorrow.
WAGONER: Senator, I can assure you, we -- our plan is far- reaching, extensive. It is a different way of thinking. And the GM team is behind and committed to achieving it.
You asked about do those institutions -- would they be affected by a bankruptcy? And the answer's, yes. Some are creditors to us, but it's my understanding a significant amount of credit default swaps written against our securities, which would also be triggered in the event of a bankruptcy.
MULALLY: Yes, I'd just like to add that we know it can be done, because we've been doing it, and clearly focusing on a brand, and a brand promise for the customers. Having small, medium and larger vehicles, be invested in class and quality and fuel efficiency and safety, and consolidating the production to really meet the true demand, and getting those costs out.
And as a result of all those actions, we got back to profitability in the first quarter of this year before this tremendous downturn. So we know it can be done, and what we're talking about now is getting -- getting through this terrible recession. But I absolutely believe that we're going to continue to take these actions and create a viable, growing Ford for us all.
SEN. CHRIS DODD, CHAIRMAN, SENATE BANKING COMMITTEE: Thank you very much, Senator.
SEN. MIKE CRAPO (R), IDAHO: Thank you very much, Mr. Chairman. I want to focus my -- my questions on primarily the CEOs of our Big Three. And I want to return to the question of a Chapter 11 reorganization.
One of the reasons that this issue just keeps coming back up is there are many experts, as I'm sure you are aware, who are saying that we need to have the authorities and the ability to basically require the kinds of changes in relationships and the kinds of restructuring changes that are necessary, that a Chapter 11 proceeding would -- a reorganization proceeding would provide.
I've read all of your testimony and your materials, and I understand the arguments that have been made there and here today about the fact that a bankruptcy proceeding would have very serious negative problems with it.
The question I have is, do we have the ability to achieve those -- those needed, forced if necessary, changes in relationships with people as broad-reaching as employees, suppliers, dealers, retirees, creditors, the various legacy cost issues?
Do we have the ability in what you have presented to us today, if Congress were to agree with it, to be sure that we could achieve those types of major restructurings?
NARDELLI: Senator, let me just offer a thought. Again, bankruptcy was something I was hoping never to become an expert in, in my 38 years, and certainly not today.
But your point is correct, that as I try to understand it, we cannot just make unilateral rejections, for example, with the union, certainly, with the banks that have -- that have secured lending. I think certainly this committee would understand that more than anybody. If that was breached, who would go out and lend money unsecured and not have recovery?
I would say that one of the things that was discussed with the Government Accounting Office, I would suggest that we put a date, March 31, as a benchmark date that says, give us the funding, allow us to survive, and then by March 31 have a toll gate to see where we are against those negotiations. At least I'm speaking for Chrysler.
CRAPO: Mr. Wagoner?
WAGONER: Our proposal comprehends the idea of this federal oversight and realized there was some concern with the naming of that. But obviously, highly empowered board. We would submit the plan with time frame. The board would play an active role as the funding would be doled out only gradually and then, if by a date certain, and March 31, I think, would be a good one to work with, we can't get the parties together, then additional funding wouldn't be advanced, and we could provide collateral against the loans. CRAPO: Would your idea with regard to this board include the board having the authority to impose restructuring conditions on various parties?
WAGONER: I'm not sure that's legally possible, but that would obviously facilitate it.
CRAPO: We could make it legally possible with the legislation.
WAGONER: Then I think that would help a lot. That would really help.
CRAPO: All right. Mr. Mulally?
MULALLY: Yes. We -- we believe we have sufficient liquidity at the current time, but we absolutely support the oversight board concept.
CRAPO: And when you talk about the oversight board, are you also talking about a board -- excuse me, a board with the authority to literally impose restructuring conditions as a Chapter 11 court could?
MULALLY: I don't know all -- probably need to think about that a little bit. It sounds right, but I just don't know all of the implications of that.
CRAPO: Mr. Nardelli, could you respond to that question about the oversight board?
NARDELLI: Sir, as you said, Congress has the authority to do a lot of things. So if -- if that is what Congress determines, then obviously, all of the constituents would be held under that.
I'm not burdened of being a lawyer, and so I don't know the technical answer to it. But certainly, if that's the prerequisite and if that's the understanding, Chrysler would certainly, obviously try to comply.
CRAPO: In that context, an argument that each of you have made, and many others, is that people will not buy cars. If the -- any one or all of the Big Three are in a bankruptcy proceeding. They won't buy a car from a company in bankruptcy.
But if we were, in essence, to create an oversight board that was basically a federal restructuring trustee, would that impact the confidence level, in your ability to meet your assumptions, about people being willing to come back and purchase cars?
WAGONER: I think it's a fair question. My sense, Senator, is that right now the concern is very high. And so I think in the case of, that we put forth, we will be in need of funding soon.
And so I think if people saw that funding coming, even with these conditions in front of it, and we would have to present a plan that we could convince people that we could execute it, but I think it would help, vis-a-vis where we are today. Obviously, it would be best once it's all -- once it's all clear.
CRAPO: My time is -- is running out. Let me just ask one more question. Frankly, I'm just seeking a restatement. But my understanding is that I did not hear any objection from any of the three of you to the establishment of an oversight board or whatever we call it, of a federal oversight entity that has the literal authority impose restructuring conditions, and to enforce those as a matter of law, as these dollars are utilized. Am I correct?
CRAPO: Thank you.
DODD: Very much. Senator Reed?
SEN. JACK REED (D), RHODE ISLAND: I just want to follow-up quickly Senator Crapo's question. Everyone seems, conceptually, to accept an oversight board. The question in my mind would be, is there a possibility or -- of emergency funding get you to -- however it takes, 30 days, to the point which you can go before the board with the concessions in hand so that the funding of the majority of these -- these funds you're requesting would be made, not on your assertions, which I think are very sincere, but on actual concessions, actually restructuring that is in place? Is that feasible? Mr. Wagoner and then your colleagues?
WAGONER: I think -- I think we'd do our best. Thirty days for these kinds of things might be a little tight. That's why we said -- we initially talked February 28 or March 31, depending on the complexity of them. But I can assure you we'd move as fast as we can.
And you know, I think it is to the advantage of the industry to have a short time frame, because it will force everyone, let's sit down, let's see where we can go, and get a yes or no on it.
REED: But in that context, the initial draw of funds would be much less than you're requesting. Is that correct?
WAGONER: Well, our initial draw of funds is based on what we estimate we need up to. That's $4 billion. So under that case, we believe we need that amount to meet our obligations -- in January.
REED: So that will just get you through to what date?
WAGONER: Gets us through the end of January.
REED: End of January?
WAGONER: Yes, sir.
REED: Mr. Mulally?
MULALLY: Yes, sir. We believe we have a viable plan today, and our intention is to not draw on the loan.
REED: So you could go with all of restructuring, at some point in the future, to this board and then be qualified at any time to draw the money?
MULALLY: It's -- our basic position is that we want to support the industry, for the reasons we've talked about.
MULALLY: And with the action we've taken, we're hoping not to access this money, but clearly, we're part of the bigger plan.
REED: Mr. Nardelli, your response?
NARDELLI: Yes, sir, Senator. What we would need is $4 billion to, in our plan -- of the $7 billion we've requested to get us through March 31st, to allow time to go through these mutually agreed upon concessionary discussions with all the constituents, certainly myself, employees, dealers, suppliers. I think Ron, as was stated, has already come forward, and certainly the institutional lenders.
REED: Thank you.
And thank -- the UAW has already made significant concessions. And I think that shows more than just profound commitment to make this deal work. So thank you.
Mr. Zandi, you've set a price on the overall efforts to assist the companies of about $75 billion to $125 billion. You've also suggested that, if they're forced into bankruptcy, it would be -- whatever word you described.
MARK ZANDI, CHIEF ECONOMIST, MOODY'S ECONOMY.COM: I used cataclysmic.
REED: Catastrophic. Have you put a price tag on that, in terms of unemployment compensation, pension benefits?
ZANDI: Measurably more than that.
REED: Measurably more than that?
REED: So we're not talking it's a close call?
ZANDI: Not a close call.
REED: Close call? Several hundreds of billions of dollars?
ZANDI: Yes, it's not even in the same universe, yes.
REED: Thank you very much.
There's another aspect I think that's important, which has been alluded to, the interconnection between the financing companies and the manufacturing companies.
There's a possibility that we could create a board that governs the manufacturers, but then the Federal Reserve would govern the finance companies or the new financial holding companies, which would introduce an additional level of complexity.
There's also the possibility that requirements that would be imposed on the financing companies by federal regulators could be directly in opposition to the best interests of the manufacturers.
Is there an argument that whatever we do should be done in a unified basis, rather than having the Federal Reserve operate on one end and an oversight board or oversight management person to the other?
ZANDI: That's a reasonable concern; I hadn't thought of that. But, yes, that might be something to worry about, that the Federal Reserve could be as a regulator of the bank-holding company working at cross purposes with the board that you've established to resolve the issues with respect to the auto companies. Yes.
REED: And I think there's another issue, which goes right to your arrangement, which -- your private equity holds 100 percent of Chrysler Financial, 51 percent of GMAC, and 51 percent of your company.
And just the ability to move money around might be very frustrating to an oversight board that's trying to return, because (inaudible) the manufacturer, the best possible return for taxpayers. Do you foresee that as a problem? And, in fact, how would you sort of pre-emptively avoid that problem?
NARDELLI: Well, first of all, sir, let me just reconfirm. They are inextricably linked. The finance company, our success is embedded in theirs and vice versa.
If I ship product and I don't get paid from the finance company as a result of shipping to a dealer, I have a tremendous cash strain, maybe $300 million to $400 million a day, point one.
Point two, the way it is structured today, these are both wholly owned, so there are independent boards, and there is governance, so there is not an arbitrary manner by which funds are transferred back and forth. Each have their own separate boards; each have a set of governance.
Certainly, if it becomes approved by an ILC access to 13(3) (ph), get TARP funding, you just won't be able to move money back and forth.
REED: Just a final point. Price -- you price the cars?
NARDELLI: Yes, sir.
REED: They price the credit.
NARDELLI: Yes, sir.
REED: And I think there is the opportunity at least in those two different pricing modes for one company to make a significant profit and the other company to break even. Is that -- that's at least possible?
NARDELLI: I think -- I think the pricing of the credit is really driven by the markets today, just like our pricing is driven. We could set a price. The consumer dictates the price. And the same is true in the credit market, sir.
And when you go back to the industry when it was 17-plus million, you quickly see where the credit was and the ability to make credit accessible to a much lower FICA score that allowed consumers to really step into these vehicles, along with the lease program.
Twenty percent of our volume, I think across the board, was lease programs.
REED: Thank you.
DODD: Great questions. Thank you, Senator Reed.
DOLE: Mr. Chairman, recently, our colleague, George Voinovich, sent a letter to Democratic leadership, and I want to quote from that letter. He said, "While I applaud your insistence that the potential borrowers prove their case, however, I'm concerned about the method that you've constructed in doing so. Specifically, I question your decision that congressional leadership in committees of jurisdiction are best positioned to make determinations about a multinational corporation's future financial prospects."
Who exactly will be making these decisions? Do you intend to rely on the expertise of executive branch officials or outside experts? Or do you feel that Congress is qualified to draw such conclusions?
That being said, I'd like to ask each of the chief executive officers, have any outside, non-political business groups, groups with business acumen, been able to render an opinion as to the viability and quality of your respective restructuring plans?
I'd also be interested in how you view -- if you have any specific comments on the Levin-Stabenow-Bond-Voinovich proposal?
WAGONER: Before we submitted our plan, we asked one financial analyst to sign a confidentiality agreement and -- and review it, but I'm sure now that it's out, we'll be getting more comments from analysts, so we'll be getting input on the plan from those sorts of people. In fact, we're probably getting it even as we speak.
As far as the -- your second question about the -- about the source of the funding in the prior bill that was under contemplation, our view and comment all along has been we really do leave it to the Congress to decide what's the best way to provide the funding. And in that sense, you know, we're really open to whatever ideas the Congress and the administration determine are best.
MULALLY: Senator, absolutely. When we went to the banks about a year-and-a-half ago to put together our transformation plan that we've been talking about, they absolutely thought that plan was going to create a viable, profitably growing Ford for us.
And then, as we made that progress this last year and we got back to profitability in the first quarter, they were very pleased with the progress and very supportive of our plan going forward.
So I think that's really the final test right there. And they loaned us the money.
NARDELLI: Senator, I would just add exactly -- we did get outside, independent verification, primarily on the cash flow analysis and the cash flow charts. We also presented it to our board and asked for review and approval before we submitted it on Tuesday.
DOLE: Thank you.
Thank you, Mr. Chairman.
DODD: Thank you very much.
SEN. CHARLES SCHUMER (D), NEW YORK: Thank you, Mr. Chairman.
And thank you to the witnesses.
Just to sort of sum up I think where we're at, we realize just letting you fail would be cataclysmic, as Dr. Zandi says, far worse than the costs that you've outlined.
Second, bankruptcy, I think it's pretty clear is not a viable option, because no one's going to buy a car from a bankrupt company. And it takes so long and it's so complicated that it doesn't work.
And I would -- this is my own two cents -- I think one of these prepack bankruptcies has similar problems, because you can't bring the others in. So we have to do something. That's on the side of making sure you're viable, which I think I want to do, and I think most of us want to do.
On the other hand, our real problem is this. I think that there's a general view that we want to see the conditions before we give you the money. And you folks sort of want the money and then say, "Let the conditions work out." Mr. Nardelli said, "Let's see how things are on March 31st."
And in all due respect, folks, I don't think there's -- there's the faith that the next -- you know, that those next three months will work out given the past history.
And so what I think some of us are searching for here is a way that we can make sure you continue, make sure you're viable on into the future.
My third point is, make sure that the burden is spread evenly. I think the workers, Mr. Gettelfinger, have taken more of the hit, and I haven't heard much about the bond holders, the lenders who are getting paid 12 percent, and people like that.
And the only way this is going to work is if everybody gives, if everybody gives.
And so the question I have is, why isn't the best solution for us to pass something on Monday? And, again, I don't care where the money comes from, frankly, OK? That's a dispute that others have. I would take it out of the TARP, if need be, temporarily out of the 136 funds. That to me is not the issue.
The issue is, how are these real conditions that are created and imposed by an outside -- by someone who's overlooking you outside? So I don't like the word "oversight board," like Mr. Dodaro.
And, second, who's going to do this negotiating? You may not have leverage, frankly, over the dealers, or over the bond holders, or over the others, except to threaten to go out of business, which isn't very good leverage. It's saying, "Well, I'll cut my nose to spite my face."
Why isn't the best solution the one I was sort of positing before, that we pass legislation that gives, you know, a specific amount of money, not a small sum, to a designee of the president in a certain sense. He has control, could be the treasury secretary.
That person quickly calls in all the players and says, "We have some carrots for you. We not only have money, but we have the ability." We give them the ability maybe to impose for a period of time a guarantee of the warranties and maybe even some help with the funding, because the funding is part and parcel.
But in return, every one of you around the table, you executives, the workers, which have already given quite a bit, based on yesterday's statement, the bond holders, the dealers, everyone gives. That seems to me to be the best model, given that we don't have much time, that there's not much taste for giving the money and then seeing if the conditions are met down the road, and that the alternatives of either letting you go under or bankruptcy are the worst.
And you've said you agree with the Chrysler model that -- when Senator Dodd posited the question to each of the three of you -- would you agree with this kind of model? What do you think of the -- what are -- what are the pros and cons? Would you agree to the kind of thing that I'm mentioning here?
Go again, Mr. Wagoner.
WAGONER: Senator, yes. It would be very helpful for us, whether it's a board or an individual, to have someone to work with on this, to submit our proposals, and then for that person to say, "OK, don't agree with that. You've got to change this." And if that person was to have strong powers to execute it, that would be fine with us.
SCHUMER: Good. Yes. I -- you see, a board, when you have three, four months, like Chrysler, a board may work. You don't have much time. We may not even have time until the next administration.
UNIDENTIFIED MALE: That's correct. Yes, sir.
SCHUMER: What do you think -- well, let me ask Mr. Gettelfinger. What do you think of that idea?
RON GETTELFINGER, PRESIDENT OF UAW: Well, I think it would work. I mean, it's difficult, but I think there's something we're missing here, quite frankly: unfair trade agreements, supporting our competition to come in, not doing anything about health care in this country.
And I'll just use as an example South Korea. Here we're talking about a country that can ship in whatever that number of automobiles is, 669,000, and every manufacturer in this country can ship back less than 5,000. How do we compete with that? How do we compete when we subsidized the competition? Or how do we deal with currency intervention? Or what do we do about not having an industrial policy?
Those are the things that I think we're missing in this picture. We keep saying, "Are we going to be competitive? Can we compete?" Well, who are we competing against, becomes the question, and how low do you go?
We use the term "race to the bottom." And it appears to me that we are missing that as part of this discussion.
GETTELFINGER: Thank you.
SCHUMER: Although those are longer term than the kinds of things -- we're having sort of an emergency here.
GETTELFINGER: I -- I agree, but indirectly, Senator, they're tied. They're interlinked.
SCHUMER: What do you think of the idea, Mr. Mulally?
MULALLY: We'd be open to your suggestion.
SCHUMER: Mr. Nardelli?
NARDELLI: Yes, Senator. Basically, it's the same, and you're just asking to compress the schedule.
SCHUMER: Yes, exactly. Yes. And one person as opposed to a board.
NARDELLI: Fine, sir.
SCHUMER: Mr. Fleming?
JIM FLEMING, PRESIDENT, CONNECTICUT AUTOMOTIVE RETAILERS ASSOCIATION: The dealers absolutely would want to participate in that with the manufacturers and the regulator.
SCHUMER: Everybody. FLEMING: But if I can, Senator, the one concern that we have is that there can be some unintended consequences as well for dealers depending upon what those details are. And so as long as we're at the table as equal partner...
SCHUMER: You'd be at the table, yes, but you'd have to give something.
FLEMING: We're giving a lot now, Senator, let me tell you.
SCHUMER: OK. Yes, everyone's -- look, if we do nothing, everyone's giving a lot, too.
WANDELL: Yes, I think absolutely. And I think, you know, just speaking for our company -- and I'm sure for most of the supply base -- I think the suppliers are, you know, more than willing to line up and I think have for a long time.
And I think what the suppliers are looking for is a healthy industry where they can be more competitive.
SCHUMER: Mr. Zandi? Dr. Zandi, excuse me.
ZANDI: That's fine. I think it's a reasonably good idea, given you have a short period of time to make some very tough decisions. One person makes sense, if you're confident in that person.
SCHUMER: Thank you, Mr. Chairman.
DODD: Thank you, Senator Schumer.
And I -- just before I turn to Senator Corker, I think that idea has been raised -- and I like the idea of a trustee. I think a trustee -- I think we use the word "trustee," and it takes on a different connotation than a board idea, but I think it has a lot of merit, as well, particularly in the short term here.
DODD: We're talking -- the time frame we have, as you point out, the Chrysler, I think they went back -- and I wasn't in the Senate in those days, but it was months, and working that out. And we have -- we don't have months, to put it quite candidly. We don't have weeks.
In fact, Mr. Gettelfinger, when you raised the issue, you said in the near term -- before I turned to Senator Corker, how near a term do you think bankruptcy is?
GETTELFINGER: I do not believe at this point in time on the data that I've seen that General Motors can make it out of the end of the year.
DODD: So this month? You think they'd be bankrupt in the month of December?
GETTELFINGER: Unless something changes dramatically, and I would hope that it does, but, again, we're -- in looking at the companies, Chrysler's in trouble. I'd mentioned that at the last hearing. I believe I was asked to rate the companies...
DODD: As you did.
GETTELFINGER: ... where they stood. And that's the way I rated them. However, there's still additional data coming in. We do need the market to turn in our favor a bit. But, honestly, we're down to the wire.
We would not, Senator, have called the meeting we called yesterday and took the action that we took as a union if we didn't believe that was real. We brought in an outside analyst to help us make that determination.
So I think that time is of the essence. And in our testimony, we said that we needed to do something this month, and that was the reason.
DODD: And so your conclusion is, by the end of this year, by the end of this month, we could lose General Motors as a corporation?
GETTELFINGER: I believe that we could lose General Motors by the end of this month.
DODD: Thank you.
CORKER: Mr. Chairman, thank you.
And, gentlemen, thank you all for being here. Just to follow on that thought, Mr. Chairman, there's nothing like a crisis or worry -- or worry about being alive that does more to heighten the senses and create focus, and I hope that, whatever happens here, that does not go away without proper things occurring.
And I think that Senator Schumer's alluding to that. I think Senator Crapo was alluding to that.
And we talked a great deal about Chapter 11 reorganization. I don't want to waste my time hearing the talking points against that. I've certainly met with all of your -- with analysts that represent stockholders and bondholders and -- and others. I've certainly talked to each of you and your representatives, the UAW.
So I'm not going to go down that line of questioning today, even though I still believe that there are many things that will be very, very difficult to work out without Chapter 11 reorganizations.
And, you know, I could follow one narrative, which -- you know, I know this is somewhat loose, but in essence, what many of you have said, there are so many problems to work out that you'd be in Chapter 11 forever.
Now, I know that there's disruptions with the supply chain. And I know they're thinly capitalized. So I'm going to take a little different tact. And, again, I thank you all for being here.
But I want to start by just sort of laying out how things are. I spent two days meeting with analysts in your industry, and I noticed the new word that they're using is not the big three, but the Detroit three.
And much of it has to do with the market cap of these organizations. I think G.M.'s market cap today is about $3.4 billion. I think -- excuse me. Ford's is $3.4 billion. G.M.'s is $1.8 billion. And I'll throw a little change on the table and say Chrysler's worth $500 million, and that's probably exaggerating.
So we're talking about $6 billion. And just to compare this to companies around the world -- Toyota is worth $138 billion. I mean, even little BMW, which is just kind of a niche company, has a market cap, a value, if you will, of about $14 billion.
So I just want to put that in context of these large loan ask, if you will, that are underway. And then from that, I know that each of you have added up your particular -- your particular ask are about $38 billion.
And then there are some of you that are asking for TARP money, I understand, as part of your finance company operations. I just want to set those aside.
I know that Chrysler has said they've asked for $8.5 billion through Section 136, which passed last year, which put $25 billion on the table for efficiencies for investing in new technologies. And I'd like for Ford and G.M. each to tell us how much you've asked for under that vehicle, too.
WAGONER: Yes, we filed a little while ago $3.7 billion. And later, at the end of this week, our second batch of projects will go in. And if all approved, those would be, as I recall, about $4.5 billion.
CORKER: So about $8 billion?
WAGONER: About $8 billion, although they obviously have to be approved, Senator.
CORKER: OK, I understand that.
MULALLY: We think that it will be around $5 billion cumulative.
CORKER: OK, so that's -- $21.5 billion. So about $60 billion in requests, Mr. Chairman, are already in. So I do want to highlight that certainly this is vastly different than $25 billion.
I did talk to Secretary Bodman yesterday who oversees this program in Energy, and he said he sent a letter to everyone rejecting their proposals. And just for a moment, how much -- how important is this 136 funding that's been rejected? Would you rate it high or low? Is this very important to the capital structures? And I don't want no long narrative, just a -- you haven't seen the letter yet? OK. I can give you a copy after the meeting, but all -- all applicants were turned down.
But -- but how important is that to the overall capital structure of these companies?
WAGONER: Well, it's included in our cash flows. As you know, it's not advance money, though it's spread out as the funding is spent. And so, as I recall, the amount that we would receive next year in our cash flows is about $2 billion.
Important? Not important?
MULALLY: I think it's important. And we have in -- through 2011 that $5 billion. But I think it also is important because of what it's focused on, and that is the basic enabling technology to really make a step forward in fuel efficiency.
NARDELLI: Senator, of the -- of the $8.6 billion you reference, we've put $6 billion into this plan. That's why I wanted to be very clear with Senator Menendez that, in addition to the $34 billion, there's $25 billion of this money. We've put in about 70 percent of our request. We were told the guidelines would be somewhere around 80 percent.
I haven't received the letter, but I've heard of the letter. And one of it was that there was not an audit report, but there was -- they subsequently found that.
CORKER: OK, so these -- these are important parts of your capital structure, which is now we're talking roughly -- in formal applications, I consider this today a formal application -- of about $60 billion.
The interesting thing to me all along has been that all three of you have come in together. And I've read the plans and re-read the plans, and I would sort of qualify them this way.
Ford's plan is kind of, "Life is wonderful." And you've already done a lot of the things that need to be done. And fortunately, whether you were lucky or smart back in 2006, you borrowed money at lower rates and were able to fund yourself. I think it was probably because you all were forward-thinking and congratulate you for that.
Chrysler doesn't really want to be a stand alone business. I mean, that's well documented. The fact is, is that basically what your plan is about is you want to hang along -- hang around long enough so that you can date somebody and hopefully get married soon before you run out of money.
And so -- so I have to tell you, I have a little trouble when I look at that plan. I know that you haven't invested in product development. I know you don't have the technologies to really compete as a standalone. I know that your dealership levels all across the state might be really valuable to a foreign company coming in.
But I have to tell you that it troubles me a little bit knowing that basically all we're really doing is providing a little capital for you all to hang around long enough to get married.
And I consider you to be a very honest broker, Mr. Nardelli. I really appreciate the conversations we've had. And so I want to ask you this question.
I talked with a board member last night at Cerberus. And I know that they own 80 percent of your company, and I know -- there's been a lot of narrative, and I don't know whether this is true or not, that in essence what they really wanted out of the purchase from Daimler- Benz was the finance companies and the auto stuff was sort of a bonus, OK?
And I talked with a board member last night and said, "Look, you guys are in asking us for public money today. Cerberus owns 80 percent of this company and has cash, lots of cash, that they are unwilling to put into this company."
You mentioned about what a great partner they were. I don't know. And I -- I have to tell you, I have some trouble -- these other guys have a different problem, because they cannot access cash. They don't have a father sitting up here with -- with cash that can inject into their companies. They have to go out on the public markets.
You're in a different situation. You're a portfolio company in a private investment firm that has lots of money. And they are unwilling to invest that money in your company.
And I want to add one other thing to it. We wouldn't be here if it weren't for G.M. And we're going to talk about them in just one second. We all know this.
It's almost like you lucked up. I mean, you guys were getting ready to be bankrupt. And all of the sudden, G.M.'s in trouble, and they have the sort of the clout, if you will, and Ford joins in, to come up here and ask for public monies.
And this is like a flier for you guys. All of a sudden, this is life again, OK? We might get $7 billion, even though our portfolio parent won't inject any more cash in us.
And I have a little trouble with that. And I wonder if you might just make me feel better about that.
NARDELLI: Well, I'm going to make myself feel better. The fact is, you know, we got a divorce last August. And so...
CORKER: They still own 80 percent of your company though, right?
NARDELLI: No, sir, Daimler owns 20 percent.
CORKER: Well, they still -- no, Cerberus owns 80 percent. Is that correct?
NARDELLI: That's correct.
NARDELLI: But I wanted to say, last August, we got a divorce from Daimler. And so some of your criticism is spot on, the fact that the company was somewhat hollowed out, the fact that it was functionalized.
The fact is that all functions reported back to Stuttgart. The fact is that there were European designs trying to be sold in the U.S. market. We canceled some of those products, you know, upon my arrival. We immediately terminated four nameplates. We immediately started on our restructuring plan. And we've taken out $1.2 million.
I can assure you, Senator, that I don't wake up every morning thinking about how to sell the company. We're busting our guts. And the people that are left there are busting their guts to make this thing work.
CORKER: But there's no future for the company as a standalone, is that correct?
NARDELLI: I don't agree with that, sir, or I wouldn't have been here. And I appreciate your comment as being a standup guy. For 38 years, I've made my reputation on delivering on my...
CORKER: Speak to the investment company that owns you, that has cash, and has a portfolio of companies that I assume are earning money that they could borrow against, if they didn't. What -- what is it that keeps them from -- from making you whole?
NARDELLI: If you think about, again, and this -- the misconception of a private equity company is that there's a few guys with a lot of money who invest in various companies.
CORKER: No, I know this is a lot of guys with a lot of money. So -- so...
NARDELLI: No, this is -- this is the same investors that he has as shareholders and that Rick has as shareholders. These are pension funds. These are, you know...
CORKER: So they're not willing to give you the lifeline? What the board member said to me -- and I want to move on, because I'm -- I'm going to run out of time -- what the board member said to me is that there's no way they would make additional investments in the automobile industry at this time.
And so here we are as a public entity being asked to do that. And I just want to say -- and I'll come back to you in a minute, if I can. I'm going to run out of time here.
DODD: Bob, would you just -- Bob, would you just -- I mean, just -- because I want to pick up on this point that you just raised, which I think is a valid one.
Mr. Nardelli, I'm reading -- I'm reading your report here.
DODD: And on point three, major business assumptions, let me read it to you. Chrysler remains focus upon developing partnerships, strategic alliances or consolidation as a fundamental element of its restructuring to expand its product portfolio, generate incremental revenue, and create additional operational synergies related to manufacturing, purchasing and distribution.
That hardly sounds like a go-alone deal. I just -- I apologize, but I just...
NARDELLI: May I respond to that, sir? It isn't...
CORKER: Look, there's not a human being alive in the automobile world that thinks that Chrysler is doing anything other than finding somebody to marry and that this cash is here long enough for you to do that.
And I want to move on. And I certainly will never be convinced of anything different. And -- and -- and I don't think there's an analyst on Wall Street, not that we should be paying particular attention to them, but -- that believes that.
But let me just move on, if I can.
NARDELLI: May I just, for the record, disagree, sir?
CORKER: OK, all right. I understand you disagree, but I would go back to your plan. And your plan says that you want to consolidate.