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Big Three on Capitol Hill Today
Aired December 04, 2008 - 14:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
ROBERT NARDELLI, CEO OF CHRYSLER: May I respond to that, sir?
SEN. BOB CORKER (R), TENNESSEE: OK, so let me -- let me -- let me move on then to --
NARDELLI: Sir, may I respond to that just one second? Those comments are, as in my opening comment, that alliance, for example, where we manufacture all of the Volkswagen's and minivans for North America. Two, that alliance with Nissan, they have entrusted was the entire product line of light trucks for 2011. Those are alliances and partnerships. It is sharing manufacturing facilities to avoid heavy capital expenditures on transmissions, on axles, so that is really trying to improve our viability, sustainability.
CORKER: Right.
NARDELLI: Not selling ourselves.
CORKER: I know that you and GM spent an inordinate amount of time trying to figure out a consolidation. That is a fact. I know that both of you were intricately involved in that. That is a fact. I know that a plan was presented that actually showed there would be less public money necessary if the two of you consolidated. I know that Chrysler has been very excited about that possibility, but GM rejected that at the board.
And again, these are the kinds of things that we need to force to happen. There is nobody that I know of that thinks that three companies, with the market share that you have, the downward trend that exists, the unsustainable debt that is out there, there is nobody, no thinking person thinks that all three companies can survive. OK?
So, I go back and I just want to ask - I want to get into GM more deeply. I gave up a little time earlier, but I'd like to ask Mr. Wagoner. I know that this plan exists. And I know that you were very involved in putting it together. I know that the board turned it down. And I know that you have tremendous issues to deal with, and maybe turned it down because you have too many fish to fry right now. But what was the reason that you turned that down?
RICK WAGONER, CEO, GENERAL MOTORS: We did consider an acquisition. I'd say two things happened during the process. One, the market dropped dramatically so that our own funding needs increased more than we thought. And so, as we discussed that with the board, they said, we have to make sure we have enough funding to take care of our own business. And, as you know, any kind of merger acquisition/merger activity is human resources intensive.
Second of all, at the beginning of these conversations there was a lot of discussion about public funding - public-market funding being available. And as the credit market conditions deteriorated that opportunity changed. So, as a result of that, the whole issue of focusing on the very important issue of liquidity for GM was I think appropriately at the top of the issue for us.
CORKER: Let me ask you this. The plan at the time -I realize things have changed. It did say that there would be lesser outside money necessary, pretty large amount, if the two of you merged. Did it, or did it not?
WAGONER: Well, what I can tell you, Senator, is that it, at the time that we made the decision not to proceed, we did not have the capital cash. We were concerned we didn't have the cash to make it until a deal could be closed, and the financial institutions could not assure us that they could provide that funding.
CORKER: OK. Let me get into the plan just briefly. And again, thank you for your patience.
I looked at your plan and I would agree with others that I think that your plan was fairly thoughtful. I told your COO that yesterday. I think that it is a nice first step. OK?
And you can tell that the senses have been heightened a little bit over the past couple of weeks, and it is obvious that you guys have put a lot of thought into survival. There are couple of things. Your debt loads are unsustainable at any level of sales. OK? I know we had $17 million sales recently. We're on about a $10 million sell run now. Next year you are projecting about $11 million. But at the debt levels you have and the liabilities you have, it doesn't matter if we're at $20 millions you cannot survive. OK?
So that has to change. The makeup of your capital structure has to change. So, I noticed yesterday in your plan, you had about $28 billion in unsecured debt. We checked yesterday. And your debt -- unsecured debt is selling for about 19, or 19 to 21 cents, the bonds. So, basically you had given about a 50 cent haircut to bond holders that we understand would be glad to be taken out at 30 cents on the dollar. So, again, a not very aggressive step as it relates to what could happen, if you will, by March 31st. The problem is the UAW is there, and bondholders are not willing to take a haircut unless he takes, what I would call, a real haircut.
Now, there is a lot of lauding about the changes that the UAW has made. To be candid, in this proposal not so much. OK? So let me sort of move into that. You have VEBA liabilities, about $21 billion, voluntary employment benefits, association payments. If you go into bankruptcy, those are toast. Their gone. And I think UAW knows that. Most of the people that are looking at your structure say that VEBA, at least half of it has to be equitized. In other words, instead of taking money, they have to take equity, OK?
Those are the kinds of things that it seems to me that we would want to put in the legislation -- if we did anything other than Chapter 11 debt financing. And so I would ask, it starts with Mr. Gettelfinger, because the bondholders are not going to take a haircut of 30 cents on the dollar unless he is willing to change the capital structure. I just like to him, in front of all of us right now, to give us a little sense of how heightened his senses are as it relates to this company surviving?
RON GETTELFINGER, PRESIDENT, UAW: Well, first of all, let me just back up to the changes that were made.
CORKER: I have read all of those.
GETTELFINGER: No, what I -
CORKER: I know we went through this last time. I understand about the jobs bank and I want to get into that. I understand about the - I really, I'm very understanding of the changes. I met with UAW representatives yesterday. We went through them again. So I understand about the jobs. Is there something else, other than the jobs bank, and if core - if your numbers work out by 2012. I will say it is tough to reach that, because you are not hiring new employees. It is going to be tough to reach those levels. But if you would just respond to VEBA
GETTELFINGER: VEBA, yes, $21 billion; '05 changes, rolled through the negative as a negative planned amendment, Senator, instead of a curtailment. And so the company does not get the full benefit of that until 2009 -- 2010.
CORKER: The company will not be here in 2010, OK? Unless we do something.
GETTELFINGER: But I'm -
CORKER: And I'm asking you, if by March 31, to get back on Schumer's line of thinking, I am asking you if by March 31, you would agree to equitize, turn half of that obligation into equity, so that this company has a balance sheet that will allow them to survive? I am asking that question.
GETTELFINGER: And what I would respond to that, Senator, is that we have brought in two professional groups to help us. We took action yesterday to delay or to defer the payments that are due on January 1st of 2010.
CORKER: But you won't get the payments if they go bankrupt. So, again, I'd like to ask. It is a serious question. Are you willing to take your membership that type of proposal, which is the only way these guys -- you have to look at the fact that they have X-debt today. They need to do away with at least two-thirds of their bond indebtedness. They have to do away with at least half of the VEBA obligations in order to survive. And I am just asking if you are willing to do that? Because otherwise, there is no reason for us to be contemplating all of these things.
GETTELFINGER: I understand that, Senator. But I also understand that I am here as a representative of people. Right here is a letter from a person who gets $322 a month in pension; $322 a month. We gave her a bonus. And you know what she did with it, Senator? She gave 10 percent to charity and kept $100 out for Christmas and put the other $300 in an emergency operating fund. That is the people we are talking about. I cannot answer your question directly without expert advice. I have suggested, sir, that we have brought in the Lazar group to assist us.
While it may not mean anything here, we took action yesterday to talk about a deferral of our 2010 VEBA payments because we recognize the liability that is out there on a company's books. We also recognize the value of spreading that out, that payment. But that is a tremendous risk that we're willing to take. It may not mean a lot to many people. But to us, when we are talking about people that worked on their lines, that gave their entire life for that, and their pension is at risk, that is very critical part of it.
CORKER: Well, all of the benefits are at risk.
GETTELFINGER: I understand that, Senator.
CORKER: Let me ask you another question.
SEN. CHRIS DODD, CHAIRMAN, SENATE BANKING CMTE.: Bob, can I? I'm going to come right back.
CORKER: Yes, OK.
SCHUMER: Because I have three other members. And I want to give you more time, because you deferred earlier. I will come back to you, but let me turn to the Senator Casey Tester and back and forth here.
SEN. ROBERT CASEY, (D) PENNSYLVANIA: Thank you, Mr. Chairman.
DODD: Thank you, Bob.
TESTOR: First of all, I wanted to thank the witnesses here for your testimony and the work that went into this testimony.
For me, this debate is pretty simple, as complex as the financing, as complex as the challenges are, it is about jobs. I come from Pennsylvania, which is not normally considered an auto state. But, when you look at the numbers in our state, on supplier jobs, direct and indirect, it is more than 80,000 and more than 83,000 jobs in that sector. When you look at dealerships, and Mr. Fleming, we appreciate the testimony that you provided, look at the dealers in Pennsylvania, 50,000 jobs.
I was looking at unemployment data from September '07 to September '08, in Pennsylvania. September-to-September up 91,000 unemployment. Our state, and I know the country as well, but I can speak for my state cannot sustain anymore hits. I am not saying that if we don't act we will lose every single one of those jobs, but we cannot afford to lose another 5,000 or 10,000 or 25,000 jobs. Our state, candidly, is a been there and done that state. We went through this in the steel industry way back in the '70s, where hundreds of thousands of people, in a couple of counties in Pennsylvania, lost their job in three or four years; hundreds of thousands of people in one fell swoop. We can't allow that to happen again.
I was just talking to some dealers this morning. We lost 56 dealers in Pennsylvania last year. This year it is above 60 already. Just yesterday, there were three. This is happening in real-time. This isn't some theory. Jobs are being lost right now. So in our state, we cannot afford the do anything, in my judgment, but to act and to do something here.
I have to say, also, we are guard to the labor concessions, Mr. Gettelfinger, I wanted to review some of those, because I am stunned by the kind of -- when you hear the talking heads on television and when you read what some people say in this town, and across the country, about the mythology that is out there about how we are get into this situation. And frankly the scapegoating of the men and women of organized labor, and in particular autoworkers.
Point number one, in 2005, cuts in wages for active workers in health care benefits for retirees. Point number one, I am reading from your testimony. Cuts for new workers bringing in the wage level down to $14/hour. How many industries are doing that? Reducing the company's liabilities for retiree health care by 50 percent. And I realize that these have been in the record before, but it is very important. And wages and benefits: You said yourself that there are about 10 percent, 10 percent of the budget? You would think that listening to some of the people talking out there, and some of the so- called experts, that wages and benefits were 70 percent of the cost. So there is a lot of mythology. A lot of myth, generally, that has been put on the record.
Since 2003, downsizing by the companies has reduced their workforce by 150,000 people. That doesn't get said very often. The labor cost gap with foreign transplant operations would be largely or completely eliminated. OK? So, it is -- I think it is important to put this information on the record for this hearing.
And then we have heard this garbage about $73 an hour. That is a total lie. Some people have perpetrated that, deliberately, in a calculated way to mislead the American people about what we are doing here. It is a lie. And they know it is a lie. So, with that as my predicate - I know I am almost out of time , at least according to the original time agreements -- I have a question for the three CEOs with regard to accountability.
One thing that I think is very important here is that we not just talk about, but demonstrate to taxpayers that we get it on the question of accountability. And that you get it. I know you have a lot built into your plans. I think it is very important that we take a look at this on a monthly basis. If I had my way, we regard to this legislation, I would insist upon monthly reporting, monthly benchmarking, or compliance with benchmarks; monthly compliance, or the meeting of the milestones. I think it is very important that we have provisions to talk about it month-to-month.
So I ask all three of you, starting with Mr. Wagoner, two questions, really. One is, with regard to monthly reporting, in the distribution of public dollars based upon that monthly reporting, would you agree to that? And also would you be willing to make government assistance the most senior debt secured by the assets that we have talked about here today? Would you agree to both of those?
WAGONER: Yes, on the first one. And on the second, we do have some secure debt, but we have a lot of collateral that is not secured. And so for that piece, we could cover any near-term funding. So yes, to the second one as well.
CASEY: And, Mr. Nardelli?
NARDELLI: Yes, sir. Certainly on the monthly, we have committed to that in our testimony. The majority of our equity is secured, and therefore, I certainly am not in a position to commit that that would automatically become unsecuritized, or subordinate to the government. That is what was talked about earlier, as far as having, or appointing someone, and I think it was said that this committee certainly has the power to make that happen. So, I would ask that, you know, certainly this panel and Congress, if that is that is their wishes and that is the criteria, then that is something certainly this panel has the authority to do.
CASEY: Mr. Mulally?
ALAN MULALLY, CEO, FORD MOTOR COMPANY: If we need to access the taxpayer money, the monthly is very understandable. And we would comply. On your second question, our current covenants, right now, with the debt we have, we would be breaking those covenants and we could be put into default, but having said that, there just has to be a way, and I'd be committed to figuring out that way, to get us altogether to figure out a way to protect the taxpayer. I understand completely.
CASEY: On the question of credit, each of you have credit financing entities that we all know about. But my question on that is one of the ways that I they would give taxpayers some assurance here that the dollars would get to where they are supposed to get to, and rectify some of the problems, is that we focus on getting direct help on financing. Would it be helpful to you to have direct infusions of capital into the credit entities? So that you have and I would assume that this would be helpful that you'd be able to -- that you would have, unlike the banks, who have been sitting on a lot of our taxpayer money, without a lot of questions asked by the way, you'd be infusing an entity with dollars where you'd have lending that would be happening almost immediately because of the inability for most people to walk in and buy a car without access to credit. I just ask each of the three of you to comment briefly.
UNIDENTIFIED MALE: Sir, not --
KYRA PHILLIPS, CNN ANCHOR: Well, you have to hand it to the sputtering U.S. car companies, turned away when they begged Congress for $25 million in bridge loans just two weeks ago. Well, they are back today as you can see, for $34 billion. Whether the lawmakers really will hand it to GM, Ford and Chrysler remains to be seen. But three things have changed since last time. The CEOs have brought detailed business plans for a federally financed turn around. They have won a pledge of major concessions from the United Autoworkers, and they have parked, or even promised to sell the private jets that didn't seem to square with the tales of woe and vows to reform.
Now if you were with us last hour, you heard the governor of Michigan warn that if the Big Three go belly up our recession would fast become a depression.
Ali Velshi, how high are the stakes here?
ALI VELSHI, CNN CHIEF BUSINESS CORRESPONDENT: Well, this is exactly what it comes down to, Kyra. I hope that Congress makes some decision, because it went from $25 to $34 billion in two weeks, who knows what it could be if they delay. But they are putting out these doomsday scenarios. And what it comes down to now is whether Congress and the American people believe it.
They are saying that dire consequences will occur if they don't get the bailouts. GM says it needs $4 billion by the end of the year. Chrysler wants $7 billion, and it says that it needs much of that by March. Ford is in the best position here, but the issue here is -- is Congress going to call their bluff, or is Congress going to say this could be very serious?
You know, there are a lot of people out there who are saying that if your companies are run in such a way that are so inefficient, isn't that what bankruptcy is for? And here you are listening to -- a moment ago, you were listening to Ron Gettelfinger, the chairman of the UAW, and they are putting together quite a force to say, we really, really need this money. And by the way, we may have made mistakes in the past, but don't blame us for the last several months. Between the run- up in gas prices and the recession we are in, and the people who are out of jobs, and the inability to get credit, every carmaker is hurting in the United States.
So it is a complex argument. They are getting a lot more done in this session than they did, you remember, Kyra, when they were there last time where it was a lot of sort of blame and they were really getting in the neck for those private jets. Now they are talking about real substantive stuff. But it still comes down to whether or not you believe them.
PHILLIPS: Well, I'm looking through the notes here. It was Gettelfinger who said that if the money was not loaned to GM, that GM won't be here at the end of the month.
VELSHI: Yes, yes. Well, that's right.
PHILLIPS: Do you agree with that?
VELSHI: Yes, GM will run out of money, and they have said it clearly, they will run out of money by the end of the month. General Motors and Chrysler are both companies that could face bankruptcy. And I'll tell you why. If they don't make certain payments those people who, you know, who they are owed the money, can push them into default. In which case other interest rates will go up, other loans will come due, and then it is like a house of cards. The issue here is they want that money now, to say afloat. But they haven't discussed what will happen if they go into bankruptcy. Because both GM and Chrysler have said that in bankruptcy, it is not like an airlines going bankrupt, where you will still your ticket, if you think the airline is flying. They are saying people won't buy cars from a company that they don't know will be around. So, by putting them into bankruptcy, means essentially, you are putting them into liquidation. They don't reorganize, they could just disappear.
PHILLIPS: All right. Stay with me and monitor.
VELSHI: Yes.
PHILLIPS: Thank you so much, Ali Velshi. We are going to go ahead and go back to the hearings and listen.
(JOINED IN PROGRESS)
SEN. JON TESTER, (D) MONTANA: The Big Three, the Detroit Three or whatever you call it.
NARDELLI: Sir, if we are fortunate enough to get the funding, as I said, we have built in some 136 money, and we have identified $4 billion of cost out starting March 31st. We have made the point about the importance of the finance company, I believe -- I believe, sir, that we will get through 2009, because we have laid in a very conservative plan.
TESTER: And if the economy stays static, will you get through 2010?
NARDELLI: Yes, sir. We've --
TESTER: OK. Good enough. Next.
MULALLY: Yes, as we have discussed, we believe we have sufficient liquidity today, but clearly your point is very important if the economy, and the industry, degrade significantly, we would be asking for that bridge loan, too, to keep going.
TESTER: Got you. Yes.
WAGONER: Our downside plan, and our submission was based on 10.5 million units next year, which is about where the industry has been running the next couple of months, so that is why we added the additional $6 billion credit facility. If the 10.5 continued for a couple more years then we would need to either cut more costs or get more funding, because our baseline plan assumes it goes up by about a million units a year.
TESTER: OK. Thank you.
I would just say this. You guys have been put under far more scrutiny, far more scrutiny, than the people up here on the board, for far less money. And I'm not happy about the transparency, the accountability, as I have said before of what the administration has done in regard to throwing hundreds of billions of dollars out of the door. And the fact when I listen to you guys testify you cannot even get credit, and that is what this is for, is nothing short of ridiculous. And I would love to have those birds in here again, because they need to be talked to. Or at least get some questions answered. One of the things they have done -
PROTESTERS: The homeless, the hungry, the poor are suffering!
TESTER: I hope this doesn't count against my time.
PROESTERS: The homeless, the hungry, the poor are suffering! (UNTELLIGIBLE CHANTING)
TESTER: I would like to tell you that one of the problems I have got with the use of the TARP funds is for bank consolidation, and I would hope that, well, for example, Capital One is just acquiring Chevy Chase Bank. They are a recipient of TARP funds. We have a similar situation that could be here, Senator Corker has talked about it. And that is the potential consolidation and you talked about it in the plan, Mr. Nardelli, and I just need assurance that no dollars given to you would be used for a merger, either foreign or domestic.
NARDELLI: Sir, I can assure you that if that is incorporated into the guidelines, then it will not be. I would come back and, for example, one of the things in my proposal was if you take the $25 billion out of $136, and the three of us were to create an independent technology center, I would submit to you that it would be more efficient and more effective as evidenced in the hybrid technology that we jointly developed, that Rick and I did, and as a matter of fact the vehicle I drove down here.
TESTER: I understand. It is just -- it is just that I don't want to make the same mistake again. We should have asked tougher questions with the previous.
NARDELLI: Yes, sir.
TESTER: And I don't want to -- and we will get on to this with some other folks, too, as we go forth.
You know, Mr. Wandell, you have not been asked any questions, and I feel an obligation at least you get involved in this. How is your business doing at this point in time with the economic turn down?
KEITH WANDELL, PRESIDENT-JOHNSON CONTROLS: Well, you know, as I mentioned, luckily, we are diversified in several businesses and we're global. So, in general, we are doing well.
TESTER: OK. That's basically what I need to know. Because you are going to be asked to be part of the equation to reduce some of your costs, too, to be able to make these folks whole. You see that as a absolute, no problem, possibility?
WANDELL: Yes, that is the way we come to work every day. Every year we are asked for price downs from our customers and that is part of the equation. TESTER: The $136, to be used to increase your CAFE standards, as I read it and I just want you to confirm this, as I read your business plan, those were critical to make this $34 billion work across the board. I don't want to put words in your mouth, but yes?
WANDELL: Yes. They are included, yes.
TESTER: OK. The issue of dealerships and I don't want to get into this very deep, because it can, we could spend all day on this. But we're talking about potentially closing some dealerships, at least, that is what I read. Have you identified what the metrics are going to be to close dealerships?
NARDELLI: The program that we started last August, when we became privately held, was to go out to every region and identify the dealers that are in that region and work in harmony with them to facilitate a consolidation that would make the remaining dealers more profitable, and we would put all three brands under one roof.
TESTER: OK. Is that fairly typical with the way the other two would answer the questions?
MULALLY: Yes, and just to add more clarity, but we have a tremendous set of dealers throughout the United States. We are very, very strong and, of course, all of the small-and medium-sized communities, the areas that we are working together with the dealers and they are very encouraged by this too, are in the big metropolitan areas, because the most important thing we do is to get their through- put and their profitability up, and we are on plan for that.
TESTER: What about the rural areas?
MULALLY: They are very good shape and they are doing a great job.
TESTER: You have dealerships in towns of less than 3,500 people. Are you going to keep them?
MULALLY: You bet. And they are the fabric of the community.
TESTER: Same with GM?
WAGONER: Yes, what we do, the individual dealers make the calls there. That number has been slimming down gradually over time, just because of the economics of the car business, but it is their call.
TESTER: I come out of the state legislature and I will tell you a big complaint we had from the auto dealers association is that the manufacturers were trying to consolidate, consolidate, consolidate the dealership. I heard it over and over again that we had to deal with that at the state level, state loss. You're saying that attitude doesn't exist anymore?
WAGONER: If we have a situation, let's say where you had three dealers in a community and none of them can be profitable, we try to work with them, but they have to make the call. TESTER: OK. Last question, and I have a bunch more, but time is of the essence. So just bear with me, just for a second. The $136 money, $8 billion, $8 billion, and $5 million, where is that 136 money going to be spent? I know it is going to be spent to increase CAFE standards. Is it going to be spent in the U.S.?
WAGONER: One of the requirements is that it is based here in the U.S. and we are spending it primarily on our electric vehicles.
TESTER: OK.
MULALLY: Yes, and all the enabling technology, power train, weight, aerodynamics.
TESTER: GM?
WAGONER: Yes, and I'd just add, and obviously, a big piece of our initial money is to fund batteries and Chevy (ph) hold (ph).
TESTER: And one of the things I talked about earlier, and I'll stay with you Mr. Wagoner, real quick, and the earlier question was, is this money if we put up the $25 or $34 billion, now, if it is going to be spent in the U.S.? I heard rumor that you were going to expand a facility, or at least announce the expansion of a facility in Mexico, a manufacturing facility. Can you tell me if there is any credence to that?
WAGONER: Well, have -- all of the announcements we have about Mexico, I'm not aware of anything additional. I mean, we've got three assembly plants, we don't plan anymore.
TESTER: How about expansion of the existing ones that are there?
WAGONER: No, Sir, I'm not aware of anything. I'll get back to you.
TESTER: I'm just say, whether it is millions of dollars that you have in Mexico, or whether it is this, if we allocate this money and two weeks from now you guys announce an expansion of a manufacturing plant in Michigan, I'm going to be unhappy.
WAGONER: You -you - in Mexico?
TESTER: Yes, in Mexico -- what did I say?
(LAUGHTER)
TESTER: I said Michigan, didn't I?
(CROSSTALK)
TESTER: Exactly, instead of Montana. I just, in Mexico, right. Thanks for the - by the way, thank you for the correction.
(LAUGHTER) WAGONER: Look, let me check, if there is anything come up, I will get back to you, but I am not aware of anything. I don't think there is.
TESTER: I mean, the part of my justification to keep you, to keep you folks solvent and in business, and employ folks, at good wages with good benefits, is number one we need a manufacturing base in this country and we can't afford to lose it. But number two, I don't want to give American taxpayers' dollars to somebody who is going to invest it in some other country than this country. That has been a problem.
WAGONER: Sir, let me just be clear, no funding that comes out of this would go to fund a facility overseas.
TESTER: We had the conversation before on that, and I will tell you that it is really tough for people to differentiate if you guys get a $34 billion loan, bailout, whatever you want to call it, that within a few months if there is an expansion announcement, it is not in Michigan or some other place in the United States, it's going to be -- Ohio, Montana -- it's going to be very, very tough to justify.
Thank you for being here. I appreciate your time. You've done far more, as far as justifying your case, than any of these folks up here. Thank you.
DODD: Very good. Let me just add, I'm going to raise a question going to my colleagues as well, but I can just tell you, to the CEOs, at least talking to my dealers in Connecticut, and Mr. Flemmings (ph) here, one of the problems on this rebate, where they are providing rebates to customers who can come in and qualify for a loan, but the dealers are not getting compensated from the manufacturer very quickly for the rebates, so their margins are very small, putting tremendous economic pressure on these dealers. I don't know if that is just unique to my state, I suspect it's not.
And I'll wait for my turn to come around, but I raise that issue because it is one that really that the dealers are not happy with the manufacturers about some of these issues.
I wouldn't want the time to go by and assume somehow this is all kumbaya between the manufacturers and the dealers. It's not.
Senator Carper --
SEN. TOM CARPER (D), DELAWARE: Thank you, Mr. Chairman.
Every now and then in our business we face the voters and one of the questions that is sometimes on their minds is, what have you done for me lately? And I think that you all are going through a little bit of that here today in terms of what have you done for us lately in terms of productivity; what have you done for us lately in terms of bringing down the labor costs; what have you done for us lately in terms of improving quality; what have you done for us lately in terms of improving the fuel efficiency of the vehicles that you built? You have actually, I think any fair-minded person would say, on every one of those fronts, you've done a lot. You've done a lot. And that doesn't mean it is time to stop. But I think I'm a fair-minded person, I think most of us are, but I want to commend you for what you have done and commend you for what I believe you are willing to do next to merit the support that we are talking about providing.
Mark Zandi over here at the -- this end of the table is a smart guy. And whenever we are trying to put together a stimulus package, he was good enough to provide something that I called the bang for buck chart and what are the things that we can do when we're looking into a recession, moving into a recession, to try to turn that around. Does it make more sense -- do we get more bang for the buck for food stamps? Do we get more bang for the buck for extending unemployment benefits? Do we get more bang for the buck by providing these stimulus checks -- these tax rebate checks that go out? And he is always very, very helpful.
If you -- so this is an unusual thing to ask in terms of -- but thinking about that bang for the buck chart, would the money that we are talking about providing you with here, whether it is $34 billion or $25 billion, sort of where would that be on the bang for the buck chart, Dr. Zandi?
MARK ZANDI, CHIEF ECON. CO-FOUNDER, MOODY'S ECONOMY: It would have a high bang for the buck. Just to give you kind of a range, the infrastructure spending has the highest -- $1.80 -- certain kind of tax cuts -- $1.10, close to $1. This is more like direct government spending, so it would be, you know, $1.50 to $1.80, somewhere in that range, I would think. On the fly, that would sort of the bang for the buck I would think.
CARPER: That is what I am looking for.
You make four points, and I have gone back and reread these several times. You make four points in your testimony. I want us to revisit them again, and I want to especially dwell on the fourth point if we could.
Would you just sum them up really quick, starting with the first one -- I think your first point about -- just take it and just summarize very briefly in your own words.
ZANDI: Sure. Point one is that the federal government should provide aid. Without it, they would go into liquidation, there would be mass layoffs and at this point in our economy's economic situation, that would be extremely damaging. So I don't think we have a choice.
Point two is that the cost of ensuring that these automakers don't go into bankruptcy at some point in the next couple of years is going to end up being measurably higher than $34 billion. I gave you a range of $75 billion to $125 billion, but I think it's -- I think the odds are high that it is going to be measurably more than that.
CARPER: Is that -- I saw that number and I wonder, does the higher number -- your number -- $75 billion to $125 billion -- does that include the so-called section 136 money which you have already offered --
ZANDI: Yes.
CARPER: -- for retooling the plants and so that folks can make more energy-efficient vehicles.
ZANDI: Yes. I mean, Chrysler is basically saying I don't need to come to you today with -- for as much money because I am going to use that money. So yes, that would be part of it. Yes.
So they are already --
CARPER: Was it Chrysler that said that or Ford that said that?
ZANDI: I think all three --
CARPER: All three are the same. All right, fair enough.
ZANDI: So yes, I think that's -- when I say $75 billion to $125 billion, I am talking the total commitment taxpayers are going to have to make to these organizations to ensure that they do not go into bankruptcy over the next two years. That's T.A.R.P. money, that's section 136 money.
CARPER: All right. Go onto point No. 3 if you will.
ZANDI: Yes. Point No. 3 is that if they can stick to the script that they have laid out, they will become viable companies, on the other end of this, with that help. But sticking to the script, outside of bankruptcy, is going to be very, very difficult to do because you have so many stakeholders, creditors, UAW, suppliers, dealers -- all have different interests. It is going to be very difficult for them to stick to the script.
And therefore in theory, it looks great; in practice, I think it is going to be tough. And I would plan it on the likelihood that they are not going to stick to the script.
And that gets to point four and what I would do. I'd give them $34 billion. I would --
CARPER: All at once?
ZANDI: No. I would say that you need, according to the plan, I think -- roughly, G.M. needs $10 billion to make it through to March 31st, Chrysler needs $7 billion. Ford doesn't need anything. nothing. I'd give them $17 billion and that should ensure that we don't go into bankruptcy liquidation through March 31st.
I would establish a mechanism, a board, or more -- I think Senator Schumer's idea is probably better one in context of the time limitations, someone that says, are you meeting the -- we're going to have very clear benchmarks. Are you meeting the benchmarks? When we get to March 31st, awe say, you know, this is a good investment, we're going to give you the next tranche, or it is not a good investment, we're going to be throwing good money after bad, and use the time between now and then to get ready to prepare for a bankruptcy.
You know, really think through what does it mean for the financial system, what does it mean for the PBGC, what do I need to do as a government to provide dip financing, what do I need to do to guarantee the warranties? All of those things. You've got three months, and you should have it figured out, what is next.
But I think I'd also make it very clear to everyone, that this is it. Because when you say this is it, and you stick to this is it, then it makes a much greater chance that I am wrong on point three, and that is the most important thing.
CARPER: I think your point about sticking to the script is an important, real important point.
In your testimony, and when you talked about point No. 4, you talked about the federal government providing the support in two tranches, you talked about the first one maybe being $17 billion. In exchange for warrants and in restrictions, restrictions in providing things including executive compensation, dividend payments, that sort of thing -- in the situation with Chrysler -- G.M. and Ford, I can see where the warrants work out, we did Chrysler warrants gosh, 29 years ago. I think it was 29 years ago.
(CROSSTALK)
UNIDENTIFIED MALE: $300 million --
CARPER: But that was when Chrysler was publicly held. And my question of you, Dr. Zandi, is how do we do warrants with Chrysler in this situation, or something akin to warrants, so that we have a reasonable return for the taxpayers in light of our willingness to take on this risk?
ZANDI: I think it is a great question for Mr. Nardelli. How would they compensate the government for this -- Mr. Nardelli?
NARDELLI: Well, I know that service has already committed to forego all of their carry-forward interests. They are more than willing to make sure that all of the upside benefit goes back to the taxpayers. And so, I think, you know, when you bring everybody to the table, Cerberus is more than willing to provide the security and the commitment that the taxpayers do recover from their investment in this company, sir.
CARPER: All right. Let me just say to Mr. Chairman, I -- this is a smart group of people, as you know, and I think the folks on the auto side and the labor side, they don't get enough credit for what they have already done. They've actually, I think, positioned these companies in this industry -- domestic industry here, within a couple of years. And Ford is little bit ahead of the game. We commend them for that. But they have actually positioned themselves to make a go of it.
And part of the key is providing, as Dr. Zandi suggests, enough money to keep the wolf from the door here for the next couple of months.
(END LIVE FEED)
PHILLIPS: All right. $18 billion for G.M., $9 billion for Ford, $7 billion for Chrysler.
Tell you what, that is some Christmas wish list, Brianna.
BRIANNA KEILAR, CNN CORRESPONDENT: It sure is.
And basically, this is just round two of the Big Three CEOs coming to Congress and begging for money to the tune of $34 billion, up $9 billion from when they came two weeks ago. And that was met by round two of skepticism from lawmakers, as well as an interesting reality check from one of the witnesses on this panel, Mark Zandi, who is a chief economist for Moody's, which does credit ratings and risk analysis.
He basically said the government should intervene, that they should do this. But he also said that $34 billion, it might not stop there.
(BEGIN VIDEO CLIP)
ZANDI: By my calculation, using my expectations for the economy and what it means for sales, market share for pricing, I'm skeptical, doubtful, that it is going to end at $34 billion.
(END VIDEO CLIP)
KEILAR: In fact, Zandi said that it would be more in the ballpark of $75 billion to $125 billion. So, he said that is really the realistic figure.
He did say, though, that the plans put forward by these automakers on Tuesday to basically jettison their brands that are not doing so well and to retool their fleets so that they are more efficient, he said that will lead to long term viability, in theory, thought. He said Congress needs to be prepared for the fact that if these companies are not in bankruptcy, which he doesn't think they should be, that it would be very hard for them to -- quote -- "stick to the script," as he put it.
So a bit of a reality check there, Kyra.
PHILLIPS: Reality check, indeed. Brianna Keilar, thank you so much.
Well they work on the assembly line, but they have a lot more on the line, their livelihoods, their families, their futures. We're going to hear from people who really drive the Big Three.
(COMMERCIAL BREAK)
PHILLIPS: Well, in the best case scenario, the people who build the cars and trucks and SUVs for G.M., Ford and Chrysler will lose a lot of their hard-won union benefits. In a worst case scenario, they will lose a lot more.
CNN's Brooke Baldwin is in Warren, Michigan.
Brooke, are folks there holding out hope?
BROOKE BALDWIN, CNN CORRESPONDENT: Well, I think that the keyword, Kyra, is hopeful. You said it perfectly on the other side of the break, they work on the assembly line, they have a lot on the line. And that is exactly why -- take a look around me -- that is exactly why these autoworkers here in Warren, Michigan, are sitting at this restaurant watching these hearings very, very closely, watching what is happening in Washington, because of course the outcome directly affects them.
And it directly affects Fred Kulka here. Fred -- we actually met Fred two weeks ago. We were in Bamboozles.
And we met you two weeks ago. You work across the street at the General Motors tech center. Fred has been with G.M. for 18 1/2 years. And you helped design the future cars of G.M., like the highly anticipate Chevy Volt, which is what CEO, Rick Wagoner, drove up to the Hill in this morning.
Part of the story now, though, is the element of frustration, the negative stigma for the American automotive industry, and the fact that you feel like you're getting picked on.
FRED KULKA, G.M. EMPLOYEE: Yes, indeed. I am very troubled with the tone in Washington right now. I see our politicians use the word bailout and use the word, giving us money. The truth of the matter is we are getting a loan. And if you look at the history, go back 30 years when Chrysler needed a rescue plan, the government worked a as partner and helped them in a time of need. And in the last 30 year, there have been just unaccountable tax revenue dollars that the government has received.
It is in our best interest to keep the manufacturing base alive. If you look at just the basics of economics, economics 101, you must have a manufacturing base to sustain a healthy economy. It is so basic, yet I don't see it with the politicians.
BALDWIN: Let's talk about the American perception of the American auto industry. A lot of people have driven these American cars and they do complain that they have broken down and they've switched to the foreign competition.
You gave a great example about the Hoover vacuum.
KULKA: Yes, you know, I had to take a deep dive. I'm troubled, I look at our country and how the perception is with the auto industry and, yes, there was a time when I bought a Hoover vacuum cleaner, this was a while ago, and it didn't do very well for me. And then I thought, you know what? I am never going to buy a Hoover vacuum cleaner again. And that just made me realize, it is part of the human condition to have that kind of mindset. And I -- but now, I'm here to tell everyone that you really need to rethink that because the truth of the matter is that General Motors, along with Chrysler and Ford, we build great product. There were some issues years ago, but we compete globally now. We do a very good job.
BALDWIN: All right.
Well, Fred, it is good to run into you and good luck with the Volt and I know you will be watching these hearings as many other people here in Bamboozles are hoping not to be bamboozled perhaps by Congress. We will just have to wait and see if and when Congress reconvenes, if and when that they get this multibillion bridge loan, Kyra.
PHILLIPS: And we'll keep checking --
BALDWIN: Very hopeful here.
PHILLIPS: Yes, exactly. Well, hey, we are talking about food for the table and big families to feed. Brooke, thanks.
Quick break. We'll be right back.
(COMMERCIAL BREAK)
PHILLIPS: Well, so much for a happy holiday. Thousands of new job cuts announced today as we continue to monitor the Big Three execs testifying in Washington. Well, they hit a wide range of sectors. Everything from banking to entertainment when we talk about those cuts.
(BUSINESS HEADLINES)
PHILLIPS: We're going to take a quick break and be back in just a second.
(COMMERCIAL BREAK)
PHILLIPS: We're going to go ahead to check in on those hearings. Once again, listening to the three big automakers. The CEO's testifying about why they need that bailout loan money.
(JOINED IN PROGRESS)
UNIDENTIFIED MALE: Yes. But that is the situation we're in with respect to the -- thank you, Mr. Chairman.
Thank you, senators.
First, I appreciate the candor of our witnesses. It's a rather profound question that Senator Bennett has raised. And your responses to them -- I've been sitting on a committee for a long time. That was a rather unique response to the question. Mr. Nardelli, I must admire your answer. I'm not sure it's the right policy, or not. But, I appreciate your answer for the questions. That's why I always get a little nervous about Congress, with 535 of us up here. We do a lot of things well. Some things, we don't do terribly well. And micro-managing a lot is what I get nervous about in terms -- that's why we sometimes give broader authority on the assumption people exercise that authority with some discretion and prudence.
But, I appreciate Senator Bennett raising it. A very provocative set of questions -- Senator Dodd.
DODD: Thank you, Mr. Chairman. There was a discussion earlier that suggested the Department of Energy had rejected the auto companies' 136 sum applications. My staff checked with D.O.E. and that's not the case. As is very common in (INAUDIBLE) loan applications, as you all know. D.O.E., I believe, has asked for more information. I just wanted to set the record straight there.
I wanted to follow up on Senator Tester's question. Auto suppliers, of course, as auto companies, have to worry about these days. One of these concerns is that the tax dollars will go into this program and their concern is that they not be used to offshore American supplier jobs.
I know some products as I think Mr. Wagoner said, like batteries for electric vehicles are not produced sufficient to your needs, domestically. But, I'd like just yes or no, on each of the three CEO's for you to commit and pledge to maintain or to increase your U.S. value added content. If you receive taxpayer support both from your companies, directly, that you will increase or keep the same value added content and on your suppliers that you use. If you would commit that if you get tax dollars.
Mr. Wagoner, if you'd start first. Just yes or no.
SEN. SHERROD BROWN (D), OHIO: Senator, I have to look at the data. But certainly our intention -- we're finding U.S. suppliers are frankly. more competitive today in a lot of areas then they've been in years. So I feel like that that will be the direction. But I would like to look at the data and respond to you, if I could.
UNIDENTIFIED MALE: Mr. Mullaly?
ALLAN MULLALY, CEO-FORD MOTOR COMPANY: The vast majority of all of our research and development is led out of the United States. We have no plans to change that.
UNIDENTIFIED MALE: Not just research and development. I'm talking more than research and development. I'm talking about everything you do -- the concern I hear from so many people, because they've watched what's happened with the banks.
They've watched money go for all kinds of purposes, including buying other banks. Let's put that aside. But they want to make sure that this money is spent for American jobs in the United States, whether it is suppliers, whether it's directly with Ford. MULLALY: I understand. And we operate, as you know, all around the world in the markets. And our is to properly grow our operations in the United States.
UNIDENTIFIED MALE: Mr. Nardelli?
NARDELLI: Senator, in my testimony, again. 73 percent of our sales in the United States, 61 percent of our production is in United States. 74 percent of our employees are in the United States. And 78 percent of our materials is purchased and used -- so we are -- I'd like to say, the most quintessential American company you've got.
UNIDENTIFIED MALE: But 100 percent of these dollars will come from U.S. taxpayers.
NARDELLI: Understand that, sir. And again, I couldn't agree with you more that we have to make sure as we work towards gaining independence on oil, we can't become dependent on foreign technology. So your point about battery technology in the future of this industry needs to be right here.
UNIDENTIFIED MALE: OK. People will be watching.
NARDELLI: Yes, sir.
UNIDENTIFIED MALE: Mr. Gettelfinger, I get the sense that some people think it's OK if domestic automakers go bankrupt, because all those jobs will be replaced in foreign transplant companies. You think the jobs lost in one of the big three and all of the jobs to it will be replaced by a like number --
PHILLIPS: We're going to continue to monitor these hearings out of D.C. I'm Kyra Phillips. I'll see you back here, tomorrow.
Rick Sanchez is going to take it from here.
