On Monday, the Congressional Oversight Panel (COP) held a field hearing on the Auto Industry Financing Program (AIFP) in Detroit, Michigan. The Department of Treasury, in connection with its other efforts to stabilize the economy, created AIFP in December 2008 to support the domestic automobile industry. The hearing on Monday was intended to give the COP a better understanding of the government’s intervention in the automobile industry through the use of the Troubled Asset Relief Program (TARP).
Witnesses testifying before the COP included:
- Ron Bloom, Senior Advisor, U.S. Department of Treasury
- Jan Bertsch, Senior Vice President, Treasurer, and Chief Information Officer, Chrysler
- Walter Borst, Treasurer, General Motors Company
- Sean McAlinden, Executive Vice President and Chief Economist, Center for Automotive Research
- Barry Adler, Charles Seligson Professor of Law, New York University School of Law
- Stephen Lubben, Daniel J. Moore Professor of Law, Seton Hall University School of Law
- Richard Mourdock, Indiana State Treasurer
Mr. Bloom, who testified on behalf of the Obama Administration and its Auto Task Force, reported on developments in the bankruptcies of General Motors and Chrysler and the role the Auto Task Force going forward. With respect to General Motors and Chrysler, Mr. Bloom said that, “The Auto Task Force worked quickly to assist GM and Chrysler, and did so in a fair and open way.” He stressed that every stakeholder in the two companies made significant concessions, and that the restructurings, while “exceedingly painful and difficult” resulted “in two great American companies being given a new lease on life and . . . kept literally hundreds of thousands of American working.” With respect to the future role of the Auto Task Force, Mr. Bloom said that it would “closely monitor the loans and investments in both companies going forward” but would “not interfere with or exert control over day-to-day company operations.” Mr. Bloom said the government was “very eager” to sell its shares in GM and Chrysler, and that he expected a public offering of the GM shares as early as 2010.
Ms. Bertsch and Mr. Borst testified on behalf of the auto companies. Ms. Bertsch recapped the events leading up to the government’s involvement with Chrysler, and explained the role the government would play as a shareholder. Mr. Borst also discussed why GM required government assistance, and went on to detail some of GM’s plans for streamlining the company, including focusing on four core brands and developing new technologies and best-in-class vehicles. The GM that emerged from bankruptcy, he said, is “a new company with less debt, a stronger balance sheet, with the right size manufacturing, products, and dealer network to match today’s market realities.” In response to questioning about repaying the government, both Ms. Bertsch and Mr. Borst said they did not see any foresee any issues with repaying the taxpayers within the time frame contemplated by the government loan agreements. Mr. Borst said that GM’s goal was to repay the loans “much sooner” than the 2015 deadline. COP member, Rep. Jeb Hensarling (R-TX), expressed irritation that the chief executive officers of neither GM nor Chrysler testified at the hearing, saying, “Now that it is time to account for the money, you don’t see them.”
Mr. McAlinden, the Executive Vice President and Chief Economist at the Center for Automotive Research (CAR), testified on CAR’s research regarding contraction of the automotive industry and its impact on the economy. In CAR’s estimation, government intervention helped the auto industry avoid a “worst case” scenario in which approximately 1.8 million jobs would have been lost in the next two years alone. Additionally, Mr. McAlinden said that if GM and Chrysler were permitted to fail, the “sudden and total loss of these companies could cause an economy-wide loss of confidence or even panic.” Mr. McAliden found “no grounds for criticism for the actions taken by members of President Obama’s Automotive Task Force—only grounds for highest praise.”
Mr. Adler, a law professor at New York University Law School, was highly critical of the government’s role in the GM and Chrysler bankruptcies. He characterized the Chrysler bankruptcy, which was structured as a sale under Section 363 of the Bankruptcy Code, as “not a sale at all, but a disguised reorganization plan, completed with distribution to preferred creditors.” Mr. Adler argued that the two cases “established a precedent for the disregard of creditor rights.” Mr. Lubben, a law professor at Seton Hall University School of Law, disagreed with Mr. Adler’s assessment of the GM and Chrysler bankruptcies. He listed a number of high profile cases in which the debtors relied on Section 363 to complete their reorganizations, calling the structure of the GM and Chrysler bankruptcies “entirely ordinary.” He concluded that there was “little beyond rhetoric to support the idea that either case impairs investor rights.”
Mr. Mourdock, the Treasurer of the State of Indiana, testified on behalf of two Indiana pension funds, the Major Moves Construction Fund and the Indiana State Police Pension Trust. He reiterated many of the arguments presented by the funds when they moved to have the Chrysler bankruptcy case withdrawn from federal court in May 2009. Specifically, Mr. Mourdock argued that the Chrysler bankruptcy plan championed by the Auto Task Force arbitrarily ignored bankruptcy laws protecting secured creditors, that the use of TARP funds to support the automotive industry violated federal law, and that the Treasury Department and Chrysler had an “under-the-table-agreement” that prevented a fair valuation of Chrysler’s assets.
The COP intends to issue a report in early September 2009 concerning the Treasury’s authority to use TARP funds to support the automobile industry.