This week, the Senate Committee on Banking, Housing, and Urban Affairs and the House Committee on Financial Services held hearings on the current condition of the domestic automobile industry, in response to the industry’s request that Congress provide emergency relief to several of its companies, and following on the heels of proposed auto relief legislation introduced earlier this week by House and Senate leadership.
The principal witnesses (each of whom submitted their respective identical written testimony to each committee) that testified in front of the Senate Banking Committee at Tuesday’s hearing entitled “Examining the State of the Domestic Auto Industry,” and the House Financial Services Committee at Wednesday’s hearing entitled “Stabilizing the Financial Condition of the American Auto Industry,” included:
- Alan Mullaly, President and CEO, Ford Motor Company;
- Robert Nardelli, Chairman and CEO, Chrysler LLC; and
- G. Richard Wagoner, Jr., Chairman and CEO, General Motors
The hearings also included participation by various members of Congress, association representatives, including Ron Gettelfinger, President, International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (UAW), Annette Sykora, Chairman, National Automobile Dealers Association, and James S. McElya, Chairman and CEO, Cooper-Standard Automotive, Inc., representing Motor & Equipment Manufacturers Association, and academics, including Dr. Peter Morici, Professor, Robert H. Smith School of Business, University of Maryland, Jeffrey Sachs, Director, The Earth Institute, Quetelet Professor of Sustainable Development and Professor of Health Policy and Management, Columbia University, and Dr. Matthew J. Slaughter, Professor of International Economics, Tuck School of Business, Dartmouth College.
In his prepared remarks, Senate Banking Committee Chairman Christopher Dodd (D-CT) explained that top company executives of the “Big Three” automakers were coming to Congress “with hat in hand” to seek emergency assistance to prevent significant impairment or total collapse of their companies, which “could have repercussions far beyond those whose work is directly or indirectly connected to [the auto] industry” and could “create new and profound risks to the stability of the entire economy.” However, while noting that he supported government aid to automakers, Chairman Dodd also criticized the “top echelons of the Big Three” for turning a “blind eye” to opportunities for the creation of fuel-efficient and alternative energy vehicles, for dismissing the threat of global warming, and for generally failing to adapt to change.
The House Financial Services Committee hearing began with several members of Congress, including Senator Carl Levin (D-MI) and the House Financial Services Committee’s ranking member Representative Spencer Bachus (R-AL), expressing their opposing views as to whether the government should come to the aid of the auto industry. Committee Chairman Barney Frank (D-MA) criticized the existence of a congressional bias against aiding firms with blue-collar employees as opposed to bailing out financial companies with white-collar employees.
At both hearings, executives of the Big Three emphasized their need for short-term government aid to fund their operations, highlighting that their companies’ continued efforts to improve global competitiveness and restructure their business models had been hindered by the credit crunch, housing crisis, volatile gas and commodity prices, and weakened consumer confidence, all of which have contributed to the current downturn in the economy. While only Ford’s CEO stated that his company could survive without government assistance, all of the executives noted the potentially catastrophic consequences of the failure of even one of the Big Three to secure additional financing, including the collapse of the “uniquely interdependent” industry that shares a supplier base and overlap in dealer networks, which would consequently create significant ripple effects in the broader economy. Additionally, at the House hearing, the CEOs of Ford and GM indicated that their companies did not have contingency plans in place yet in the event that they were forced to file for bankruptcy, while Chrysler’s CEO stated that his company did have such plans in place.
The association representatives advocated government assistance for the auto industry, emphasizing the importance of a robust domestic auto industry to the overall economy and the serious adverse consequences auto dealers and suppliers would face in the interdependent auto industry as a result of the collapse of any single auto manufacturer. In contrast, the academics adhered to the belief that any government bailout assistance would “incur large costs to American workers, companies, taxpayers and the overall economy.” One academic called on Congress to refrain from assisting the Big Three, and allow them to file for Chapter 11 bankruptcy, which would lead them to emerge from reorganization with “new labor agreements, reduced debt and strengthened management” that would increase global competitiveness of the U.S. auto industry.