Panel II of a Hearing of the House Financial Services Committee - Stabilizing the Financial Condition of the American Automobile Industry

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REP. BRAD SHERMAN (D-CA): It would be insane if this country stopped designing and building automobiles and trucks. It would also be insane if the top executives from the three automakers came here on private jets. I'm going to ask the three executives here to raise their hand if they flew here commercial. Let the record show no hands went up.

Second, I'm going to ask you to raise your hand if you're planning to sell your jet in place now and fly back commercial. Let the record show no hands went up. I don't know how I go back to my constituents and say the auto industry has changed if they own private jets which are not only expensive to own but expensive to operate and expensive to fly here rather than to have flown commercial.

I also though must recognize that you're in trouble mostly because of the economic downturn. The proof of that is that all three of your companies were worth roughly five times what they're worth today at the beginning of this year based on Wall Street and in one of your cases, of course, a private transaction. I don't think Wall Street is -- didn't -- wasn't aware at the beginning of this year of all the problems that we've all talked about. It's the additional problem of these unanticipated downturns that's driven the value of your company down.

I've got three questions for the record. First is the idea of building and buying in America. We've talked about new investments in China -- I'm not worried about your new investments, I'm worried about your disinvestments. Chrysler, in particular, shuts down in Missouri, a shift that it's building the Dodge Ram, while continuing to build the same vehicle in Mexico and then shuts down a plant in Missouri building the Dodge Caravan, while continuing, running three shifts in their plant in Windsor, Ontario. I would hope that you would respond for the record whether you expect to get any bailout money from Ottawa or Mexico City. And if not, whether you'll commit yourselves as you disinvest, as you close down plants, to close down the foreign plants and not those in the United States.

Second, I'm concerned about the consumers. People in my district are buying your cars. They expect that five-year warranty to be there. You go bankrupt, they have no warranty. They're going to figure that out. But even before they do, are any of you willing to establish trust funds with a few hundred dollars per vehicle sold so that if your companies cease to exist there's at least something there to provide warranty service?

Third is to executive compensation. We've already talked about bonuses which are covered in the bill. But your total compensation package includes your salary, your bonus, the stock options as valued by the new accounting rules, ancillary compensation as well. And I would hope that you would be able to respond, for the record, that no one at your companies is going to get more than $1 millionper year in total compensation package, including bonuses, including stock options, including contributions to pension plans.

Now I have a question that I'd like you to respond to orally and that relates to the number of warrants that the taxpayers are going to get if we make this investment, because God knows we may lose it all. Now when Warren Buffett made investments he demanded -- and he was making much less risky investments than what you guys are asking for here -- a number of warrants equal to 100 percent of the number of shares that could be purchased for the amount invested.

A strike price equal to the current fair market value of the stock and a term on the warrants at least as long as the investment remained in place.

Now, I know that you'd like to give less warrants. And you're going to tell me how unfair it is that we don't just give you all the money that you want and not dilute your shareholder's equity. But are you willing to accept a federal infusion of capital where we get the kind of upside that Warren Buffett was able to negotiated, namely the terms I've just outlined?

I'll start with --

REP. FRANK: We won't have time for everyone to answer, but we'll get a couple.

REP. SHERMAN: Let's hear from General Motors.

MR. WAGONER: Yeah. I think we've all been clear that we're very willing to do warrants. To be honest, I shareholders have been dramatically diluted, as you highlighted, and we certainly feel an obligation to be responsible to them. But the most important item on our agenda is this bridge funding, and we respect the government should get fair compensation and are very willing to discuss the kind of terms you laid out.

REP. SHERMAN: If I have time, Ford as well.

MR. MULALLY: Nothing else to add.

REP. SHERMAN: So we're talking, roughly, five times the number of warrants called for in the current draft of the bill. And I'll yield back to the chairman.

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