The Energy Independence Implications of the Auto Bailout Proposal (Part 2)

The Energy Independence Implications of the Auto Bailout Proposal (Part 2)


[Official GPO Transcript] [Mr. Munger] … paying for your gasoline
up front. And there are policies that, you know, we
have gotten pretty clear confidence from our customers that they
will pay that price, because we do have a different demographic
target, but also it is really important that, you know,
things like feebates that transition or charge a fee for
inefficient vehicles and provide a rebate for the most
efficient vehicles can help bridge that gap to the consumer to
understand it is actually an NPV-positive calculation. So they
save money over the time they own the vehicle, but it is hard
for consumers to understand that. [Ms. Solis] Is that mostly for commercial,
though? [Mr. Morici] He is not selling compact cars,
though. He is selling a much larger commercial vehicle.
So we are not pricing a $45,000 vehicle against a Mazda Three or
a Ford Focus. We are pricing it against a much larger vehicle. The other thing to remember is that when the
Tandy personal computer first came out at Radio Shack it
cost about $8,000. You have to have an opportunity to go down
the commercialization curve of this technology.
If we can start making them, then we will make them cheaper.
So, you know, some patience is required. The automobile started
out being a vehicle for the very wealthy or a commercial
vehicle and then it got commercialized. Well, the same thing
will happen here. As for parts factories that your constituents
might work in or people that compete with might work in,
the single most significant thing this body could do to assist
them would be to fix the Chinese currency problem. That is
what is moving all these factories over there. It creates a 45
percent subsidy on Chinese exports to this country. What is more,
in order to sell cars in China you have to make them there;
and then they make you move your parts factories there. That
is what we have to fix. We don’t have a free trade policy with
China; we have a dumb trade policy. That has to be fixed, or
none of this can be fixed. [Mr. Wardle] I would quickly like to respond,
if I may, to your three questions about infrastructure,
spare parts, and green collar training. I would like to remind the committee that
when the Model T Ford was introduced in 1908, there were no
filling stations. You had to buy your gasoline at a pharmacy.
So I think it a chicken-and-egg situation. As these new kinds
of vehicles do come into the market, the infrastructure to
support them will follow. When it comes to spare parts, a lot of these
new generations of vehicles which are predominantly
electric drive will require less spare parts. Electric motors
and the drive trains associated with them are a lot less
complicated, a lot more reliable than the traditional internal
combustion engine. So your constituents in a few years’ time
won’t be looking for spare water pumps and all of the other things
that typically go wrong with older cars. Also, at the beginning of my career–when
it comes to green collar training, you talked about how Toyota
has been training and being good stewards. At the beginning
of my career, I watched the British car industry crumble as
the Japanese car manufacturers moved into Great Britain; and
I saw a sea change in management attitudes as these companies
came in. They took far more care to make sure that their new,
often green in another sense of the word, vehicle workers,
factory workers were trained properly. And it brought a completely
different dynamic. So it is very, very important that
the industry takes care of training its work forces. [The Chairman] The gentlelady’s time has expired. We just have a few members here. I am going
to, as a result, recognize members for a second round
of questions. This is a very important and, actually, an
historic panel in terms of what this discussion represents
in terms of what our expectations should be for 15 billion,
34 billion, or, as Dr. Morici is saying, an infinity sign next
to the amount of money which the automotive industry is going
to request from us. Excuse me? [Mr. Morici] It is very big. [The Chairman] A big, big number. So let me go down and ask each of you this
question. In testimony last week, Mr. Mulally at Ford and
Mr. Wagoner at General Motors submitted plans to the Congress.
Here is what the plans said. For Ford, they said that they would make a
26 percent fleet improvement by 2012. They would make a 36
percent improvement in their fleet by 2015. Here is what Mr. Wagoner said that General
Motors would do for the money, that they would average 37.3
miles per gallon in their cars by 2012 and 27.5 miles per gallon
for their trucks by 2012. Now, some very smart people at the Natural
Resources Defense Council translated these standards
into grams of CO2 per mile. When they did that, they found
that these plans actually meet the California standard,
which is being debated over whether or not there should
be a waiver for California to impose these standards. So that
actually translates into an equivalent of 36 miles
per gallon by 2015. So the question is, going back to Ms. Claybrook,
if they are testifying to the effect that they can
meet that standard and they want money from us, and that is what
their promise is to us, even if as Dr. Morici or others might
say they might try to wiggle out of it, doesn’t it make sense
to put their promises technologically into the law as the
condition of getting the money so that at least Ms. Claybrook
and others can sue them, the NRDC, the Sierra Club and others,
if they don’t meet that standard, so that they know that
there will be some accountability? Let’s go down quickly and have each one of
you answer that question. President Bush is saying he really
doesn’t want to go in that direction. But we are going to have
a big debate about this in the next 24 hours. That is the question
of whether or not we should have these conditions or some
type of conditions attached in terms of what the goals should
be of these industries from a mandated perspective, given
the fact that they are saying that they can meet these standards. Ms. Claybrook. [Ms. Claybrook] They should be in the law. [The Chairman] They should be in the law. Mr. Munger, in the law, not in the law? [Ms. Claybrook] In the law for all companies,
by the way. [The Chairman] In the law for all companies.
Good. In the law. [Mr. Munger] In the law for all companies. [The Chairman] In the law for all companies.
Dr. Morici. [Mr. Morici] In the law for all companies,
including the transplants. Make sure that “all” means
including the transplants. [The Chairman] “Transplants” means? [Mr. Morici] The Japanese car manufacturers
that operate here, the Germans, the Koreans, all those
people that make cars here. [The Chairman] Okay. Good. Mr. Wardle. [Mr. Wardle] Yes, I think they should be included
in the law. However, I think that the standards,
the figures that you have just described are woefully unimaginative
for the future. There are companies already that can deliver
cars with that corporate average fleet. [The Chairman] Mr. Wardle, you and Ms. Claybrook
have already made this point; and that is why we
have you testify. You are idealists who are testifying. But
President Kennedy said to people who looked like me when I was
14 years old that our job in politics was to be idealists without
illusions, and that is what that 15-foot gap between the
witness table and those of us who are sitting up there represents.
And so we try to do the best we can, given the incredible
political opposition that is presented by very powerful
institutions, including someone who sits in the Oval Office
of the United States of America right now. So I agree with your vision. I thank you for
it, and I thank Ms. Claybrook. We are trying here to
take advantage of a political opportunity as idealists without
illusions. And so, yes, I would do more myself if I could, wearing
my idealist cap, but I don’t have that luxury right now.
I have to try to figure out what we might be able to get done
in the next 24 hours or the next 24 days or so when we come
back and revisit the issue. Mr. Curless. [Mr. Curless] Yes. You need to put performance
measures in. Absolutely. [The Chairman] And would you take the performance
measures that the industry—- [Mr. Curless] Absolutely. That is the way
to do it. Now, you may want to go back and double-check them
one more time, but it should be there. And, technologically speaking, they are going
to be able to do this. It is a question of just exactly
what vehicles they are talking about and how the mix looks. But,
in the end, they can achieve this; and those measures need
to be in the law. [Ms. Claybrook] Mr. Chairman? [The Chairman] Yes, Ms. Claybrook. [Ms. Claybrook] So that is through 2015. But
the existing standards go through 2020. So what are you
going to do now? The existing standards through 2020 are 35 MPG.
They say 36 by 2015. So what are you going to do between
2015 and 2020 in the law? [The Chairman] I agree with you, Ms. Claybrook.
We will try to figure that out. But, as President Kennedy
used to say, the fact that we can’t make progress on all fronts
doesn’t mean that we shouldn’t make progress on any fronts.
So let’s look at 2015 right now. If we get them to this standard
by 2015, they are going to be hard pressed to say they can’t
go further than that by 2020. Right now, you are saying that 35 miles per
gallon by 2020 is not a good enough goal. How about 36 by
2015? You know, we should be having some consensus that if they
say they can do it that we will hold them to do that. But we
know 36 won’t be the standard in 2020. We know it will be 38; it
will be 39; it will be 40, 41, 42. So we start at 36. And I think
that is probably a good way of having this discussion. [Mr. Munger] Or–I am sorry, Dr. Morici. [Mr. Morici] Please forgive me for reversing
roles with you, but then that brings me to the next question,
is what do we do when these guys 2 years from now are saying
we are making all these efforts and all these bad things have
happened to us and we need yet even more money than you have
given us so we can meet these goals that you are requiring of
us? Because you know the reason they wouldn’t want to meet them
was not because they would–they are not inherently evil people. [The Chairman] No. [Mr. Morici] But the reality is if the price
of gasoline sinks and stays at a buck and a half a gallon,
then all of a sudden those big pickup trucks start looking
good again, and they can make a lot of money at them. [The Chairman] Can I say this, Dr. Morici?
And again Ms. Claybrook already made this point. I will
restate it. Which is that, in 1975, over the objection
of the auto industry, we doubled the fuel economy standards
from 13 to 27 miles per gallon. Now, at that point, we had
an oil crisis. We had another one in 1979, 1980. However, as
she pointed out, beginning in 1977, when the rules began to
be implemented, by the time we reached 1985-1986 we had gone
from 13 to 27 miles per gallon. Now, a lot of that in the 1980s
was as the price of gasoline and a barrel of oil went down to
$12 a barrel. But they were under a mandate, a Federal mandate. Now, you say, well, what penalties are they
going to have imposed if they don’t have any money? All
of that, I understand everything you are saying, Dr. Morici. But
it happened once. And then successfully they blocked any further
increase in the fuel economy standards from 1986-1987, all
the way until December of 2007 when my amendment passed
raising it to 35 miles per gallon. Now, believe it or not, it had gone backwards
to 25 miles per gallon by 2007. So that 10-mile per gallon
increase was the best we could do. Okay? Now, if there is a
problem in the subsequent years, at least we will have the
law on the books. [Mr. Morici] I agree with you. What I am saying
is watch out for them to come back and say that we need
more money to do this, you know. [The Chairman] I understand what you are saying,
Dr. Morici. Okay? The recidivism rate is very high in
the auto industry. Okay. If that is your point, I have served
in Congress. This is my 33rd year sitting on the very same committee,
the Energy Committee. Okay? So I am aware. I am actually
an eyewitness to each one of the hearings that has been held
on the subject for 33 years. I don’t think anyone else in the
room, with the exception of Ms. Claybrook, can say that.
Okay? So that gives me, you know, a perspective that understands
that I could very much look like Charlie Brown with Lucy pulling
the football. But that is why you need a law. Okay? You
don’t need a promise. That is her point. And you are helping
us to say let’s turn the promise into legislative language
that we then attach, and we might not do it this round, but they
are coming back again real soon, okay? [Mr. Morici] You watch. [The Chairman] No, again, I have watched over
and over and over again. Okay. The law actually called
for—- [Mr. Morici] Like a kid with an allowance. [The Chairman] You need to attach conditions.
That is what we are talking about. And then I think that
empowers, Dr. Morici, the technologists in the companies,
that empowers the younger generation, that empowers the people
who thus far have been walled out by the people who went to
Harvard Business School. And, by the way, I love Harvard Business
School. I love the Sloan School up in my district. I love
them. They are great people. I prefer, though—- [Mr. Morici] Don’t you love the Maryland Business
School? [The Chairman] Excuse me? [Mr. Morici] Don’t you love the University
of Maryland Business School? [The Chairman] I love the University of Maryland
Business School. [Mr. Morici] I want to make sure you get that
in. [The Chairman] But each of them pretty much
gets a three-by- five card that shows you how you make money.
We are trying to empower the people that go to MIT or the University
of Maryland, okay–that is the Google boy’s father
over here at the University of Maryland, who is not in
the financial sector but over here in the technological sector,
okay–Sergey Brin’s father–and say to the technological people
at the University of Maryland or at MIT or at Harvard, now you
are in control, you know. Because they are going to have to
talk to you, the people over at the B school or the Sloan school,
huh, as to what you are going to have to now talk about
in terms of improving the technology, right? Right now, they just straight-arm them. They
are out of the room. They are not listening to you. You know,
we don’t have to improve anything. Okay? So that is really what we are talking about.
How do we create a formula that accomplishes that goal? So my–you know, my goal here is just to find
a way of holding them to what they are saying right
now they are going to do, like an allowance, okay? There has
got to be some penalty. There has got to be something you
are going to take away. You are grounded. If you don’t perform
on the allowance, okay, you are grounded for 2 weeks. And then
you have to make it stick, right? So we need to find a way
of doing that. When we move forward, you know, we just have to
accomplish that goal. I am just going to ask one more quick question
right now. And that is that, Dr. Morici, you proposed
that when we provide the assistance to the companies that they
perform the R&D and their first large production runs in the United
States. The condition would be that beneficiaries share
their patents at reasonable costs with other companies who
will be here in the United States making vehicles. You suggest
that this could attract producers from around the world and
rejuvenate the U.S. auto supply chain. Do you think that people
would continue to develop these new technologies if the large
profit margin disappeared? And I would like you to just answer that question,
so that we don’t kind of create something that actually
doesn’t attract anyone to that fund. [Mr. Morici] I think that the reasonable has
to be reasonable. If you come up with a great idea
and it is worth something, the other car companies have access
to it, but they have to pay for it as well. And that worked
in Japan. It worked just fine. That is what they did in the 1970s
and 1980s with their technology program. If we require that Americans drive vehicles
with high mileage standards and we provide R&D incentives
to develop the products here, I don’t think we are going
to have much trouble–the reason I want to do that is I
want to get Toyota, Nissan, and Honda involved because we want
access to their technology. We want to encourage them to locate
more of what they do here. [The Chairman] Okay. And one of the suggestions
on the panel was that these factories that General Motors
and Ford and Chrysler have right now that they might not
be using in the future might be made available–I think I
heard someone say that–to people like Mr. Munger and others.
Okay? So it just doesn’t get shut down, but we move it over
to the new companies. Was that you, Mr. Wardle? Somebody
made that proposal. [Mr. Wardle] Yes, I certainly believe that. [The Chairman] So talk about that concept
in the context of Mr. Munger and Tesla and these other companies. [Mr. Wardle] There is no doubt that these
new companies have already worked out the products that we need;
and, at the same time, the legacy auto industry certainly has
a lot of expertise and capability of turning products into high-volume
manufactured vehicles. And so I think it would be a missed
opportunity if some way was not found of harnessing those idle
capabilities in the legacy industry to the benefit of the
start-up companies so long as none of the defensive attitudes,
if you like, of the legacy industry would dilute in any way the
innovation of the start-up companies. So it has to be the right
relationship so that the best parts of the current auto
industry are made available to the innovative aspects of
entrepreneurial start-up companies. [The Chairman] Great. And I will just give
you the quote from the White House press spokesperson Perino
today. As opposed to building the kind of the promise
of the industry into the law, she said, quote, today, if the
viability advisor says that they are not making progress, then
that company, the automaker, would have to pay the taxpayer
back right away. So there is the incentive for everybody to work
hard to make this work. Good enough for you, Ms. Claybrook? [Ms. Claybrook] No. [The Chairman] Good enough for you, Mr. Munger? [Mr. Munger] It is not obvious how you repay
a loan when it is a loan you require. [The Chairman] Dr. Morici, good enough for
you? [Mr. Morici] No, it is not good enough for
me. I want more than that. [The Chairman] Okay. Thank you. [Mr. Wardle] Good enough for you? [Mr. Wardle] No. [The Chairman] No. [Mr. Wardle] No. [The Chairman] Thank you. Mr. Curless was shaking his head vigorously
sideways. So you know what his answer was. Let me now turn and recognize the gentlelady
from Michigan, Mrs. Miller. [Mrs. Miller] Thank you, Mr. Chairman; and
I appreciate all of the witnesses and some of the testimony
that has been given here. And to my colleague, Mr. Cleaver from Missouri,
the Detroit Lions are having a rather tough season this
year along with the domestic auto industry, but, hey, how about
those Red Wings? You know, there has been some talk about the
CAFE standards. I think uniformity is key. It was
interesting for us to note–I realize I sound a little defensive
here again– interesting to note that Nissan got a loophole
in the CAFE standards last time. I am not quite sure how
all of that worked out. But I do think uniformity is a key. And I appreciate and we are going to see how
all of this is going to work when you have various States
coming up with their own emission standards, and as part of the
law it will be–it will preclude the auto industry from any litigation
trying to stop that. I do wonder sometimes–I mean, for instance,
if you took a–maybe an industry from California, from
Hollywood, I mean, if you were a movie maker and every single
State in the Union could have their own determination of what
the rating was on a movie, how would you market that movie? PG
in some States and R in others and these kind of things. So I do
think uniformity is a key, but I recognize that there is a bit
of a double standard here. But my question would be–and I appreciated
some of the comments Mr. Wardle was making about in Britain
and the experience that you had there when some of
the transplants, as we call them here, came into your country. But it seems to me that our Nation has not–and
our Congress has not done as good a job as we
should have of having a manufacturing policy, really, or a comprehensive,
cohesive industrial policy. For instance, in Britain
now we see Ford manufacturing there a diesel engine which
is apparently getting–can get 65 miles per gallon there,
but yet there was a concerted effort to incent people–deincent
them to purchase gasoline and to incent them to purchase diesel
as part of sort of the country’s policy and through the EU
as well. I am just not quite sure who I am asking this
question of, but it does seem to be that if our Nation
had a more comprehensive industrial policy and a manufacturing
policy, we could advantage ourselves in many ways because
of this crisis that we are finding ourselves faced with now
as we are busy putting all of these laws an oversight and
et cetera. I think we all want the same thing at the end. Maybe
we could look at it in a little broader vision of how we can
help our country go forward with such a policy. [Mr. Morici] Mrs. Miller, we have a manufacturing
policy in the United States. We have an anti-industrial
policy. It is that simple. Whether we have a Democratic
administration or a Republican administration, we get the same
Treasury Secretary. We get Bob Rubin in one form or another. The
guys from Wharton on up through the Charles River don’t know
much about factories, aren’t much interested in them,
and don’t really care very much. Okay. As a consequence, I have watched this body,
I have urged, I have written op ed articles, I have sent you
press releases over and over again about our toleration of
the Chinese currency policy and how it is devastating
your part of the country. You know, nothing ever happens. The inability to move on trade policy has
done more damage to the manufacturing base in the United States
than can possibly be managed by one man or woman. But
we have tolerated. When Wall Street gets in trouble, you guys
passed a $700 billion bailout, which gave them essentially
all the money they wanted, and then some, and whatever you don’t
give them, the Federal Reserve gives them, with virtually
no strings. They haven’t done any of the responsible things
to speak of necessary to reopen credit markets, such as
reopening the securitization pipeline from good, sound regional
banks to fixed-income investors. That goes on and on
and on. So we have a policy. Somebody said to me,
People don’t want to study engineering in this country. They
are too lazy. They are not too lazy. There is a reason the finance
department is full. The same math that is in an engineering
textbook or physics textbook is in a finance textbook.
I know. I have studied it. But we have lots of kids who want
to study finance because that is where the rewards are in our
society and, to a large measure, that is a product of public
policy. Engineering doesn’t pay out because manufacturing doesn’t
pay out. Manufacturing doesn’t pay out because we have
a dumb trade policy. [Mrs. Miller] Mr. Wardle. [Mr. Wardle] Yes. I see a lot of parallels,
as I mentioned before, between what happened in the UK and
what is happening in Detroit now, largely because of inept management
in the British car industry that refused to acknowledge
that overseas companies were developing products that UK
consumers actually needed bad. But one of the mistakes I think
that was made in Britain, which hopefully can be avoided in
the U.S., was that the government intervention in the British
car industry was of the wrong kind. What we really need here is
clear direction and policy from government, which I believe is
something that is always needed, which industry can respond
to, which is why I think that, first of all, we need to set up
what I would say is a mobility czar to look at this situation
rather than an auto czar, so that it is quite clear what kind
of transportation future that we have so that we know–and from
that, to direct policy so that everybody knows what the hurdles
are that they have to jump over or what the parameters are
that they have to operate their businesses in. And so it would be wrong to directly intervene
with the existing car industry through too much internal
messing around, but the parameters need to be very clear through
government legislation and policy. That needs to come
from very clear oversight as to what are the right answers.
That is something that was never established in Britain in the
1970s. Nobody actually stated what the clear objectives
were for the rebirth of the British car industry. So it didn’t
happen. [Ms. Claybrook] Mrs. Miller, I would like
to associate myself with both of those remarks and say
that I do hope that this committee and, Mr. Chairman, this committee
will have a hearing on transportation policy. Because
we actually don’t have a transportation policy in this system,
in this country, and the President-elect has just announced
that he wants to have a huge infrastructure expenditure. If
you are going to spend a huge amount of more money on infrastructure,
you better figure out what infrastructure you want and
what really makes a difference. We have bridges and roads that
are in disrepair, admittedly, but we don’t have mass transit
systems that go to the airport, for example. One of the provisions in this legislation
that you are going to be voting on, section 13, requires
the auto manufacturers to study whether or not they
should get involved in producing mass transit-type vehicles, whether
it is rail or whether it is urban transit as a way to expand
the scope and the view of their manufacturing activities. I would urge that this committee hold some
very soon hearings because the infrastructure committee–one
of the problems with the Congress, it is divided
up. The public works crowd is a different committee than the Commerce
Committee, which looks at transportation generally. I
would urge both this committee and the Infrastructure Committee
to look at transportation policy and what is it that
we really want. What makes a difference. People in this country are really frustrated
with the changes that have been made by the airline
industry because they are in financial trouble. Now you can’t
get from here to there without going through three different
cities in an airplane and changing planes. So there is
a lot of opportunity here in the middle of this crisis as well
for looking at overall transportation policy. I would like to make one last comment, Mrs.
Miller, about something you said about the States setting
standards. The reason that advocates like myself have favored
that is because the lobbies have overtaken the Congress and
stopped any improvement in fuel economy from 1990 when
we lost a bill in a filibuster by two votes that would have by
2001 have required 40 miles per gallon fuel economy, which would
have—- [Mrs. Miller] Thank you. [Ms. Claybrook] If I could just say, the way
that you can get around having it be variable is the manufacturers
meet the highest standard. So if California sets the
highest standard, then there are not a lot of different standards
you have to meet. It is the one standard. [Mrs. Miller] Just one more question, with
the Chair’s indulgence. I want to pick up on what has
been talked about with the trade policies and some of the disadvantages
that our manufacturing companies have run into as a
result of that. I want to mention about MAG again. My question
is to Mr. Curless. I think it is important to note MAG really
was Cross and a number of other various other manufacturers
that you have consolidated with. As you mentioned, you are
the only remaining U.S. powertrain supplier to the automotive
industry and the third largest machine supplier in the world.
Yet, if you go into some of the auto plants of the transplants
here, the machinery that they use there, do you find
any American- produced machinery in those plants, or are
they produced in their native nations? If there are no American-produced
machinery in those plants, why not? [Mr. Curless] That is true. From Japan, the
Japanese transplants come here, will not buy MAG equipment.
That is our facilities here in the States, in Europe,
around the world. We do supply the equipment though to people like
the Korean transplants here. So, like the Hyundai engine,
that is all MAG equipment, and they are produced in that engine,
which is great. That shows that we can do it. We have
the affordability factor to go with putting that equipment in
there. But it is very clear the Japanese will not work with
us. Now China is going to be a different picture
again. That is yet to be decided, what is going to come up
there. But at this point I would say there is a good chance we
won’t get some of that business. On the other hand, we get a
great deal of business out of Europe, we get strong business
through all the other ones in the United States, and then
there are the other companies, the heavy equipment suppliers,
the big diesel engines for Caterpillar and Cummins and other
companies. We get all that business as well. It is just a matter
of what country you are really talking about when you are
dealing with these transplants. [Mrs. Miller] Thank you, Mr. Chairman. [The Chairman] The gentlelady’s time has expired. The Chair recognizes the gentleman from Missouri,
Mr. Cleaver. [Mr. Cleaver] Thank you, Mr. Chairman. I want
to express real appreciation for you today. This has
been very helpful to me, although I think Dr. Morici should come
here with a bit more passion when you are testifying before
Congress. [Mr. Morici] You should have seen me when
I was 35. [The Chairman] Would the gentleman yield?
I have the third most Italian district, so imagine a whole
district of people like that. [Mr. Morici] You don’t know how much more
I just decided to like you. [The Chairman] I am used to this. [Mr. Cleaver] A friend of mine, Hosea Haywood,
said to me yesterday, and he is in the automobile industry
and he sells automobiles, and he said that a year ago he
could take 12 applications to one of the financing arms
and he would get two or three approved. Today, he takes 12 and
he gets none approved. The crisis that we are in now is a credit
crisis. One of my complaints with the Big Three is that even
if we give them money, even if we make this bridge loan, they
are still going to have a problem because GMAC, Chrysler financing
and Ford financing are all three requiring a credit
score of 700. You know where I am going. If there is a credit crisis with the Big Three,
and they all have financing arms, Mr. Munger, how in
the world are you going to be able to make it without a financing
arm? If we don’t figure out a way to put money into the
financing arms, maybe the industry can manufacture more cars
but the public still won’t be able to buy them because there
is no credit, and if you are producing trucks with a unit price
of $25,000, you are still going to have difficulty, and you
will have a much more difficult time than the Big Three. Am
I right? [Mr. Munger] I hope that by 2012 our credit
crisis has passed. But I think you are very accurate
in highlighting the issue. Chrysler was actually explicit about
the need for TARP funds for Chrysler Financial. There is a differentiation
where essentially the auto industry funds itself
out of those affiliated lending arms and they aren’t able
to lend because they don’t have access to capital. They have
been hurt by the same things. That is why you are seeing them
apply to become bank holding companies or do other actions
to activate their access to credit to facilitate the flow of
vehicles. You do have the manufacturing businesses losing
money, but there is need for assistance on the financial
side. The risk profile is very different for a financing
entity. That is much more of a TARP situation. [Mr. Cleaver] Where will the potential customers
come from? I mean, where will they get financing for
your vehicles? [Mr. Munger] We have a commercial offering
so it is a totally different financing situation. [Mr. Cleaver] So they will go to depository
banks. [Mr. Munger] They have their own lines of
credit and there are some other entities that provide credit
to that market. It will still benefit from a smoother, more operating
credit market, but we have some time to get there. [Mr. Cleaver] All right. [Mr. Wardle] At the risk of sounding like
an idealist, I would point out that we see that there are
aspects of future mobility systems where direct ownership of
vehicles and access to mobility systems is not as necessary as
it is today. I think there is a good case for looking at in the
longer term how people can access personal mobility without
having to make a large loan in the first place through leasing
programs or other forms of shared ownership. [Mr. Cleaver] Dr. Morici. [Mr. Morici] The securitization problem is
really at the root of the automobile financing issue, and
that is that historically the finance companies associated
with the Detroit Three made the better loans. They are raising
their credit scores because they have less money to lend
so they are giving it to their best customers. But if we don’t
solve the securitization problem, we simply will not
solve the problem of the automobile industry or the student loan
issue, or what have you, and that has to be solved if we are going
to pull out of this recession. It is really not, I know, the scope of this
committee, but we need to put conditions on the money we
are giving the banks. For example, the banks buying smaller banks
does not increase the deposit base. And the deposit base in
the United States is insufficient to finance all the auto loans,
home mortgages, and what have you, business loans. It has to be
financed by accessing fixed-income investors. We haven’t
imposed those conditions, the Federal Reserve hasn’t imposed
those conditions, and until it is prepared to do
so, we are not going to solve anybody’s problems. It is that simple. I am hopeful that by 2010–if we haven’t solved
this problem by 2012, we are in the soup in a much
bigger way than we discussed today. [Mr. Cleaver] Thank you very much. Thank you,
Mr. Chairman. [The Chairman] The gentleman’s time has expired. I am going to give each one of you 1 minute
to summarize to the Select Committee and to the Nation as
to what you think should happen in terms of automotive industry
and its relationship with the Federal Government,
the taxpayers of our country, and their justifiable expectations
if they are going to become partners with the Big Three financially.
We will go in reverse order of our opening statements.
We will begin with you, Mr. Curless. [Mr. Curless] Thank you. First off, I want
to reiterate that bailout funds need to be made available to
the Big Three. Certainly for the short term, we have an economic
crisis going on here, and a lot of the discussions we have
had here today have been about the next generation vehicle
and the standards and the laws and where do we go for the future
and can we get our milestones in and all that. We need to
strive for those things but, let’s face it, if we keep producing
automobiles and there is no one out there to buy them, we
are just going to watch that money go down the tubes, not because
the automotive companies did a bad thing, it is because our
whole economy did a bad thing. And so we need to look at both aspects of
it and maybe do some separation there and make sure that we
look at both the short term and the long term. So from MAG’s
viewpoint or from a manufacturing company’s viewpoint we need
those companies there. We need the Big Three. We need the
volume. We need to see these millions of automobiles being produced,
not just 50,000 or 80,000 or something like that. So I want to encourage us to try to put more
tax incentives in, encourage us to provide other types of
incentives to the entire supply chain that is working with the
automotive industry, and let’s see if we can get this
off the ground as far as looking at the next generation while
we solve our economic crisis here. Thank you. [The Chairman] Thank you, Mr. Curless, very
much. Mr. Wardle. [Mr. Wardle] Yes. I recommend funding for
a powerful visionary multidisciplinary commission to
define an innovative and far-reaching vision for America over the
next few decades; funding in investment in building a far-reaching
integrated transportation network across the Nation,
which a revitalized American car industry could participate in;
and financial assistance to help the innovative start-up
companies get their products to market. When these three things are achieved, then
we can talk about the necessary financial assistance for
the current auto industry as it adapts to a new business model
that will support this overall vision. I would also like to say my colleagues and
I would be very happy to work with the committee to try and
define what those requests or initiatives would be to help the
so-called little guys in the automotive industry right now. [The Chairman] We thank you, Mr. Wardle, very
much, and your Art Center College of Design in Pasadena,
California. Back in 1962, when the Beach Boys were singing The
Little Old Lady from Pasadena: “go, granny, go granny, go, granny,
go,” no one could catch her vehicle, hopefully out of
Pasadena will come that new vehicle that we keep selling around
the world that is a model for our future, our 21st century,
not 100 days, as Dr. Morici said, but 100 years. Dr. Morici. [Mr. Morici] As a realist and not an idealist,
whether we are talking about a bailout or a structured
chapter 11, it is important to provide the industry with the
right incentives to create a market here for high-mileage vehicles
through higher mileage requirements for cars; to encourage
the rapid deployment of higher mileage vehicles with
the clunker subsidy to make it possible for people to trade in
and get rid of the low mileage vehicles as quickly as possible;
to provide development assistance for both vehicle manufacturers
and component makers, and require them to share
their knowledge with one another at a good return so that
they are encouraged to continue developing technology, and to
require vehicles and components benefiting from such incentives
to be made here, at least in their first commercial runs so that
we have an industrial policy that is positive. Finally,
we do something about currency manipulation and Asian trade
policies that hurt our industries. [The Chairman] Thank you, Dr. Morici. Mr. Munger. [Mr. Munger] We are at a unique time where
industrial need is aligning with the national interest. It
is in our interest to have an industry that builds more efficient
vehicles to lead to cleaner air, reduce carbon emissions, freedom
from imported oil, and an industry that leads in innovation. It is important to link accelerating efficiency
with any bailout that goes along to the Detroit Three.
The industry has the skills and the knowledge to do things
beyond what they have done to date. There are also existing funding
mechanisms in place to help the industry and to help smaller
companies achieve those goals. Companies like Bright
Automotive are prepared to accelerate this process independently
of what is happening in Detroit. But it is important
for the Nation that we work together, come up with a solution
and achieve a more independent and oil-free country. [The Chairman] Thank you, Mr. Munger. Ms. Claybrook. [Ms. Claybrook] Thank you very much, Mr. Chairman,
for the opportunity to testify. In the short term,
I think that this legislation ought to pass as rapidly as possible,
but I would urge the inclusion of a goal for fuel economies
we have discussed and also that the citizens be more
involved in this process by being defined as interested parties.
We are the ones that are supposed to buy the vehicles, right?
That is the one group that has been left out of this legislation
and also left out are any requirements for them to take
into consideration when they do this, redesign the safety rules
that are pending in the Department of Transportation. The longer term issue, I think, is huge. I
think you have got some great recommendations today. I agree
with preserving the Green Car Factory Fund so that it is the
full measure of the $25 billion so that it can support innovative
companies such as those we have heard from today. And
that the stimulus package include refunding that money so that
it is available. And that a transportation policy be looked
at in the course of discussing the infrastructure future of this
Nation in terms of transportation, and I think that can only
help the U.S. auto industry, particularly if it gets into some
of the mass transit issues. Finally, I would say that we need more innovation
as well about what we do in terms of personal transportation.
There have been proposals on the table, for example,
to not allow cars into the inner city and have people jump
into free, available, you put a couple quarters in the
box and get into an electric car and that is all that can come
into the city, and get rid of some of the pollution. So it is
an encouragement for people to think themselves differently about
what kind of car they want and how they use their car. That
is certainly going to influence the industry as well. [The Chairman] Thank you. We thank each of
you. Now some people are saying, Can we do this?
Are we being unrealistic? I remember back as the chairman
of the Telecommunications Committee back in 1991,
1992, 1993, 1994, when I was introducing legislation to move
from narrow band to broadband. The telephone companies, the bigger
companies said, We can’t do it. The cable companies, Going
to be very difficult. Now, mind you, the telephone companies
had already invented these broadband technologies 15 years
before and had won awards in basic research for their invention,
but they had not deployed them yet. And so when finally that law passed in 1996,
the Telecommunications Act of 1996, it gave a
lot of power to people who wanted to innovate because there
was a brand new competitive paradigm created in the telecommunications
sector. If someone told you that 10 years later the
new language would be Google, eBay, Amazon, YouTube, and that
a younger generation wouldn’t know anything but that language just
10 years later, you would have said that is completely unrealistic.
But what had happened there was because of that law
an unleashing of innovation, of competitiveness, that created
between 2 and 4 million new jobs in our country. I am very
proud of that. I think the same thing is going to happen
here in the energy and the transportation sector. I think
if we get the model correct, we are not going to be trying
to put a man on the moon, as Mr. Munger said. The technology
is largely there. We are talking about batteries. We are talking
about technologies that are much more available
than that which President Kennedy challenged us to invent
in the 1960s to put a man on the moon, and to return them. So I think that this is a great opportunity
for our country disguised as a crisis. Because if we don’t
meet this challenge in a timely fashion, we will be importing
all of these vehicles from India, from China, from Japan, and from
Europe. And that would be the tragedy. So we actually have this warning hopefully
in time for us to change the way in which we view our manufacturing
sector and what we can do in order to meet this marketplace
of 6 billion people who look at us as the innovators. We
are 4 percent of the population in the world. The 96 percent
of the rest of the world sees us as the technological giant.
That is why they want their children to go to our colleges and our
graduate schools, because they think we are the best. We must
now meet those expectations. If we do so, then I believe
that 10 years from now we will look back and we will have actually
put us on a path to solve the global warming and energy
independence issues that we have ignored for an entire generation. It is the kind of advice that you have been
giving our Select Committee today, however, that the
leaders of our country must listen to if we are to accomplish
that goal. But if they do, I am confident, like we did in
the telecommunications sector, that we can empower
the Sergey Brins, the sons of professors at the University
of Maryland, to go out and to reinvent the way in which we
communicate. With that final compliment to the University
of Maryland, I thank you all for testifying. This hearing
is adjourned. Thank you. [Whereupon, at 12:30 p.m., the committee was
adjourned.]

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