for any private company. while general motors is likely to take somewhat longer to move to the process, we are confident that it will emerge quickly as a stronger, more viable company. because gm needed substantial capital that only a government could provide, and because we are committed to not piling on irresponsible amounts of new debt on top of the new gm, it will become reluctant shareholder in general motors. the administration did not seek this outcome. it arrived at the conclusion that it represents a more responsible way to protect taxpayers while giving gm an opportunity to succeed. as the president made clear, we will manage this investment commercially and exit our position as quickly as we can. both restructurings have required deep and painful sacrifices from all stakeholders, including workers, retirees, suppliers, creditors, and countless committees that revive on a vibrant american auto industry.

. . taken have not only helped to stabilize the auto industry and saved hundreds of thousands of jobs, but for the first time in decades, they have also given gm and chrysler a chance to become viable, competitive american businesses, with bright futures. before taking your questions, i want to give a brief overview of the process the administration has taken in addressing these issues. on february 15 of this year, the president appointed an auto task force to oversee his administration's efforts to oversee and restructure the oversee and restructure the industry. it was co-chaired by timothy geithner and national economic counsel director lawrence summers and includes directors from a broad range of officers throughout the executive branch. the task force and co-chairs report up to the president. from the beginning oaf this process, the president gave the auto task force two clear directions. the first was to refrain from

intervening in the day to day management of these companies our role has been to act as a potential investor of taxpayer resources and as such we have not become involved in specific business decisions like where to open a new plant or which dealers to close. this is the job of management. and while we have been engaged in dialogue and discussion about their approach, we do not substitute our judgment about specific decisions for theirs. second, the president was clear that he wanted us to behave in a commercial manner. that is to be sure that all stakeholders are treated fairly and received neither more nor less than they would have simply because the government was involved. because the investments were made by both the prior and current administrations to support the auto companies have come from the t.a.r.p., the task force and its staff activities have been subject to the full range of reporting requirements under the eesa statue. this includes oversight by the gao, esa's financial stability oversight board, the special inspector general for t.a.r.p. and the kwongsal oversight panel

established under esa, as well as reporting to multiple house and senate committees. in a better world, the choice to intervene in these companies would not have had to be immediate. but in the midst of the worst economic crisis in three-quarters of a century, the administration's decisions avoided a devastating liquidation and put a stop in the auto industry of picking hard problems down the road. while difficult for all stakeholders involved, these restructuring provide gm and chrysler with a new lease on life and a chance to fundamentally restructure and succeed. thank you. >> dr. montgomery, welcome. >> thank you. i appreciate this opportunity to appear here today to discuss assistance that's being provided to and being sought by communities and workers affected by auto job losses. as you're well aware, the current recession is arguably the most severe since the great depression and has had a profound impact upon businesses, workers and homeowners

throughout the country. as striking as the decline has been for the country as a whole, the situation is even more severe in much of the auto manufacturing heartland. just as mr. bloom has discussed the challenges to our two biggest auto companies, and the steps we are taking to help meet these challenges, i want to briefly discuss the process we have begun to help the hundreds of auto communities struggling to deal with rising unemployment. when president obama appointed me as the new director of recovery from auto communities and workers, my mandate was to cut through red tape and ensure the full resources of our federal government are leverage to assist the workers, communities that have historically relied upon the auto industry. the administration is creating a comprehensive effort that uses the unprecedented levels of resources and funding provided by the recovery act available through the regular government programs. we've also been engaged by the effort to identify new initiatives that may be helpful going forward in an effort to

help the auto community. my first order of business was to get out and hear from affected workers, businesses and commune phillips we filled town halls in michigan, ohio and indiana with houchbs stakeholders to identify ways in which the federal government could be helpful. we plan to continue these sessions in the weeks and months ahead. the sessions have been more than just listening tours. we've established an interagency team, including representatives from the department of labor, energy, commerce, small business administration, transportation, justice, health and human services, epa and treasury to hear firsthand what works and what doesn't. as a result, they have already started impleme implementing next steps and working with officials on how to address problems and issues. the recovery act has made possible a wide range of investments in auto and other communities that combat the current economic development and begin that transform our economy to future long-term growth.

some examples the way agencies targeted growth in particular include the general services administration axccelerator purchase of 13,000 fuel efficient vehicles, adding $280 million of demand in new cars. the department of labor announced a $50 million targeted green job training initiative targeted towards auto communities. in january, the department of labor also announced since january over $16 million in national emergency grants to support dislocated auto workers in various states. recently secretary duncan announced $million to establish innovative and sustainable community colleges prom prams for second careers. the grant program will be used to develop national models that can be replicated across the country. the small business administration has announced extensions to its lending program and recently announced development of a floor plan financing program for auto dealers, rv dealers and boat

dealers. and epa has announced millions of dollars in grants to revitalize industrial and commercial sites. recently michigan was the largest recipient of those funds. one of the most pressing challenges is to ensure that auto communities have access to existing federal programs and new funding available. we have taken steps to ensure that auto communities have an equal chance to access federal funds. some examples of that includes department of energy. recently held workshops for county and local municipalities to train leaders in how to apply for the initiate efficiency conservation block grants. also held meetings with finance officials to talk about how to make sure that small businesses can access their new loan guarantee program. the kbhers department and through the manufacturing extension, the economic administration have held numerous workshops in the auto region to help companies diversify and provide tailored

assistance. and recently, the department of labor don veened all the rapid response coordinators throughout the midwest to make sure we provide a consistent level of service and to help states with their plans efforts. the administration approach realized that there's no single agency that holds the key to economic growth and there's no magic bullet. the challenges that regions face will not -- did not appear overnight and they will not be resolved overnight. credit for businesses, cleaning up private properties, information issues, job training, schools, public safety and health care are all integral parts of the solution. local and national foundations also have a role to play and we have begun to find ways to reach out and partner with them. state and local governments have and must play a central role in these efforts, reflecting choices that each area must make about how best to use their assets. our comprehensive recovery strategy will not only recognize but support these local efforts. families and workers in auto communities face challenges

unlike many of us have faced in our lifetime. i share the president's commit to helping these communities both in the near term as we go through rhett coverry but in the long term to make sure they share in our economic prosperity. i look forward to working with the members of this committee and i thank you for the opportunity to be here today. >> thank you. i'm going to ask the clerk to put us on five minutes and follow it fairly religiously. second round usually thins out the membership and we'll spend more time on the second round at that point. i know some members will be coming and going. the record will remain open for questions to be submitted. i would ask that you submit them to us in a timely fashion. >> let me ask you, mr. bloom. first of all, the administration has taken bold action, and it's been controversial, clearly. a lot of questions being raised

by people across the spectrum. while there are going to be a lot of job losses, i for once subscribe to the notion if you had not taken this action the job losses and the effect on our economy would be far more calamitous than it is even with the count of erosion, maybe down to 90,000 jobs in an automobile manufacturing. some 340,000 from only months ago. so it has been a major blow to our economy. the liquidation of gm and eyes ler would result in hundreds of thousands of jobs being lost. it's prosed equity stakes in gm and chrysler are giving people pause. why did the treasury take such

large equity stakes rather than providing them with more loans. how did the treasury determine the size of these stakes to be taken and given the treasury's large stakes in these companies, particularly gm, how will the united states government quickly extricate itself. as i said, i would like for us to be out of this business yesterday. obviously that's not going to happen, but a lot of us would like to see us get beyond this, get out of it. given the stakes we have, how easy is that going to be for us to achieve. i admire you taking on this job. the president obviously has a lot of confidence in you. as i understand, you have no budget to operate with, ore than what exists. so we need to know if we can do anything to happen. some of us more than others, our colleagues from detroit and michigan and ohio, senator brown, senator bayh. i assume all of us here are

being adversely affected by job losses. obviously we want to help our communities during times of readjustment like this. so what additional tools are you going to be asking of us in congress to be helpful for you to have do your job. holding town meetings are great, but i suspect the people who show up at these meetings want to know what if any kind of help is going to be there for them as they try to find a new economic path for themselves and their families in the midst of this economic hardship. what are you going to be asking of us and how we can help minimize the kind of economic blows these communities are going to be facing. response to the questions. >> thank you, senator. let me try to address your three questions if i can. in terms of equity stake, let me answer that this way. the size of the stake and the determination was done through the following process. the first thing that happened was the companies put forward a

business plan which we vigorously reviewed and challenged them on but event kbrully came to a business plan. a financial need was determined because we saw how much money they needed to right size their business, to take the necessary steps. in the case of general motors in the bankruptcy to pay off some of the secured debts. there were a whole variety of needs that the company had. that determined the sort of starting point from the discussion. the second step was directly on your point, which was how do you determine how much should be debt and how much should be equity? and obviously as i said in my opening comment, the president did not start out with wanting to be a shareholder. but the dilemma we faced was that one of this company's core problems for a lot of years was that it was too highly leveraged. so for us to try to fix general motors with more debt, would simply not have fixed the problem. general motors' key competitors, toyota and volkswagen have very

minimal levels of debt. debt approximately equal to the amount of cash they have on the balance sheet or to one year's profit. so we were very mindful of trying to set up general motors to have a competitive balance sheet because that is one of the competitive weapons in the marketplace. and so that really left us, if we were not going to overmurder the company with debt, then the only remaining security we could have would be equity. we didn't want to give the money away, it was the taxpayers' hardworking money. so our determination was to take equity. the size of the stax, that was determined in arm lengths dealings with other key stakeholders who wanted to also be owners. that included the bondholders where we had a vigorous debate and the uaw on behalf of the retiree trust. they obviously wanted more equity than we wanted to give them. we wanted to give themless because on behalf of the

taxpayer the objective to be@@ the other equity shareholder in journal motors is the canadian government, but in that case, they are investing side by side with us. that part of it was just straight up. but to the others, it was simply arm's-length bargaining accurate on the question of how we get out, obviously, this is a key issue. the president has been quite clear that he is a reluctant shareholder and wants to exit as soon as is practicable. that does not mean tomorrow morning. when this company comes out of bankruptcy and will be a private company. the new general moeller reece will not be publicly listed. -- the new general motors will not be publicly listed. we expect it to be publicly

listed sometime in 2010, and that will be our goal. then it will be an orderly process for these shares will be disposed of. but it needs to be orderly because these are taxpayers' dollars. are taxpayer dollars and while the president didn't want to be a shareholder, once we have become a shareholder, we certainly want to achieve fair value for those shares so the taxpayers can get back this investment. >> thank you. quickly, dr. montgomery. >> we're using the current resources provided under the recovery act which provide an unprecedented level of dollars that we can use to either support -- as mr. bloom has pointed out, to support the industry. to make sure the companies are viable, step one. to talk about how we support the suppliers and the treasury through its supplier support program, the small business administration through its 7-a loan program and through its dealer program, all have made

efforts to support suppliers and keep that part of the sector viable. as far as the workers are concerned. there are over $1 billion in additional funding, multibillions of dollars for retraining assistance. and we've extended and expanded unemployment insurance. as we think about going into the longer term and the new growth potential there are in the recovery act in the department of energy to make new investments, to grow different areas of the economy. smart grid to alternative energy, modern fuel efficient cars and next generation vehicles. so there are a va tryty of different currently available resources to make investments and my job at this point is to make sure people in these regions have full access to those dollars. as we go forward it may turn out additional investments are necessary, but right now we want to make sure the current investments are being utilized. >> let me start there and turn to senator shelby.

>> mr. bloom, following up on senator dodd's question a minute ago, how many years do you think the government will be involved in general motors and chrysler as far as an investment? would it be your judgment three years? five years? ten years? 12 years? what? you've got some kind of judgment. you say it's not going to be quick to get out. >> yes, senator. as i indicated, the sort of legal frame work in which we are, say a private company and then an ipo presents a certain amount of runway period. senator, at this point, we do not have a specific target in terms of years. the factors that influence that will be many. how the market is doing, how the capital markets are doing. we are going to be a very large shareholder in a company. and so as you know for a large hair shareholder to be selling shares could be disruptive. at this point, the president's

direction is to get out, his phrase and order to us is as soon as practicable. but beyond that we don't have a defined time frame. >> but put together a plan, though, that you can operate, a blueprint, some architecture. you got in. the question is, how long will the government be involved in running a huge manufacturing -- or owning a huge manufacturing plant? i think that's a fair question. >> it is, sir. and i want to appreciate your point. we are owning it, we are not managing it, and that is -- the president is clear on that. >> but you are involved as a stockholder. >> there will be a very limited involvement as a shareholder. the president issued a series of guidelines how we intend to act as shareholders. we do not intend to involve ourselves in day to day management. the shares will only be voted on what we call core governance

issues, the election of direct tors or a change of control transaction. so yes, there will be some involvement, but it will not be onerous or overbearing involvement. but back to your question, there will be a strategy to get out. it will be to access the public markets and to sell when it's determined that the market is appropriate for selling. but i do not anticipate there will be a detailed blueprint, again, because the mere issuance of that blueprint we believe would be market bankruptive and would cause an overhang in the stock which again would go -- defeat the very purpose we're trying to achieve which is to get out quickly but to do it in a way that maximizes the shares for the benefit of the taxpayers. >> do you believe the government has put as much money in gm and chrysler they're ever going to

p p put in? or do you think you're going to put in more money? >> it's a very fair question, sir. it's our absolute intent that this is the last assistance we provide to these two companies. we spent a lot of time and we worked very hard to assure ourselves that this is their last visit. you never say never in this world burke the basis of our analysis has been this is a one-shot affair, we're going to do this and then construct an orderly exit and then it will be back to business as usual. >> what if gm and chrysler, what if it wasn't work out as you're anticipating? will you then recommend more money, just to keep it going and keep a few people employed? maybe more than a few, a lot of people employed. >> it's very hard to speculate about a hypothetical, senator, but i can tell you -- >> that could be more than a

hypothetical. >> well, i believe it is a hypothetical, because i believe that we conducted a conservative plan. we stress tested it, we've looked at cases where the recovery is slower than most economists believe it will be, where the company is not fully capable of executing its turnaround. we've look hard at this question and it's our confident belief that this will be the last trip to the well. >> i have just a few seconds. the federal government is now the principal labor, environmental and safety regulat regulator, a customer, tax collector, financeer and pension guarantor of two of the three auto manufacturers. unprecedented. it also hold s equity in these entities and management will

engender conflicts everywhere. other conflicts will arise by way of the government's investment in two competing entities. what process have you put in place to help identify, to manage and then report such conflicts to the congress, especially to this committee? >> well, let me talk generally about the president's admonit n admonitions in this area. he has been very clear the policy directors regarding things like the environment or cafe or health and safety are not within our purview. we have no authority to deal with the companies on those matters. whatever the congress passes and the president signs becomes the law of the land, we would expect to apply to all companies who do business absolutely similarly and the president has been crystal clear he expects no special accommodation to either of these two companies in any of those areas. we intend to be essentially a passive shareholder who is trying to get our money back we

can give it back to the american people. and we will leave for others to determine the policies regarding other matters. >> thank you. i wanted to say -- as somebody who used to make his living restructuring companies in bankruptcy, nothing this co complicat complicated, this has been lightning quick. and there were a lot of people who said it couldn't be done, you weren't going to come in in 30 days. you didn't, but you came in pretty close to it. and i think at least in my view that's a major step forward to try to create some credibility here on these matters. i want to say congratulations on that. with all that said, i want to echo the chairman's view that

the american taxpayers want to be out of these companies as soon as possible, as soon as practicable is the long you've used. i hope you're as successful with that as you have been getting this bankruptcy established. i guess, mr. bloom, my first question to you is whether you could shed some light -- i'm sure it's in the bankruptcy documents -- on some of the underlying assumptions that underlay the arm's length negotiation that you were talking about. what were some of the assumptions related to sales of automobiles in the united states, the cash flows, the companies. how did you and the other parties think about how to value first the enterprise itself and then to distribute it to the constituencies and the bankrupts? >> yes, sir. first, thank you for those kind words. i think benjamin franklin said an imminent hanging tends to

concentrate the mind. i think that's what we had in the case of chrysler. relative to how we went about this business in this bargain, essentially the process was the following. the companies in each case came up with the business plan. it's the management obviously who's responsible for putting forward a business plan. we viewed ourselves as a potential investor as the taxpayer's money. so as an investor, we went and then we criticized it. whatever they said, we asked did you consider this or that? whatever assumption they made we flipped it on its head and asked the reverse. and obviously we used our own assumption, too. if they believed that something was going to be x we kpd what happens if it becomes 1.2 x? as a lender and an investor, what we really did is simply

acted, i think, as traditional investors were. which is to say we looked at a variety of scenarios. we asked ourselves is sars higher or lower, execution better or worse than planned how do things look? we used relatively traditional financial techniques. multiples of earnings, discounted cash flows. the things you would expect any third party investor to look at this now obviously we're the government and we're doing this because the president has directed this is a critical industry. but nevertheless we asked, what is the cash flow capability what is the earning capacity, et cetera. we created models of a potential enterprise value. and from there we engaged in bargaining, between a lender/investor and the various other stakeholders to the case.

>> the tension the ranking member talked about between the government not involving itself in the day to day management decisions of the company, which i think is cerinly the right approach, but sitting here thinking about what -- if these projections don't come true, if you have quarter upon quarter of growth or lack of growth, if the companies, for example, do not begin to produce automobiles that will compete in the marketplace, what is the government's role at that point as the investor of our taxpayer money in this enterprise? what if they don't live up to your expectations? >> well, as a lendner chrysler and general motors, there will be covenants, there are covenants regarding performance and lenders, as you know have rights that we would expect to

avail ourselves of. but i know the president is highly committed to not having this be to wander into the middle of the company and take it over. the company will have a board of direct tors. it will be comprised of ordinary businessmen. and i would point you to the two gentlemen who agreed to serve as chairs of. we expect them to run the -- we expect them to run the company. >> your time has expired. >> thank you, gentlemen, for being here. i do want to point to argue are fudging a little bit on the history side of this. if the companies put forth a viable plan by february 17, they would not call the loan by the end of march. they did not do that and that would have