and the fourth thing i raised was doing something differently with the rules so that people won't be negotiating that used to work at nhtsa. >> in terms of my favorite? >> what should be the highest priority going forward? >> in the near term, the highest priority has to be kidding the electronic brake-override -- getting the electronic brake- override. >> i am talking about the governmental agencies that seem to do it -- need to do their job differently said that when people file their complaint, they are going to get an answer that is consistent with this week -- with what is going on here. >> the government has totally revamped its investigations and

recognize that it is not mr. nice guy. they need to go back and look at what the agency was doing in the 1970's were the only thing that we had were safety recalls. we did not have safety improvement campaigns or other regional recalls which excluded parts of the country. when it goes to the investigation, nhtsa they still look at something that will not save the manufacture money. the other thing is, the agency does not have the resources to do it. they simply move from one investigation to another, and there is always another one in the back of their mind. they need to do what good job on the one in front of them before they move on. . very much. >> thank you, senator. and senator lemieux. >> thank you, mr. chairman, for

holding this hearing. i want to thank mr. inaba, mr. usada, mr. ditlow for being here today. it occurs to me in listening to the testimony that when we're talking as my colleague did about pedal sensors and engine computers and microprocessors that these cars are very complicated. and gone are the days when we could, as consumers, at least nearly all consumers, understand how these vehicles operate. how these vehicles operate. and as these cars become more complicated, i believe the burden is more on the manufacturer to make sure that things operate properly. this is not my old '66 mustang that i could get under the hood and maybe figure something out. these are extremely complicated vehicles. my wife and i have one of your cars. she drives an suv and puts our three small kids in the back. so when i learned of this, i did probably what most families do

and i went home and had a conversation with my wife about what she should do if her car accelerated out of control, whether it was the floor mat or some other problem. that's not a good conversation for us to be having in terms of your company. and what my colleague senator cantwell said, i want to echo is that part our disappointment, i think is because of the reputation you have for being such an excellent purhave aveyo quality cars. i understand what you are doing now. i applaud you for doing it with the independent evaluation. i applaud you for the efforts you are taking. my concern is how long you've known about this problem and the efforts that you took in the past. we have been given, and i believe that the chairman has entered this into the record, a power point presentation that was given on september 20th, 2006, by mr. jim press who was the president, i guess that was

your predecessor, mr. inaba? is that correct? >> yes, correct. >> and this document has a group of -- it looks like it was a slide show presentation. could someone from toyota provide information to us as to where this presentation was given and to whom it was given? >> i do not personally know that document, but we will certainly get back to you with more information about that. >> is there anybody from toyota who is familiar with this document who is here today? >> not from three of us. >> well, let me read to you, because i'm reviewing these documents, mr. chairman, as they've been presented to us. this is a slide show presentation about a new era for toyota and tma in north america. and it goes through several issues, including safety issues. and there are notations in the

back here which are notes to this slide presentation. and on the document that is -- has as its ending bates number 25, there is reference to slide number 25 and it says the following. our ability to manage the tide of safety investigations rests largely on our ability to work well with nhtsa. over the last few years, we've seen our relationship begin to slip slightly with nhtsa. the reasons are complex. they include a combination of increased recalls, more investigation and tougher negotiations between toyota and the agency. not all of the recall increase can be blamed on slipping toyota quality. and it goes on from there. none of you have, i guess have seen this document, but this is from the president of toyota

motors north america or at least it contains information that he, i guess, presented. and i am worried about some of these phrases about managing the tide of safety investigations. i am concerned about not all of the recall increase can be blamed on slipping toyota quality. and to the point that was made before, this looks like more of an effort to get in front of, in a public relations way, a problem in order to instill confidence in the consumer and to deal with the government regulatory agency then it does trying to solve a problem. and from the documents that i've reviewed, you've known about an acceleration problem whether it's been caused by electronics, which you don't believe it has been, or whether it's been caused by floor mats, which i guess you believe it does, and you've taken measures on that. you've known about this problem for some time. and i have a concern that the

efforts that you took in the past were not appropriate. and you did not go far enough in the years prior to what you are doing today. do you care to comment on that statement? [ speaking japanese ] [ speaking japanese ]

>> translator: around 2006, the number of recalls in n i will like to submit more accurate numbers to the committee later more accurate numbers. it is certainly an embarrassing thing for an automotive manufacturer to create a -- or produce a vehicle that have to be recalled later. however, when we realize that recall is needed, then that --

the work of recall should be done properly. so this may sound a little bit contradictory or complex or a bit strange, but the number of recalls -- recall was increasing and that meant that on the one hand, we were doing our job properly. [ speaking japanese ] [ speaking japanese ]

[ speaking japanese ] >> translator: with regards to our relationship with nhtsa it is really unfortunate that some of you may have a concern or as some people might suspect, it is -- it was unhealthy. i would like to clarify a -- clear that going forward and build a healthy relationship with nhtsa. in the past ten years, toyota has conducted, in total, 66 vehicle recalls in north america of which 57 were on a voluntary

basis. in other words, we were not given any instruction from nhtsa to do these recalls. however, we did do that. unfortunately, the remaining nine cases our response was not good enough and it ended up in the instructed recall by nhtsa. but we are not trying to work on the relationship with nhtsa so that if we can persuade them we can avoid recalls or anything like that. and our past record testifies to that. and this is a piece of information i would like you to understand. >> thank you senator. >> senator lautenberg. >> i want to ask mr. inaba a question. it was a document entitled 2009 and described what the author

considered to be a win for toyota. one of these wins were toyota's self-described safety group was $100 million saving from avoiding the safety recall in 2007. mr. inabe, your name is on the cover page of the document. and you have stated that it is a presentation that was made to you, thus you are endorsing -- you are endorsing? >> yes, sir. >> did this presentation raise a red flag that your company was prioritizing profit over safety? >> it has never been the case, and it will never be the case. >> it was described as a win. a win is a victory, obviously. >> let me address.

safety is a valiant principle. i found -- i reread that only recently and then found a little embarrassing and it is so inconsistent with our guiding principle and personal belief. therefore, although they try to impress me with bigger numbers of money that they said they saved, but i would like to read in my position to rectify if there is any element of that thought in our organization. >> is anyone at toyota responsible -- been made responsible for this presentation or related safety lapses at toyota been reprimanded for their lapse? >> may i --

>> okay, sorry. i just wanted to understand your english correctly. i have told the washington office since i found it later on that this is not our company, sort of, policy. the cost comes first than the safety. i advised them safety comes first. this is the top priority of a company. that's all and there's no -- >> but there -- it was not suggested that anybody in the company was responsible for -- you are an engineer as i remember or one of you is an engineer. is it possible that there is no

>> this kind of presentation have been that the accelerations happened . that the accident happened. does it say your responsibility is -- department is responsible? if you make that kind of mistake for currier is essentially over, however you manage? >> let me just address this first. we take federal accident very seriously. i do not believe there is any sort of rule or system that

would punish any individuals when it happens. even if we know the root cause of it. >> the two iota's progress -- toyota's progress was remarkable. they went from 10% in 1999 to 13% of the market share in 2008. gm fell from 17% to 12% in the same period of time. ford fell to 8% in the same period of time. why was toyota able to move so quickly? ble to move so deftly, so quickly, into the market place and overcome the

established auto industry that existed in this country? >> i am from sales and marketing, so i have to respond to your question. we believe that the quality of the vehicles are the one that, over years, we have been in this country 50 years. and it is not so much a one incident or anything, but sort of continuous sort of reassurance to the customer that our product is reliable and safe and durable. is the one that really brought us up to here. of course, we are very embarrassed. we are very troubled by this recent incident so that we would have to go back to basics to really reaffirm our customers that our product is one of the

safest and most reliable. and this is the only way. i mean, we have not spent any more incentive than the average or anything. so i think really this building a trust among the customers is a key to our past success and we will like to continue doing so into the future. >> you know, there's an insinuation here because you describe $100 million savings. that's earnings basically, from avoiding a safety recall in 2007. now that doesn't sound like toyota was satisfy ied with its identification as reliable, safe, your word, there. because it looked like there was a move to make profits by maybe taking shortcuts.

i mentions this earlier. it's a little inconsistent with all due respect, mr. inaba, that when you talk about market share, growing as it was. and i believe in a competitive market place, but when it's that drastic and included in there is 100 million bucks we made by not paying a fine or not doing what we should have. >> first of all, again, cost is not an issue in -- when it comes to recall or safety issues. and in japan, we deliberately separate it from a recall decision to a management decision. and, therefore, it is decided on the very lower level of the management structure.

and we have been doing it, and we are still doing it. therefore, to make sure that cost is not an issue when it comes to recalls. this is really a strong point that we have been making. and, therefore, as you pointed out, this expression is so inconsistent from our past and current and future guiding principle of the company and i'd like to correct that. >> thank you very much. and we appreciate the witnesses coming here, but i'm not sure that we're always talking about the same thing. >> thank you chairman rockefeller. i want to follow up also on what senator lautenberg was asking about and specifically about the internal company document dated july 9th, which you've been discussing with him.

and the term that's used in there, saving the company $100 million. and i know you don't like that term. did the company as a result of not doing a vehicle recall, did you, in fact, save $100 million? what was the amount of money that was saved as a -- you went down one path. we know that the path you went down -- the entrapment problems with the pedal and the fatalities continued. so you went down that path. if you'd gone down the other path of a vehicle recall, that, obviously, would have been a much more costly. so what actually did you save in terms of your course that you took? >> with all my honesty that i do not even know what the basis of

that calculation. i am not interested in going in there. the only problem is that saving on a recall is inconsistent with our principle. so that's what i want to say. >> but, sir, this is your document. this is a toyota document and it used the terms that you saved that amount of money. so, clearly, they at least got some of the statistics and the dollar amount from toyota information that was given to them. is that correct? >> no, we don't have any systems or rules or traditions of collecting those saving amount in the united states or even in japan. >> do any of the other executives want to comment on

this? [ speaking japanese ] [ speaking japanese ]

>> translator: i might be just repeating what mr. inaba said. we at toyota motor company, the recall decision-making process is the following. it is really purely the decision on the part of the individuals who are very familiar with the market situation and also someone who is very familiar with the technical content of this matter. and this would be reported to the managing officer and he or she would approve of it and then it would be implemented. in other words, this whole process will complete within this function of quality assurance and customer services. therefore, there is never a discussion that would include the money amount, how much we would save or would not have saved if we had done this or not

have done that. so this discussion takes place outside of the earnings or savings or whatsoever, and i really would like you to understand our process. >> so all of you, do you dispute and reject the $100 million figure? do you deny the $100 million figure even exists and it's something that is just out there and being discussed in the press? but it isn't -- doesn't have anything to do with toyota. is that what you are saying today? >> senator, i can only say that i don't know the basis of that $100 million. so i cannot comment any further than that. >> well, give me a figure then. so you are saying you don't know where the $100 million came from, correct? and so you are disputing that $100 million. that's just -- it's not your -- it's not the way you would approach it. okay.

so tell me if -- what the company did is you had a floor mat recall, okay? a floor mat recall. that recall did not result in safer vehicles. and, indeed, you had pedal entrapment and you had additional fatalities, okay? that's what you did. if you had had a full vehicle recall, how much would that have cost your company? >> i am not able to answer that question. >> could you answer that for the record? >> yes, sir. yes. also, prior -- you know, questions, i would like to get back to you. the basis of that calculation. >> okay. now in following up a little bit, my staff and i met, and we very much appreciate it, meeting with the toyota people that came to our office and discussed with us the matter before the

hearing. and they indicated the accelerator being reshaped that dealerships are also upgrading the software on the recalled vehicles to include a brake override which mr. ditlow mentioned when the accelerator and brake are applied at the same time. and this override is considered by most vehicle manufacturers as an essential safety device. my question to whoever has the expertise here is this software upgrade being provided automatically at the next service appointment to all existing toyota vehicles whose computers can support the upgrade, even those not subject to the recall? [ speaking japanese ]

>> translator: there may be a slight miscommunication, so i would like to correct that. brake override system is not quite that general yet. i believe currently about 20% of the vehicles in north america are equipped with brake override system. [ speaking japanese ] >> translator: we at toyota, this brake override system is a very effective manner to address a certain portion of the sudden

acceleration, so we would like to implement this system to the vehicles produced in north america one by one. >> and this is scheduled to complete towards the end of year 2010. ah[speaking japanese] >> with 3 regard to the existing people, customers who are concerned about this issue,

we have selected seven models that have a very high of couple of complaints to be the subject of this upgrade. if the customer brings their vehicle to the to the ship, we will provide the of great . [speaking japanese] >> once we complete all these of crete, the vehicle will become safer than other vehicles. i am very convinced of that. >> thank you. my time is exhausted. thank you very much. >> thank you. >> thank you for holding this.

i will be parochial for my first question. i represent the state of alaska. many of our residents live in rural parts of the state, where there are no roads. how will you address when they have to barge these vehicles to their home? how will you deal with this? they purchase them from a dealer hundreds of miles away. how will you deal with those folks? >> well, first of all, we will ask our dealers to take care of the customers as much as they can. so it is in principle that how they treat the customers, and i hope they will treat a proper way. and also if there's any sort of situation where a customer cannot bring the cars to the dealership or at the same time

he has any concerns, i think we allow the dealers to pay the cost, if necessary and then we will reimburse it. >> thank you. very good. that's important. and i'm a driver of a toyota. i own a highlander hybrid. i drove it from alaska to here. 19 days. 5,000 miles. and it did a good job. now to the broader questions that some have asked here, i had not seen the presentation that senator lemiux talked about. will you respond to him in detail on the record at a later time, his concerns about that document that he presented in the slide show? >> yes. >> very good. let me ask you, if i can, a couple -- so i understand the process. i understand you have a team lower than senior management that makes a decision on recalls. when that is brought to that team for decision, is there anyone that can overrule that team outside of that group?

>> mr. sasaki will be better. >> thank you. [ speaking japanese ] [ speaking japanese ]

>> translator: the process in which the recall decision is made is, as i said earlier, it's purely reflects the market conditions and technical cause of that problem. however, this process is very strictly prescribed within our company, so if the decision was made outside of that very strict rules, then that could be reviewed by the officers who is in charge of looking at that operation. also, we do have auditors. and so given a certain period of time, there will be a number of audits conducted, and so the auditors would be also looking over it. >> very good. can i have maybe, again, at a later time, for the record, you probably have a written policy on this? can you submit that to the committee for review? >> yes, sir. >> also, can you submit maybe,

and i'll use a period of time since 2006, because that's some of the discussion here of recalls that have been brought through the chain and then at any point where they might have been stopped or not moved forward? could you provide that to the committee based on this process that i now understand? >> we will try to do so, yes. >> thank you very much. let me also ask a question that was asked earlier today in the early session was, as you can see, the federal government here is very interested in safety and security of vehicles and how they operate. what on the -- what in the japanese government is going on in regards to what they see we're doing here. is there a corresponding action? who would like to answer that? i'll leave it to you to decide who will answer these.

[ speaking japanese ] >> translator: the recall system in japan was actually brought -- put together after learning from the u.s. system. therefore, the system in japan is very similar to that in this country. >> but is the government of japan taking any action in regards to this what we're doing here or is there any action they are doing to follow up on the products that are being exported? [ speaking japanese ]

>> translator: actually it is the ministry of international trade and industry that has that jurisdiction or authority to make sure those exported vehicles would be taken care of or looked after well. >> i'll do this one more time. it just may not be able to be answered at this point. are they doing anything based on what's happening at this point in this country with these recalls. are they adding extra scrutiny to your company? [ speaking japanese ] >> translator: yes, we have received a number of hearings from the government, and they

are watching how this recalls in the united states came about and how this actual implementation of the recall or execution of the recall is being carried out. they are following us very closely. >> very good. i know i am out of time, i think. let me ask just one last question. it's kind of a statement with a question. you understand that the reputation of the company and the trust of the company by the consumer has been damaged. and that the way that's regained is by the work you do especially now in the recall but also into the future. that's a clear understanding. at what point does the senior management involve themselves or see reports on a regular basis and the amount of recalls or incidents that are being driven from the lower ranks of the employee group indicating there's problems. does the senior management see

that all the way to the bottom and up? and how often do you see that? >> well, personal experience is that i have been involved since the end of september, and i will do -- pay very close attention about what's going on with any technical issues that arises. and, therefore, it will be a lot more attention paid from now on because this loss of trust is more costly than anything else to toyota. and so that we do utmost to restore that. that's my commitment and also other members' commitment. >> thank you very much for your testimony. again, thank you, mr. chairman, for holding the hearing. >> thank you, senator begich. now senator nelson. >> mr. ditlow? >> yes. >> there's a deadline coming for mandatory use of electronic data

recorders, is that right? >> there is -- there's a deadline coming on the standardization. there's no requirement that it be installed. >> if there's a deadline for standardization, why does -- what is your opinion that toyota still uses proprietary software to read out the contents if it's going to be standardized? >> the data that are going to be recorded will be standardized. there is no standardization on the read out and making it commercially available. so it's a failing in the rule that's about to be issued, or that has been issued and it's about to be made final. >> and you think that needs to be corrected? >> yes. i mean, we need two things. we need to mandate them in all vehicles and we need the readout be standardized so that anyone can read it. >> is an edr part of the air bag

assembly? >> there is, in fact, a data recorder that's associated with the air bag. the edr is a more advanced version and it's capable of measuring and recording more features than the air bag recorder. >> well then i would like to ask toyo toyota. does toyota's edr record, and for how long does the edr record record how long does the electronic data recorder record the data before and after a crash for an air bag?

[ speaking japanese ] >> translator: the current edr records the five minutes prior to the crash and two minutes -- i'm sorry, five seconds prior to the crash and two seconds after the crash. in other words, the current system is to record the data related to the deployment of the air bag and so whether the air bag is deployed or the brake is pressed very hardly over the secondary level or above. so that's -- >> more than 2 g. so it's five seconds prior and

two seconds afterwards. >> who made the decision in toyota to have only one laptop in the u.s. with the required software to read out an electronic data recorder? [ speaking japanese ] >> translator: i do not know at this time who has decided -- who rendered that decision. however if that is needed, i will look into it and then submit the name later.

currently, we are using just one laptop to do that because we have been able to submit all the required data by using this one piece of laptop. so i think that's how we have been doing it. >> does toyota collect and store all the information from the electronic data recorders it decodes? [ speaking japanese ] >> translator: right now the event data readout will be done when the customer requests it or police or court or

these are under several state laws . >> [speaking japanese] >> and then we are trying to do our utmost so said that -- so that it can be carried out. we will have 100 units available in early april. by the end of april, we will have 150 available in north america. we are going to hand over three tomorrow. >> that is the label information. that is not the answer to the question.

>> okay. that's valuable information but that's not the answer to the question. the question was, does toyota collect and store all the information from the electronic data recorders it decodes? [ speaking japanese ] >> translator: it is true toyota reads them out, but i'm not sure as i sit here today whether toyota keeps such records. and i will look into it, senator, and i will get back to the committee. >> okay. tell me why did toyota officials in japan not take serious ly th messages about safety concerns that toyota's north american officials had conveyed to japan?

[ speaking japanese ] [ speaking japanese ] >> translator: it is quite unfortunate that you have come to form that notion, and i wonder if that was -- that

happened because in the past with regards to the field action decision-making that relates -- relates to the safety a member of our north american team was not formally involved. and, therefore, we have rectified this immediately and now we would include someone who is most knowledgeable of the north american market situation to become one of the very important panel member that would render the decision regarding the field action. >> so you think that headquarters in japan took seriously the messages of safety concerns from north america. is that correct?

[ speaking japanese ] [ speaking japanese ] >> translator: yes, that is correct, although you say the japanese headquarters. in actuality that when the decision was rendered, the person in charge of that was sent to the united states and looked at the situation under our go and see principle. and that's how our decisions had been rendered. therefore, it is not the case in the past that without knowing the situation in north american

market place that the decisions were made in japan. >> mr. chairman, thank you. it's sad for the loss of life, but it's also sad as i said in my opening comments about all these toyota dealers who now in the middle of an economic recession, are getting hit with a double wammy because people have lost confidence in toyota. and now all of these small businesses are getting hurt all the more because people are not coming in to buy cars in their toyota dealerships. thank you, mr. chairman, for the generosity of your time. >> as always. thank you very much, senator nelson. i will ask a final question and then we'll make a closing statement. i have here a sheet from toyota called the toyota management team. and it's interesting because the

president and member of the board is obviously akio toyoda. there are five executive vice presidents. there are innumerable senior managing directors. and there are directors, members of the board, just two. and of the five executive vice presidents, members of the board directly under the president, akio toyoda, two of them are on our panel today. mr. sasaki and mr. ushiamata. and that's why i think there is some, you feel, or we feel, we both feel some frustration in trying to communicate our effort to get to the bottom of some of our questions. it's the -- it's the question of accountability. who is accountable. who makes decisions?

many questions have come back that we are doing recalls as if that were a problem solver. and it is not necessarily a problem solver. we will get back to you on that. that is not a direct answer. i think there is more knowledge at the table than has disclosed itself. i don't say that rudely. i just say that in perhaps a typical american/japanese inability to communicate as effectively as we should on a particularly important issue both to us in terms of safety and you in terms of safety and some loss of confidence in your product. but you know, all the way, since senator nelson said this, since at least 2002, a long time ago,

thousands of toyota and lexus owners in the united states have complained to toyota that they experienced sudden unintended acceleration. so they have been doing that ever since. thousands and thousands of them. these toyota owners told toyota the brakes would not overpower the surging vehicle. a number of them have even had smoking brakes and melted hubcaps. to prove it i believe senator klobuchar made that point. however, toyota, in this person's judgment, did not listen to its customers, and it sent out letters like this, which, obviously, nobody can read, but i can, and i'll quote from it. it's rather cold.

it's rather cold. the key paragraph says in order for this accident to have occurred as a result of unintended acceleration, there would have to be a simultaneous failure of two totally independent systems, namely the brake and throttle systems. our inspections confirm that these systems were purely functional and, therefore, it simply sort of tossed off the agony of owner. now the evidence that everyone has now seen points to the exact opposite conclusion. we have been trying get at that. which is that brakes could not control a surging vehicle. so now we are talking about electronic systems, brake overrides.

you mentioned outside consultant called exponent but this report tested only six vehicles. it is not good enough. not good enough. so let me give you an example of one person who i think makes the point. last august, a bill shepherd of monrovia, california, i do not know the man but my staff has talked to both him and the master mechanic i'm about to explain. this person experienced an instant of sudden unintended acceleration in the 2004 camry. that was a long time ago. he was pulling into his garage at the time. and then just -- i guess pulled back into the living room or something. and at first, the master mechanic at mr. shepherd's local repair shop told him as an n a

sense you indicated to us that it was impossible, his words, that the camry's electronic system caused the problem. said it was impossible. mr. shepherd was a stubborn man. and he insisted that this mechanic keep running tests because he felt that there was some other reason for his surge which he did not sxlik which was threatening. about a week later, it turns out, the mechanic ran a test after running tests a lot. not just once, not just twice. for a period of about a week. and he ran a test after a week and in which the accelerator pedal sensor indeed failed. so lo and behold, it was not -- just changed everything. it changed everything.

in other words, there was a problem in the electronic throttle system. mr. shepherd recorded his finding to both toyota. this is back in 2004. to both toyota and to nhtsa and to my tremendous sorrow i have to say neither nhtsa or toyota has ever given a response to mr. shepherd. so symbolically, and really, i asked you today we had talked to both him and to his master mechanic at length. i ask you today, will you be in touch with this man? we will give you his address. because you -- we didn't have a chance to get into how you handled complaints. that's so key to what level do they rise. what does the board know about them? does the board meet as all the people i suggested? is there an executive committee

which -- hinted at in the organizational table? how do these things come to the attention? that was my frustration, my first round of questions when i tried to find out when were these decisions changed if they were changed. which they were because your president admitted to that. safety, took a second seat to profits. in japanese culture, in japanese corporations, things do not happen by chance. they happen by decision. and i failed to get an answer about that. i regret that. but you made the statement -- in a sense, the recalls equal doing the job properly. taking care of the situation.

then it was suggested that a public relations effort or is that really solving the problem. there was no answer forthcoming. one of you indicated the 20% of the outstanding toyotas in america have brake override systems now. but then you mentioned that by the year 2010, perhaps the end of it, it will be completed. what will be completed? and i ask you this question. obviously, the brake override the hope you you have the to i's have already been made.

the toyota's that are made from a year ago, that is good. but why is a new toyota owner less important than an older toyota owner and an older toyota owner? their lives are the same. their values are the same. there equal in their capacity to be protected. -- they are equal in their capacity to be protected. i'll just ask this question. is it not fair to suggest that toyota should make an override system for all toyota's, the o lder ones where the electronics where less complicated, as well

as the new ones? you might say that is very expensive. that's very expensive and i might say to you that spread out over the entire fleet, the expense will be less substantially and i also might say that maybe the expense doesn't matter. because these are human beings. and they are loyal customers, as shown by the fact they still have the toyotas they bought years ago. and further, i might ask you this question. supposing i was -- i bought a toyota back in camry back in 2004. and it was an older system.

and i had a surge problem. unexpected surge problem. i was deeply distressed by it and i was frayed to drive the car because of my children and because of myself and because of whoever. i traded that automobile. i sold that automobile to somebody else. that brings up a whole new question. is it proper to say that once the car is out of the hands of the original purchaser, but now in the hands of another american owner, it still has this defect or potential defect in it. why would one trade or sell a defective potentially defective and i go back to the shepherd case where he worked at it and worked at and it found out, yes, there was a defect. why would somebody be traded or sold defective car?

is that moral? is that ethical? is that proper? is that good business practice for toyota? now i asked you many questions and i apologize for that. but i have said what i wanted to say. that what i think we wanted to get and we have gotten some behind of that but not explicitly real answers to real problems. not just we are doing a recall. and, therefore, we will solve the problem. but we are going to make sure that every toyota car on the road in the united states of america is safe. and has a brake override. i will just stop there and you can answer in any way that you wish. >> translator: allow me to speak first.

thank you very much, chairman, for giving us many pieces of comments. >> translator: we understand fully that this is a big room for improvement upon ourselves in the way in which we have del with so far in the past in the global toyota corporation. allow me to repeat this. when we manufactured our vehicles, our priorities are, number one, safety.

number two, quality. number three, delivery. this important order has never been changed. >> translator: having said that, we are fully aware of the fact that perhaps we haven't lived up to the expectations on the part of our customers vis-a-vis our product. and when we consider the a recalls that we have to execute. and we are viewing that we have to do something about it right away.

in the development side, i will be standing on the front line and working very hard so that people will once again have the image of toyota that we were able to instill into people in the past. >> i would respond to that and i will close here shortly by saying that the complaints began to come in until 2002 by the thousands. so to say you will respond immediately and that you regret for your customers, i understand that. what i do not understand is the lack of response earlier. it seems to me that it would have been so much in the custom of the toyota company that i

have known over the years. but you talk about we will do something immediately. let me just say this. will you contact mr. shepherd? we will give you his address and number. >> yes, sir, doyle so. >> and the mechanic? >> yes. >> the japanese transport minist minister, appearing at nationwide broadcast news show on sunday, complained that toyota's, quote, culprit carpet culture, close quote, reflected a reluctance to be forthright on recalls. the company is not taking the problem as serious as it should, he said. saying the company quality chief came to explain the problems to the ministry only after being asked to do so.

i do not require a response on that. and i will go to my closing statement. if that is all right. this has been useful but not as useful as it should have been. and i regret that because i know what kind of company you are and can be again. and maybe it is sometime reply when i was a student in japan, japanese and american, sometimes have different ways of talking to each other. and what appear to be kerry questions on the part of americans are -- may not be seen that way by the japanese. on the other hand, we are now talking about a professional problem, professional problem which has affected toyota in tens of billions of dollars lost net worth. affected a lot of people in this country in ways which they have

experienced or they have yet to experience unless the brake control is made universal. so let me just do my closing statement. i want to thank all of our witnesses today for your cooperation in making sure the committee got all of the information it was looking for. i would have to do a little calf yeah to that. i guess. we have had a very full and long day and with the ongoing work of this committee which will take place. two things are already very clear to me. first, toyota needs to restore its customers confidence and trust and seriously recommit itself to quality and to open communication. and car makers should be required to provide the hardware that the dealers need to read

electronic data recorders. my second point was that the u.s. government has to do a much better job of keeping the american people safe. please understand we had an all-morning hearing with nhtsa and it was not one that was pleasant for them. mr. diplow was here and can testify to that. and i thank you, sir, for all that you would have said, could have said, and did say. i -- in my case, i firmly believe that this is going to require strong legislative action to name a few examples have i in mind it is clear we need to revisit the trent act.

we must seriously consider a rule making mandating brake override. and car makers should be required to provide the hardware that dealers need to read electronic data recorders. and fourth, we should also require senior executives to certify the information their companies provide to nhtsa. that's 100% correct and accurate. that is usual and customary. and it must take place. i have other ideas, those are just mine. i know my colleagues do, too. if we are really serious about making sure that this does not happen again, we need to work aggressively and together on this effort. and that is what i intend to do with my colleagues. as i said earlier, i have over a thousand workers in my state who depend on -- who work at toyota

and who have won the highest awards in most years. i think five consecutive years. maybe six consecutive years for being the most productive. i want them to be protected's they drive their toyota cars and i want them to be employed because people have confidence in you and, therefore, are buying your product. we have to get back to that. not obviously just for west virginia's sake but for your sake and the country's sake. i have every confidence that i can earn back the trust of your consumers and that you can earn back the trust of the american people. every single toyota owner deserves a full accounting of what happened and why and a clear indication of what we hear today are going to do to make sure that safety is never second pla place. having said that, i again thank

you. we tried to make the questioning not histrionic but professional. fact based. and we each tried to communicate with each other as well as we could. and i do appreciate the fact that at least two of you have flown all the way from japan for this hearing. so i'm grateful. i'm looking forward to a strong and

.

has to reflect our ability to pay that. one of the things we are asking for a change in the law is that we have a prosthration an arbitrator consider the financial condition of the postal service when it comes to labor contracts. you can't have a labor force pay and benefit system that is not linked to the business and we have to link them and we're asking tr a change in the law to do that. that's within of the big five. we have to step up on workforce. one of the public policy situation. let me talk a little

bit about the retirement health benefits. i'm very grateful to congress and the administration for the adjustment they made last year into our payment for the trust fund. we have to move beyond making one-time adjustments. we have to permanently decide how we're going to handle this. there were many options we have considered. amortizeation. the fact of the matter is we need thards issue as quickly as we -- to address this issue as quickly as we possibly can. the recent i.g. report needs to be added that revisited civil service retirement system pension funding. back in 2003 it was determined that we had overpayed that fund, actually you had overpaid that

fund by $17 billion. the i.g. has revisited that decision and believes you have overfunded that by $92 billion. that is a huge amount of money. $75 billion is going to go a long way if the decision is revisited and changed, a long way to funding future retiree health benefits but this is an issue that just cannot wait for a decision. we have to make that decision as quickly as we possibly can because of the -- first of all the value of this. this is tens of billions of dollars. ok? and the fact that the longer you wait, the more our costs grow. so we have to step up to that. as tom said, we were on a pay as you go system, we would be happy to go back to a pay as you go system.

we cannot afford to finance this retirement health benefit trust fund at the rate that the law currently requires. when it comes to receiving universal subsidies. that is not something we want to pursue. it is very, very complex. people talk about how difficult a period of time that was because every year they were out there fighting if r appropriations and it really didn't enable good business decisions and i think it is something we would prefer to avoid. and then on the oversight model, obviously what i described there today, changes in the law have to happen and the one thing we really need is speed. and so the legislative model, the regulatory model have to enable change on a very, very rapid basis because of the nature, the dynamic nature of what we face going forward.

so let me just recap for you, we do want to obviously look at all options on the table. i went through a number of options there but let me highlight the top six things we're talking about in interprets of the postal service business plan. the first of those things within our control, we said that we would step up to the plate and take $123 billion of cumulative costs out going forward and it includes growing the mail beyond where it is today and taking costs out of our system. the combination of the two worth $123 billion. risk, tom said there is risk there. the risk that i think i fear the most is not pat don hoe and his team's ability to get the job done. my fear is that oversight steps in the way. is part of this plan that we're

going to consolidate facilities and change some of our networks. if every time we make a move, oversight either constrains what we're going to or slows us down, it is going to keep us from hitting that target of $123 billion. retiring health benefits, major decision that has to be made as quickly as we possibly can on a permanent basis so that we know how much pressure there is on the other options within this plan. delivery frequency, you go from 6-4-3. if 70% of the american public say they can live with five given our financial condition, it is a move that we simply have to make. access, again, i think it makes good common sense to try and increase the access that americans have to our products and services. that is going to require a

change, though, to what we currently have in terms of our post office network. i believe once people understand that we're talking about increasing access, that they will still have access to the postal service in a different location, in fact, have expanded access because of the hours that they will be able to go and you know, use our services, i think the american public is going to embrace this but there is an emotional issue here that we're just going to have to overcome and the way we overcome it is by putting it in proper context. we work with our unions and they have made huge contributions to this organization. they are this organization. we have contracts that are in place today that have been achieved through collective bargainanning. we're not going abandon contracts. given the fact that we're not in hiring mode, this change will occur over time.

we will be slow and probably not hiring for a period of time but it is an area obviously we will address through the collective bargaining process. we'll deal with flexibility, benefits and wages and get a contribution out of our employees that will help close the gap and last, but not least,ing and products but more emphasis on pricing. when you look at this laundry list of things, if we don't take action, and we are not successful in collect i bargaining challenges that we have in the next couple of years, the burden is going to fall on pricing and quite frankly, i believe that if we don't use that newell moderation, we could do grave harm to the postal service. and so when we look at this, we're looking for increased flexibility. our goal as a management team is to use these six tools and balance the use of those tools

so no burden falls on anybody, doesn't fall on customers, doesn't fall on the backs of our employees who work so hard day in and day out. it doesn't force us to change delivery frequency from six to three, which i think would damage our products. we have to attack this from a balance standpoint and i think we'll be successful. in terms of numbers, do we close the gap? no doubt. take the right actions we can. retiree health benefits could be anywhere from zero to $50 billion. delivery frequency, if we move on it quickly could be worth over $40 billion to the postal service but it comes to access, we're going to go slow there and make sure that we don't leave people in the lurch. i believe that is worth up to $10 in the next decade.

workforce, we're going to negotiate with the unions, not with you. we look forward to the november negotiations with the a.p.w. and the mail handlers and next year we look forward to negotiations with our mail handler rs. and finally, pricing. a tool we use in moderation but we do intend to use the flexibility that is in the law to raise prices with inflation. for revenue, i put $158 billion. i want it to be understood that is we can use with the regulatory commission. that really could be -- if all other options are taken away from us, that could be the only tool that is available for us to use. let me just in closing talk

about where we are. i view today as the second step in the day log. it is a starting point. our goal is to communicate about all elements of this plan so that every stake holder understands our vision and where the postal service is going. understands our vision of what we could become. understands that the change s that areneeded in the current model in order to effect this vision. law and regulation must enable the changes i describe. if we gain the flexibility to meet the change in demand and the ability in the marketplace, we continue to provide the service at affordable prices that remains financially secure and is self-sustaining and independent of taxpayer support.

embraces changes in technology and the preference to have american people. operates with a smaller workforce but able to neat customer needs and is stale great place to work and have a career. we want customers in 2020 to think of the postal service as bick with itous. -- ubiquitous. i've got to tell you i believe that that vision is realistic. i believe that we can modernize the law. the legislate i and regulatory changes i spoke about. we can modernize the law. we need speed and flexibility to react with the marketplace. let me just reiterate. this plan is about flexibility and balance. we need to do many things but we need to do them all in a moderate way in order to effect

the changes that will have this postal service be liable. i'm convinced that if we continue down the path that we're on, dialogue leading to action, that we will have a viable, healthy postal sfers for decades and centuries to come but it is the obligation of all of us today to make the changes now that will enable that vision to be -- come to pass. so that's plan. we're excited about the level of dialogue we're going to have in the future. we're excited about the changes that are going to occur and most importantly, we are committed to universal service to the american public and we are committed to make sure that we make the changes today that will enable us to continue to provide that service in the future. thank you very much.

[applause] [captions copyright national cable satellite corp. 2010] [captioning performed by national captioning institute] >> ladies and gentlemen, please welcome linda kingsley. [applause] >> thank you. welcome back. i want to say first, thank you to everybody that submitted questions. we got about 70 questions, which isn't as many as i expected. jack did a great job i expect answering the questions before we got started. first i would like to introduce our panel starting on your right we have lou juliano, thurgood marshall jr., jackpotter, pete

donohoe. welcome. [applause] >> why do we need a postal service if it is only going to be delivering junk mail in 2020? >> ooh. junk mail. i didn't think you were allowed to use the j word. all mail has value. one of the things that tom talked about is that advertising mail provides a return for those who accepted it. a very sizable return. when you look at advertising mail versus other channels, it is right up there at the top when it comes to return on investment. right now with the economy the way it is anything that provides a retirement investment is

something that is good for america. so going forward i can see continued value in advertising mail and as long as there is a demand out there and the american public responds to it, we should be providing that service. >> jack, just to add to that, there is at least 60 billion, 80 billion pieces of advertising mail and it crickets to cost and profitability. that is another positive part of the reason. >> it provides access to other means. you send that postcard out, somebody might go online. mail plays a very important part. >> the advertising business, i've talked about whether or not mail will have value going forward. they talk about the fact that going forward, they envision a multichannel effort that includes television, newspapers,

online, you know, internet and mobile apps but at the end of the day, people tell anyway mail does the best job in terms of closing a sale. the others warm them up but mail has the ability to close the sail sale. it is in your hand. people trust the mail. >> good. next question is for thurgood. the real retiree payment issue is for -- what is the relief this year? >> if there is no relief this year, we obviously have a number of additional solutions that we will need to put in place and those were laid out earlier this morning. what is important in trying to get there is to make sure that we take advantage of what i believe is the tipping point. we have laid a good foundation in explaining the impact of the

prepayment requirement and the burden it places on the postal service but i think you have seen today where the tipping point in terms of having a comprehensive package of potential solutions of which prepayment restructuring is an important piece, we're also at a tipping point i believe because we also have comprehensive and current presentation to have budget challenges that we're facing. >> the second question is related to that. if congress sticks to re-- fixes retireyee health care funding how would the usps -- i think it is saying do we still need to do all the other things if we get the relief? >> let me talk about the last line that i showed. what we projected was a $115 billion gap. assuming that the postal service

makes it $123 billion plan. the retiree health benefit relief is worth $120 billion. there is still over $50 billion of options that we have to pursue in order to close that gap. so, yes, it would be a very welcome relief to get $75 billion but i think we have to be realistic that there is also a chance we could get zero. the last thing we're going to do is put anything in the bank that we need to work. close as many as we can. it is kind of like somebody buys a lottery ticket and says i'm going to have millions of dollars and buy that mansion and boat and fancy car. we're not taking it that way. this is going to be very hard work. there is going to have to be a lot of discussion and give and take before we can resolve that but at the end of the day, $75

billion, we just look at the costs going out, it is not going to close the gap. >> i think it is important to add that first of all, it is unlikely that $75 billion would come to the postal service under any circumstances. secondly, whatever did come, i'm sure would be tagged for some specific issues like retiree health care benefits or something like that. it is not something that is going to go to the bottom line or the operational income line that is going to mitigate these other issues. >> i'll take a check. >> pat, the next question is on access. what kinds of post offices are you looking to close fingerprint >> crnk what we need to do is frame access in a very positive way, and that's increase access. what we have done is really made a big change in where people can

purchase stamps and postal products. you heard in the presentation before, 30% of our retail is now conducted outside the post office. we need to continue that. we have made great strides, supermarkets, drug stores and the internets. >> this is all about, as jack said and pat said, improving the customer experience. it means making the experience better for all of our customers. take the three scror ways that we're discussing. right now, increasing hours. we're looking at 24/7 as a first level of solution. right now we have 50,000 additional locations. we think we can get that number up to 200,000. more locations. more choices and we're building one of the most contemporary websites in this country that

already has 30 million uses a month. a combination of 24 by seven. more choices turning your home into a post office. turning your mobile device into a post office makes us stronger and a better product as we move forward. >> i think the key thing too and it is very important for everyone in this room to understand. we can't shy away from the cost side of that. you can see the pressure that we're urned and the changes that we need to under and the changes that need to be made. we need work with the customers on this. look like be changes and if you know what jack said earlier on, we need a longer lead time so we don't make mistakes on there. there is big value and increased access. we'll go about it in a balanced and smart way. >> 60% or 70% or 80% of all

transactions are outside of the post office we think our consumers will embrace the change and embrace a new model. >> l ounch, the next question, private organizations have oversight from their stockholders. >> i don't think anything that i intended to message this morning is that we did not want -- or we wanted to eliminate all oversight. we need to review the organizations a pped the oversight practices. we got the postal regulatory commission, o.i.g.'s, g.a.o. owes. there is a lot of perhaps overlapping and sometimes mixed signals come out of that. whatever we do, we know there has to be oversight. this is too important an agency and activity that ought not to be. we need to be able to figure out

how the hear those voices in a timely, efficient fashion so we can make the required actions in a reasonable period of time. if any business today would have left in a private sector would have implemented most of the changes we're talking about today, two years ago, i can understand what the public policy issues here why the postal service could not do that. but certainly going forward, we hope that it doesn't take another period of years to be able to implement these changes. we have to be able to make these types of changes more rapidly, more aggressively all the time. not just to get us out of this hole because the environment will continue to change going forward. we can't anticipate what everything is going to be. we have to be able to experiment, try things and if they don't work, back up and start over again without causing major havoc in the system.

we have to do it in a reliable way. a way that takes into consideration our customers first. this is while it is a governmental organization. it is totally dependent on its customers for revenue and income. we've got to become more responsive to the customers' requirements. make changes. that really serve their -- make this an attractive option for them. make it not to be a problem to have to go stand in line at the post office. make it easier for them to get their work done. allow these businesses, small business and large businesses to find ways to use the postal service that actually enhance their business model. that's where we need to go and we need to have the type of regulatory environment that allows it. >> jack, mailers fear an increase.

are you talking about an increase after 2010? >> well, basically the promise that we would not raise rates in 2010 is a promise i'm going to keep. but beyond, you know, december 31 of this year, you know, we have to consider using the pricing tool in order to help close the gap. and so we're in dialogue now with the board of governors to determine how we would use that tool. the timing of it. any changes that we are talking about are modest. we're not talking about double digit rate increases but the fact of the matter is our costs continue to rise and you know, pricing is a tool that we need to exercise in order to help close that gap. so no one should fear double digit rate increases and you know, take that as a you know, reason to make that excuse to

get out of the mail. >> i would just like to reinforce that because from a board perspective we obviously are very concerned about pricing. it reflects to my statement earlier about soying the public. pricing is critically important and that's one of the reasons why the board management is not asking for a rate raise this year. despite the financial challenges, we thought and we had evidence supporting what happened with the summer sale and some of the other pricing things that bob and his team did that actually increased the use of mail despite the very difficult marketing conditions. that to us is evidence that it has the potential allow the postal sst to grow. by growing, to make up for that

income ditch rble. >> just on the summer sale alone, the number of incremental pieces is $1 billion. the reason as jack said, we're going to take a moderate price increase is we want to make sure we keep the mailing community as strong as we possibly with. >> we're taking a very broad view of pricing. we're going to look at all options and make the decisions that make sense for the mailers as well as us and so the key word here is moderation. the key word for all of these different options that we're looking at is balance. >> pat, the postal service has a competitive advantage with the saturday delivery. especially for parcels. doesn't eliminating saturday delivery hurt your brand or

business? >> you hear a lot of discussion about it is the whole six to five day issue. when you look it a, you can see what has happened volume-wise that has pushed us into that thinking. you can see going forward the projections, things don't get better. not only the problems we face with volume but just the contribution. we have been very aggressive taking costs out of this organization. you have seen our commitment to take the costs out as part of the thing that we can do. we have gone out to our customers to try and make some decisions around some of those choices. we asked customers what should we do given a couple of different options. customers have come back very strongly. face-to-face through surveys we have conducted and others at about a 70% rate that says take

a day off delivery. control your prices. at the same point in time, coop my post office open saturday. don't go to the government for a bailout. that's not right. it is better to control and deal with your own issues. listening to customers, we put a plan together. six to five days. saturday is the lowest volume day and has the least effect on business and we have also committed to keep post offices open and access to post office boxes. payments and all the mail that comes through continues to get the same service as we have come to expect in the past. bottom line, we've got the plan in place. we are ready to influence that. >> if i could add a couple of

things, one is when it cops to competition, the competition when it comes to mail, basically we're the only ones out there. the ubiquity. five days versus six days. these are the recipients, it really doesn't matter to them. that would be preferred among the other options. on the other hand, we work with the mailing community. after they see our entire plan they recognize they will be able to work with it. regarding packages? we do that five days a week. that's why we open our up net worth to them to be able to use us to the last mile. if you want to mail a package in

america today on saturday, it comes with the postal service by reducing six to five day, one of the options we laid out if people are willing to pay a premium, we will deliver on saturday but it has to cover its own costs. we are competitive going five days a week to every address. >> that doesn't mean we're not going threverage last mile. pat and i discussed it -- leverage the last mile. 90% of our volume is mail. if we can use our competitive edge on the last mile and deliver six days. we deliver express mail seven days a week. >> when will the decision be made? >> we put the package together. listening to the customers, we think it is a very good approach. we have run it by the governors.

we're he had to take it to the -- we're ready to take it to the regulatory commission. >> this month we'll be filing with the regulatory commission. that's one step. the other a change in the law. we're going to work with the folks on capitol hill as part of this overall plan. we're hoping that we can get some traction on some of these changes that we need. in an ideal world we would like to be able to change from six to five day delivery sometime in early 2011. >> some in codge have said that the usps has not used all of the flexibility that it has under the current law. what is your take? >> we have been instituting changes. trying and experimenting. what we're doing with the summer

sales and other types of promotions around mails. a number of contracts that we have signed is growing. we think that it is working. we recognized that flexibility works. what it has told us also is that with some additional flexibility, reasonable flexibility, still with checks and balance, we can do even more. we think there are great opportunities with growing mail. flexibility around those strategys is what we talked about within classes. so we think it is a great opportunity. something that would allow us to serve our customers well, provide opportunities for those in the industry. to grow their business while still being able to offer universal service and do it in a

cost-affordable way. >> usps has admitted it pays a labor premium. would it close the gap if eliminated? >> we say we pay a labor premium. keep in mind every time you hear that it is when we're about to go into contract negotiations. anyone going to the negotiating table postures itself as paying too much. >> don't give away your secrets. >> this isn't a secret. the union are in the room. they pay too little. the fact of the matter is we do recognize that you know, compared to the federal government, we pay more for our employees' health care than the federal government does. we have contract negotiations four years ago. as an element of those

negotiations, we agree that employees will pick up an additional percent of costs each year as part of that agreement and we hope to review that and maybe crealingts that going forward. keep in mind, we have contracts to our people. i told you earlier we're not in a hiring mode now. we're a little concerned we need the six to five-day delivery change quickly so we don't hire carriers today to lay them off. we want to honor our contract. 40 years of negotiations. we do need to make changes and we work very closely with our unions so i'm convinced that we can maybe change the trajectory of labor costs going forward through flexibility, through health care costs and through wages, but it is going to have to be done through the collective bargaining process and through arbitration. it is not going to be negotiated

in this room. our folks aren't out there driving fancy cars. they are living a middle class lifestyle. >> i came to this position with great respect for the collective bargaining process. i continue to have that respect. i also have great faith in the negotiators on both sides of that table. i view this as an opportunity to put together agreements that will benefit our employees, who are vital to our continued success and our customers who are also vital and the importance of this unique business. it is an opportunity that i think we have framed pretty well today. >> i think this is such an important aspect of the whole plan. to me, one of the most important things that the management team here has been able to achieve over the years is a level of

trust and respect with the workforce and with the union management. there are many examples in this country of other companies that have not been that successful. i think the management team deserves credit for having achieved that because we can't get anything done at all, no matter how great our plans are without the complete and full support of our workforce. confident, dedicated capable people who want to do a good job and by maintaining those relationships in the workforce, it give us us our best chance of being able to move forward. we just want for flexibility in the way things get managed and the way they get accomplished. i think we have a great opportunity because of that relationship that the managements team has built up with the workforce over the years. there is nothing that can

replace, buy and crush and respect other than the leadership that has been in place for many years. >> bob, this one is for you. we heard a lot today about cost reductions but not enough about new products. when and where are we going to see? >> there is no one solution to what we're trying accomplish. and the numbers that were presented by jack and mckenzie showed that new products are in the ballpark of 10% to 15% of the entire solution. numbers of e.c.g. showed we can bill on those and start with our shipping business. if we take advantage of our first and last mile, we can have robust growth there. our largest business, priority mail, we think we have just touched the surface.

pricing the discounts that we have put in place. the advertising campaign. the tag line. i've got to get it in. fish and chips. alabama to alaska, one low price. and beyond that, we're partnering with pat and i think doing a great job in driving costs out of the system. we continue to improve the technology base and are tracking and tracing abilityings continue to improve. so we see from that 3% growth upside. in terms of the mailing business, lou alluded to it in terms of the flexibility. we have a great understanding of what happens in terms of volume discounts when we put incentives out there. we're going to go to annual discounts instead of seasonal discounts. we're going open up that as an opportunity. also doing work in terms of company mf wide discounts where

by if more mail is kept in the mail stream we can incense the mailing community. so a lot of growth down the pike and a lot of learning but once again, one part of the solution in the range of 10% to 15% of all that we can accomplish. >> by the way, i would just like to -- a little announcement, kind of advertisement. if anyone has ideas, we're very open to them. the idea don't just come from postal service management. they come from our employees and mailers. that's where the creation takes place. small businesses become very large businesses. by using the mail whether that's amazon.com or netflix. small businesses, large businesses and consumers have that would help us, you know, design products and services that people need going forward. so we hope this is an open door policy. if you have things that make

sense, please share them with us. >> one of the things that we had the feed back on, the quality-based discount or a rebate. the key for us as an organization is to provide good quality service for the public is to keep process costs down and keep our processes running well. you guys know with the implementation with the i.m.b., there is a much better way to achieve a total industry quality level and one of the feedbacks we have gotten from people in the last couple of months is why don't we explore some of this because there are opportunities for everyone. keep those ideas coming. we are more than happy to work on this with these energy solutions. >> the advertising campaign that the team put together last year on flat rate shipping results in

a -- correct me if i'm wrong, a 50%, 80% increase in priority mail. >> flat rate box. >> at a time when the market is down. at a time when there is less stuff being shipped. 80% increase. a phenomenal response. never heard of anything like that. it shows what is possible with creativity and product innovation. >> the next one is also related to sources of revenue. a change in business models co-notes a new source profit. jack? [laughter] >> let me just revisit what was said earlier today about products that cover cost coverage. what contributes to fixed costs.

so what -- first class mail covers when it comes to overhead. 71% of fixed costs. advertising mail covers 21% of fixed costs. when you look going forward, with the shrinkage of first class now, obviously there is going to be more money overhead. the effort to take the cost out so that we can maintain margins on advertising mail and our current products because you know, with revenue going down, the only way to keep margins up is to take costs out and that is an initial effort. so we want to keep pricing affordable. there will be a challenge to keep the current margins for any class of mail where they are today. unless we're able to take those costs out. so you know, the burden may have to shift in terms of coing that

overhead cost going forward if it is in the system. you know, it is a very complex question but at the end of the day, you know, the key here is that we're able to achieve a balance of price and cost with an emphasis now on growing revenue and getting more pieces in the system beyond what is projected and taking costs out so that we can keep our margins balanced. >> there is also a very healthy tension. i spent 25 years in the private sector on advertising. i was responsible for among other things. i was very well aware that it is a competitive market. all major advertisers are looking at our costs in relativity to broadcast television and other forms of print and digital advertising so we're going to keep that in mind as we do it. we truly are a competitive market.

>> it is a complex model. we've got a high fixed cost network. volume makes a difference. absorpgs makes a big difference in your income. if i increase prices but that increases demand, do i actually wind up with less income? whereas if i could decrease prices and i got a big enough change in demand, would i actually even make -- have greater absorbings? it is complex and has to be experimented with over time and that is one of the benefits that bob and the organization have been doing with these different pricing strategies. the answer is we don't know. we're going to look at it in a comprehensive standpoint. we'll figure out what actual increases the utilization of the u.s. postal service while still

enabling us to be financially viable. >> thurgood, given everything on the white house's election plate in an election year, what makes you think any of this will be addressed? >> well, it is a fair question. first of all, through our effort and our partners who share our views, a number of these issues have been well-mined on capitol hill and at the white house and among the commentators and naltses so there is an important foundation laid to understand and provide the understanding to the challenges that we have been faced and the impact to a number of these solutions. we have the advantage of being able to build on the foundation that has been laid there. i think it is also important for for us to keep reminding policy makers that the climate that gave rise to the law in 2006 is significantly different now and

that's just an important challenge that we're going to have to continue to hit. >> any other points? jack, what changes are planned for streamlining management layers? >> well, first of all, the biggest portion of our management is super vision so as employees, the number of employees has gone down, so too as the level of supervision that we have in the organization. the second biggest layer that we have is postmasters. people who run these post offices, over time as we are able to move our retail operations from the current locations to locations where people have greater access and more convenient access will be able to take down some of the management structure. but we have been very aggressively looking at our entire management structure over time and have taken significant costs out.

we're always looking, it was mentioned that we're using -- earlier today but we're not only using that for movement of mail and -- the industrial side of the house. we're also using that when it comes to information flow and management. so pat, you want to pick up on that a little bit? >> a lot of administrative process, what you find is there are substantial costs in an organization as large as we are, the size and scope and the reach, so we have focused on a lot of mapping in the operations but one of the things we find that works very valuable is looking at a loft other things we do administratively. whether it is the network management or h.r. or even the law debt. we find big opportunities. the other thing that has really helped us is looking at how

customers contact us. there is a lot of cost involved. there are ways to slimming that down. not only taking the costs up but making us a lot more responsive. one of the things as we reduce head count, we talked about that over 200,000 people, more than 10% of that has been in the administrative and superadvisory function and we'll continue to move in that direction. >> what provisions exist for the capital needs and network optimizeations. >> one of the things that we have learned over the course of the last few years has been the real value of approval. we speapt lot of time looking at what we do and through the entire system. we worked with some of you guys in the room to look back into your operations from a mail manufacturing standpoint to see where the points of pain are and where the opportunities are. the thing that we probably

learned out of that has been the value of process versus throwing capital at everything. historically we have done a lot with capital and it has been very good for this entire industry. we have learned to take advantage of that capital more and more. we're still able to take costs out of the organization just by improving process. we're at a 94% on d.p.s. rate with letters. that is a substantial portion of that just extending out better process. looking forward, sequencing, we're working through that. that is going to be a good swrement. there are some other opportunities out there. with the cash flow and a number of other issues we face, we have to be very judishes with that capital. you'll see more with information flow and our ability to stay in better contact with you as

customers going forward and less emphasis on some of the big mechanical automated systems that we have. >> as i understand, we have a couple hundred buildings for sale if anybody is interested. >> i want to make it clear to everybody that we have not turned off the capital process of the postal service. if there is a project that has sufficient return, we're making that investment. we cannot afford to turn our backs on the future by just simply looking at you know, the bottom line today. in order to protect the future, we're going to continue to do that. investments that make sense, we are making. >> last question. lou, how can you as an organization keep losing $7 billion a year. any other business would have to declare bankruptcy and close up shop. is that an option? >> we don't think that is an option or certainly not something we want to do.

you declare bankruptcy when you're out of cash. that's why we are so concerned about some of the issues that we put forward today. we're got to address these issues. we've got debt limits, which we're going become close to hitting at the end of this year. raising those limits is not an answer. it is not a problem solver. that is just extending the problem and in fact, making it worse. you don't borrow money when you don't know how you're going to repay it. so that's not where we have to go . we need to get these problems fixed and get decisions taken and action implements to implement this plan so we don't get to that position. we need the help of our legislators and regulators because those are the big dollars here are tied up on those issues. the dollars that are going to make the big difference in a aren't period of timeframe. just as we started out with, how

do we get a changing environment that allows us to incorporate reasonable and rational changes. some may be painful to some folks but based on the alternatives, we consider them the best solutions available. we think they are the best tradeoff solution. we would rather not do any of these things but we're not afforded that opportunity. we need to do them and do them quickly and aggressively. time is not our friend here and we need everybody's help to get it done. >> with that, our time has come to an end. so first, i would like to thank the audience for your great questions and thank our panelists today. . a little round of applause. [applause] i do want to let you know, there is going to be a packet for you as you leave today so you will have something in hard copy. a plan. you can also visit our website.

we will have more detailed information from all the consultants on the work they have done as well as a summary and a paren presentation formle and we also want to hear from you. we will have an e mail arrest, ideas at usps.gov. it is just the beginning of the dialogue and we need to hear from you. to wrap it up, some last thoughts from lou and jack. >> thank you, linda. i want to thank everybody for coming, for your interest interest and active participation in the process. i think while the challenges are many, it is clear that this is a solveable problem. we can get through this and i believe we can have a postal service that is even a better solution for a marketplace in the future than we have today. one that reacts more rapidly or aggressively to change and one that puts serving the customer first on their list.

so we, as you said, this is part of the dialogue from the inside from this side of the table, it feels like we have been in this dialogue for a long time and with my need for speed, i would hope that it will accelerate the change and progress towards reaching these goals and getting decisions on these questions and issues in the very, very near future. so i thank you all again and we'll be looking forward to working with you. >> well, let me just echo what lou said. first of all, thanks to everyone in this room for coming here today. i want to thank you also for staying engaged going forward because it is very important that this not be the end of the day log. the fact that rerolled out a plan. obviously the heavy lifting is from here on out and we need people to stay engaged. we need your feedback and need you to participate a as we move

through what are some very, very monumental decisions in terms of this business but ones that have to be made in a timely manner. i want to make sure everyone knows, the postal service, our management team, our employees are committed to providing universal service to americans not just today but for years to come. we want to engage in dialogue so we understand what the needs of the american public are and businesses are going forward. we are committed to making the changes that will bring fiscal, you know, bring our fiscal back in line so we get back to a profit mode as quickly as we possibly can. we intend to be around for decades and centuries to come. this is the step. first step, in making the change s that arenecessary to assure that that occurs. so thank you very much. we look forward to working with

you as we engage in the next steps towards the future of the postal service. thank you. [applause] >> coming up next on c-span, a hearing looks at how some private congressmens enforce internet censorship. followed by today's "washington journal." and then coverage of the u.s. house and then members of congress attend a memorial service for john murtha in the capitol. the house foreign affairs committee today looks into the foreign aid budget and its effect on national security. that begins at 9:00 a.m. eastern time on c-span 3.

later, a hearing on the possible repeal of the military's don't ask, don't tell policy. pentagon officials will testify about allowing homosexuals to serve openly in the military. that is scheduled to get underway at 2:30 p.m. eastern time. >> c-span, our public affairs content is available on television, radio and online and you can also connect with us on twitter, facebook and youtube and sign up for our scheduled alert emails at c-span.org. >> now a hearing on internet censorship. we'll hear from state and commerce department officials followed by an executive from google. 3 a security breach in january motivated google's decision to scop operating there. this is 40 minutes.

>> this hearing will come to order. today's hearing is global internet freedom and the rule of law part two. after a few opening remarks, i will recognize the senators who are in attendance for opening statements. this subcommittee held our first hearing on this issue in may of 2008. at that hearing, we learned that repressive governments around the world censor the internet and persecute human rights and democracy advocates who express press their views online. since then, the scale and scope of internet censorship has increased dramatically. at a hearing two years ago, i showed some pictures o