national highway traffic administration to find the car by the smiths to find it and tear it apart to find out what the problem is. now, nhtsa has found the smith's car and has had it for almost three months. according to nhtsa's e-mails engineers have run tests on the car and do plan to do more, but here's what they found to date and let me quote so there will be no question about it. "nothing remarkable." mr. chairman, i would ask that these e-mails from nhtsa and the minority staff be included in the record. apparently the smiths' car was delivered on february 2th and that's the time that it's been under study. three months later we don't have an answer to what went wrong with the smiths' car. never mind answers to all of the other toyotas that have experienced events that are so far inexplicable and that's not really surprising because these

are after all very complicated problems that potentially involve electronics, software and mechanical issues finding the right answer will take time but the important part is finding the right answer and not rushing to an answer because otherwise it'll be impossible to identify the right solution if we don't find the right solution, the cars are not safer, the public is not protected and toyota's reputation continues to suffer. as this subcommittee is an investigative body we should be careful not to draw conclusions about the nature of the comprehensiveness of these investigations while they're ongoing. both nasa and exponent have laid out a number of areas to examine including software, hardware, systems interaction and magnetic interfeigns. my understanding is that nasa and exponent are looking at many of the same issues. mr. chairman, that's called independent verification. that is actually part of the scientific method and it's a good thing. i do want to impress upon the national highway traffic administration and exponent that our patience at this committee

is not endless when it comes to getting answers. they have recently provided the committee with a working draft of their work. i will accept that this draft is incomplete, that the information in it has not been thoroughly tested and they have not identified the causes of these events. that's fine. but when it comes to the scope of exponent's work we have seen test results and raw date that but no paper that sets up their plans for testing toyotas. essentially we've been told to take their word for it as to what exactly they're doing. exponent is not here today to speak for itself. since our last meeting we met with one of the exponent engineers working on the toyota case. perhaps we still don't have a full picture of their work. mr. lentz, i hope to hear fro you -- what i hope to hear from you today is what toyota's strategy is going forward for solving this problem and that toyota is committed to working and the public whatever exponent

finds when it finds it. i'd also like to welcome administrator strickland from nhtsa. nhtsa has opened a number of different inquiries into their responsiveness when it comes to recalls and safety concerns knit has also penalized toyota over $16 million with respect to the timeliness of toyota's recall, which toyota paid yesterday without admitting fault to the underlying charges. mr. strickland, i know you recently traveled to japan with secretary lahood to meet with toyota. before that meeting, secretary lahood said toyota was safety deaf. after that meeting secretary lahood said toyota is now listening and paying attention to nhtsa's wnings and that is quite turnaround in one meeting's time and mr. strickland, i would like to know if you agree with the secretary's assessment and why you are confident that now today toyota has gotten the message

that before seemed to have some difficulty getting through. i'd also like to learn from administrator strickland how toyota's working relatiohip with nhtsa has improved since our last hearing based on secretary lahood's testimony at our last hearing and on your testimony before the commerce, trade and consumer protection subcommittee i march i believe it is nhtsa's view that it had the necessary authorities and data to do the proper oversight of toyota. if that is true, washe only problem toyota? are you still confident today that nhtss investigations were as thorough as they should have been and that nhtsa had the necessary skills and expertise to perform same. is nhtsa doing a systemic review of others to make sure the manufacturers -- other manufacturers are being responsive on that note, mr. lentz, i do want to make sure that recent improvements that toyota has announced like smart team inspections of cars and quality panels are n a matter of form over substance. i hope you can offer us some specifs about how this has

improved toyota's responsiveness to its drivers, to our constituents and nhtsa. mr. chairman, you've bee indulgent, i would yield back the balance of my time. >> chairman waxman for an opening statement. >> chairman stupak, i want to thank you for holding today's hearing on sudden unintended acceleration in toyota made cars and trucks. this is our second hearing on this subject. since toyota has already recalled millions of vehicles due to consumer complaints about sudden unintended acceleration had their vehicles. a key question that was raised at our first hearing was whether thousands of complaints of these vehicles were reported by consumers for sudden acceleration could be linked to electronic defects in the vehicles and that's still the subject of our hearing today. in february, we had our hearing on this and i asked toyota motor

sales manager james lepts whether he was certain that the recalls toyota had ordered which involved replacing floor mats and sticky accelerator pedals would solve the problem of toyota -- cars racing out of control. heeplied "not totally." this appears to be -- have been a rare moment of corporate candor because the very next day, toyota motor sales issued a press release entitled "clarification of testimony regarding effectiveness of recalls" in which the company reiterated that extensive testing made it confident that no problems exist with electronic throttle control systems in its vehicles. the same day before a different house committee, the president of toyota motor company akio toyoda testified he's absolutely confident there's no problem with the design of toyota's

electronic throttle control system because very rigorous testing identified no problem or malfunction. a few days later toyota ran a full page advertisement in other papers -- among others in "the washington post" declaring that floor mat and sticky pedal recall solutions are effective and durable and that toyota had confident that no problems exist with the electronic throttle control system. well, these assurances are baffling. in preparation for our last hearg we had received over 100,000 pages of documents from toyota and the national highway traffic safety administration. what was most notable about those documents was wt was missing, there was no evidence that toyota or nhtsa took a serious look at the possibility that electronic defects could be

causing the problem. in the month since that hearing, the committee has investigated the basis for toyota's repeated assertion. we asked toyota to bring from japan the engineers most familiar with the testing of the throttle system and we did ae with these officials. we took a transcribed interview with the person most knowledgeable of the testing toyota is doing in the united states and this is through a firm called exponent and we reviewed many more documents. what we have learned is deeply troubling. there is no evidence that toyota has conducted extensive or rigorous testing of its vehicles for potential electronic defects that could cause sudden unintended acceleration. r colleague, mr. burgess, said there's a top to bottom review. we shouldn't jump to conclusions.

well, nhtsa -- but toyota has already jumped to the conclusion and made it over and over again that they've ruled out any problem with thega4 electronics. we asked toyota for the basis of its assertion that vehicles do not have electronic defects, and justifications. one is th"pqng that's done in recent months by this consulting firm exponent. that's being done here in the united states. the other is the premarket testing done over the years by its engineers in japan. so we focused our attention on these two areas. we looked at exponent's work which claiming to be comprehensive and independent but the documents reviewed by the committee don't support these asseions. on the screen, i hope we'll see, record that either -- neither toyota or exponent produced to the committee that explained the

relationship between the committee's consulting work or the scope of exponent's work. it's a contract and it's a contract byoyota and their consulting firm for engineering consulting services related to class actions filed against toyota. nowhere in this document do they -- lawyers ask exponent to conduct a comprehensive examination of sudden unintended acceleration, in fact, the words sudden unintended acceleration do not even appear. so our committee interviewed dr. shookri p work diana what we learned from him was astonishing. exponent has no written work for the plan for this project, no written time line, no written specifications for the experiments it has run or plans to run. they have no written list of the

potential causes of sudden unintended acceleration that it planned to study. and though he's personally responsible for the hardware, software, electronic interferen, testing that exponent has done or will do for toyota, dr. suri has no written notes on exponent's work. we asked him to explain this. how can there be this remarkable lack of documentation? and he explained that writing down what exponent does would limit the creativity of the engineers working on the project. well, that's preposterous. a former exponent engineer told our committee staff that the reason they didn't write anything down is to avoid creating duments that might have to be produced at a lawsuit. well, toyota's lawyers appear to be involved in every aspect of exponent's work. the lawyers have the right to approve the publication of

exponent's work. dr. suri reported to committee staff that all communications with toyota have counsel present and the two reports exponent has issued both state that they were prepared for moment & brook, the law firm defending toyota in litigation. exponent has issued$pp reports to date, and they're not a comprehensive examination of sudden unintended acceleration. the first was an interim report. it was requested by the lawyers for use at our february hearing, and dr. suri told our taff that this report was unusual because exponent had not completed its work outside experts criticized this report because they have an unclear methodology and overly narrow focus. they have a second report. this was even narrower designed only to rebut the testimony

provided by our expert witness at the committee's first hearing. it did not offer any discussion of exponent's investigation of sudden unintended acceleration other than its replication of a laboratory experiment conducted by the committee's witness. well, these reports do not even come close t supporting toyota's contention that exponent has thoroughly examined toyota's electronic throttle control systems. now, the other basis for their assertion is that they did premarket testing of -- by their own engineers in japan. well, we interviewed those engineers and they told us that their testing is done before there's mass production. but once the design is completed, they didn't do any additional testing. now, thepremarket testing has

significant limb taths. the company's durability testing is de only on prototype vehicles and components. they don't test cars and parts that are actually used by drivers. the sample sizes are very small, in fact, only a single vehicle is tested. independent experts consulted by our committee have told us that toyota would need a much larger sample size to rule out potential causes of a rare and intermittent event like sudden unintended acceleration. in addition, toyota acknowledged to committee staff that it does not control the testing performed on critical parts of the electronic throttle system that are done by its suppliers. they have no documentation to confirm the results of any tests that these suppliers cho to perform. the premarket testing regime may beppropriate for testing the design of toyota vehicles before

manufacturing starts, but no amount of premarketing tests can be a substitute for a rigorous examination needed to identify a post-manufacturing defect. and there's no evidence toyota has done this post manufacturing testing. well, the results of our examination raise serious questions. they've totally -- toyota has repeatedly told the public it has conducted extensive testing of its vehicles for electronic defects. we can find no basis for these assertions. toyota's asgs may be good public relations, but they don't appear to be true. even more con founding is why toyota has done -- not done more. if they're serious aut putting safety first, how can they justify hiring a litigation consulting firm that takes no written notes, to its

investigation into defects. the public has a right to expect toyota will do everything possible to find any potential electronic defect, but toyota didn't do that. instead, toyota asked this defense counsel to hire a firm whose mission appears to be the exact opposite, to obfuscate and find no problems. i want to be clear about what we know and what we don't know. i am not an engineer and i'm not a scientist, but i do know that dozens of people have died in accidents linked to runaway toyota vehicles. many of these incidents have occurred in vehicles that do not have faulty floor mats or sticky pedals. toyota's priority should be to do everything it can to figure out what's causing these frightening events, not to protect itself from lawsuits and i do not believe toyota has met this obligation. chairman stupak, i look forward to hearing from our witnesses and thank you for convening the

hearing. >> thank you, mr. chairman. mr. barton, opening statement, please. >> thank you, mr. chairman. i think chairman waxman took his time and my time. he certainly gave an extensive statement. i'm just going to submit my statement for the record and make a few extemporaneous remarks. i share chairman waxman's concern about finding this probl problem. i'm not omnipotent, though. less complicated. it's easy to sit up here on the podium and point fingers and demand results and act as if we know what the answers are, but that's not how life is and that's not howngineering is. it's in the best interest of nhtsa to solve this problem as quickly as possible. it's obviously the best interest of toyota. and the entire automobe industry.

i agree with chairman waxman that i don't believe this is a sticky pedal floor mat problem, but having said that, tryingo find a bug in millions of lines of software or find the glitch in a hardware system for the electronic ignition and steering system is very, very difficult. i am happy that nhtsa got the vehicle that purchased the vehicle or obtained the vehicle that had the runaway acceleration problem that the smiths talked about in our hearing here several months ago. it's my understanding that the nhtsa engineers have been trying -- have been evaluating that vehicle and haven't yet found the problem. i'm also pleased that nasa is involved. i'm pleased that toyota has hired an independent firm to try to figure out the problem. hopefully today we'll get some

answers from our nhtsa administrator and the president of toyota. this is a serious problem. there is absolutely no question that people have less confidence in the toyota vehicles that have experienced most of the runaway acceleration problems and they expect the company and the government to solve that problem as quickly and expeditiously as possible. but it is very, very difficult in the real world. we just have to kp giving our best-faith efforts, and under the leadership of mr. waxman and mr. stupak and ranking member burgess and myself, we will use our resources so that the american people know what the issues are and if there is something we need to do legislatively, we will certainly try to do that. i thank you, mr. stupak and mr. waxm, for continuing this

investigation, and we will be very supportive that the facts are put on the table so the american people know what the facts are. with that i yield back. >> thank you, mr. burton. mr. dingell, for an oning statement, please. >> thank you, mr. chairman and i commend you for your continuing vigilance in the matter of toyota's recalls related to sudden, unintended acceleration. i would -- i'm delighted to welcome our witnesses today, administrator strickland and mr. lentz of toyota. i commend you, mr. chairman, for your insistence on vigorous, yet fair oversight in this matter. whereayou are well aware, thorough oversight leads to effective legislation and this subcommittee has been doing that for a long time. in view of that, i note that the subcommittee on commerce, trade and consumer protection will mark up the motor vehicle safety act of 2010 this afternoon. section 101 of that bill requires the secretary of transportation to prom gait a motor safety vehicle standard on

electronic systems which should -- which should enable him to determine whether such standard is reasonable, practical and appropriate. our hearing today affords us the opportunity to examine the state of research, both by government and private industry. on these systems and to assess the feasibility of promulgating and implementing a federal motor vehicle safety standardqluring them. to that end, mr. chairman, i intend to ask candid questions of our witnesses about the progress of their respective organization organizations that has been made in determining what, if any, effect sounding environments have on electronic components in vehicles. while i believe that section 101 of the motor vehicle safety act is wtten with sufficient administration -- administrative discretion for the secretary of transportation, i want to be

able to be sure that the department will be able to perform the research necessary to compl with the requirements of that section. that is an important question to be addressed. i would also note that surrounding environments have in the past affected motor vicle safety and i would remind electronic flux w a source of potential danger from unintended explosions of air bags in times past, something which caused injury and death to american people. further, i will seek strict insurance -- assurances from toyota that it is ting seriously charges that electronic interference may have caused sudden unintended acceration in the vehicles recalled late-hy and early this year and that toyota is working diligently to assess them as well as to correct them if need be. and i want to be sure that they

are doing the necessary research on the question of safety as opposed to just defensive measures for the corporation. i look forward to productive conversation today and i thank you for your courtesy, mr. chairman. i observe again that your work here in this subcommittee has led to better legislation, good fact-finding and far better service of the public interest. thank you. >> thank you, mr. dingell. mr. gingrey for opening statement, three minutes. >> thank you, mr. chairman. today's hearing on toyota and nhtsa's response to the problem of sudden unintended acceleration while tically important i think from reading the provided testimony that this hearing will likely yield more questions than answers, in fact, many of the fundamental questions that members of this committee and that consumers have will likely remain unanswered today as both toyota and nhtsa discuss the ongoing status of their reviews, the potential connection between

unintended rapid acceleration and the electronic throttle control system. mr. chairman, the american people are certainly owed answers about the safety of their vehicles, however, what the american people do not deserve is another hasty legislative response in the form of a bill that few have read, nobody understands and that bears unintended conquences much worse than the consequences of inaction. however, once nhtsand toyota actually complete the various reviews of the potential flaws of automotive ectronic system, i believe that it will be very important for this committee to review those results, understand the results and then act in a manner appropriate to those findings certainly with automation and electronic engineering continuing to replace the traditional mechanisms, we must also ensure that we have the prop metrics to conduct diagnoses and ask the right questions to flush out the potential impacts of these

systems on the safety of our automobiles. with that, mr. chairman, i thank you and i yield back. >> thank you. mr ms. christianschristiansen. >> thank you. i am pleased that we're having this hearing todayo monitor the response of toyota to the accidents and deaths attributed to the sudden unintended acceleration of their vehicles. i look forward to the testimony of mr. strickland and mr. lentz on what the testing has shown thus far, what responses and remedies are being employed and also to hear that they're being employed in the u.s. territories which is often overlooked as well as in the 50 states. with that i'll yield back the balance of my time, mr. chairman. >> thank you. mr. griffith for oning statement, please. >> thank you, mr. chairman. i'd like to thank you and ranking member for calling this important hearing today.

in alabama, the middle of my district toyota employs 777 people, build six and eight-cylinder engines and added the four-cylinder engine to the plant. we will employ or toyota will employ approximately a thousand people in this district. toyota has done more than just be a good employer in huntsville. they've given back to the community in many ways, in fact, during the recent slowdown in production and response to the recession, toyota did not lay off one permanent worker. during this time, they sent some employers out into the community while otherstayed at the plant and worked together to streamline and improve the daily functions in both quality and safety. since this subcommittee has met to discuss toyota, the number of vehicle recall remedies is nearly 3.5 million. problems between north america and japan and commissioned a study to investigate the sudden unintended acceleration issues.

i believe that tota has shown a good faith effort to fix problems and learn from these events to better serve consumers in the future and it seems evident by recent sales that customers haveaith in toyota's ability to correct past problems. i might add that the chairman of the committee seemed upset that there was no agreement from toyota with dr. gilbert's findings. i find that not only acceptable but we've had no o corroborate dr. gilbert's findings either, so if we're going to base our discussion on a single individual's experiment and not a scientific method, i think we're maybe on the wrong track there. i don't think there's anyone more interested in making sure that their vehicles are safe than toyota. i don't think there's anyone morenterested in the safety of the public than toyota as far as

thisituation is concerned. so it seems that there's an attitude thatomehow we're not here in good faith to do what's best for the public and i think we need to examine our attitude and maybe take a different approach. i yield back the balance of my time, mr. chairman. >> mr. braly, opening statement? >> tnk you, mr. chairman. i ask unanimous consent to put in my statement and make brief extemporaneous remarks. >> all right. mr. latta -- >> i was asking for unanimous coent. >> go ahead. >> during our last hearing ranking member barton drew on his experience as an engineer to challenge both toyota and nhtsa to get to the bottom of this problem and to do so with a

sense of clarity and purpose that had been missing in toyota's approach to the possibility of an electronic component to the problem of sudden unanticipated accelerati so when the ranking member stated at the conclusion of his remarks today he was pleased that toyota had hired an independent firm, i think it was based upon the representations that toyota made at our last hearing that, in fact, it had hired exponent and given it a mission to get to the bottom of this problem with an unlimited budget. the only problem with that perception is it's contrary to the documents tt i have been provided and the committee has been provided in response to requests for information i made at our last hearing. because the documents we've been provided with show that toyota's trial lawyers not toyota engaged exponent to conduct this work on december 7th of 2009 and did not engage exponent for the purpose of getting to the bottom of this

problem, but for the purpose of defending class action claims filed against toyota. and that's the problem with toyota's response since our last hearing. if you look at what's been done, it's been primarily an effort to try to attack theredibility of the sole witness who testified on the connection, the possible connection between an electronic or computer failure and the problem of sudden unanticipated acceleration in toyota's vehicles and that's the disturbing question that we need answers to at this hearing today. we need to look at the financial relationship between exponen and toyota and try to get to the bottom of why so much time has been spent focusing time and resources attempting to discredit the work of professor david gilbert instead of getting to the root cause of this problem and determining once and for a whether electronic failure is a cause of the problem. that's why i look forward to the

testimony of our witnesses and i hope that eventually everyone involved in this investigation gets to that problem and i yield back. >> and mr. braley, i'm sorry i didn't hear you before when you asked your opening statement be made part of the record. all opening statements of the committee, their opening statements will be part of the record and move the contents of our document binder be made part of the record. without objection, so be it. my intent is as members know, we have the president of mexico speaking around 11:00, try to get through all opening statements and if we go over a little bit let's try to get them done before we have to recess for a bit. now mr. latta for an opening statement. >> thank you very much, mr. chairman. mr. burgess, thanks very much for holding this hearing today. first and foremost i believe it is importa these hearings are held to get to the facts regarding the sudden unintend acceleration. tragically accding to nhtsa 52 people have died in the past decade two due to the incidents

of the sudden unintended acceleration of toyota vehicles. this has initiated several queries into recalls and the agency leveled a $16.4 million fine on the company. additionally nasa and the national academy of science have been enlisted to enlisted by nhtsao undertake a study of the issue specifically nasa will examine unintended acceleration in toyota vehicles and the national academy of sciences will analyze that acceleration and the role of the electronic vehicle syems across the automobile industry. it is also my understanding neither is complete at this time. through its recall and deployment of swift market analysis response for smart team, third-party analysis and the addition of industry-leading safety features to new models, toyota is working to provide quality and safe vehicles. i hope this translates into an increased safety level and assurance for toyota drivers.

safety is extremely important especially when it comes to the automobile industry. i am concerned by any precedent that is set by the government that the government knows best when it comes to vehicle design. later today, i will participate in a markup of the motor vehicle safety act of 2010, which will attempt to dictate to auto manufacturers the design of certain parts. government mandates have a detrimental effect on the tri and turn of the economy. i represent the 5th congressional district of ohio which is the largest manufacturing district in the state and home to many auto suppliers. the technology involved in automobile industry -- and engineering certainly has changed and advanced over the years, and it is important that toyota customers and the american public and policymakers understand the electronically controlled throttle system and the potential for unintended acceleration in toyotas and all other vehicles. while as not yet a member of the

energy and commerce committee for the february hearing i look forward to the hearing today and hearing from the testimony from the witnesses on the panel. mr. chairman, i yield back. thank you. >> thank you, mr. latta. miss that cow schakowsky? >> many questions remain unanswered. in particular we're still unclear about cases where sticky pedals and flawed floor mats were ruled out as possible causes. one of the few people who proposed a possible answer has been mentioned was david gilbert, an associate professor of automotive technology at southern illinois university in my home state. dr. gilbert testified about research he had done in which he was ab to replicate a situation where sudden unintended acceleration was caused by electronic signals but not reported on the vehicle's event data recorder. at the sameearing mr. lentz, who was also here today testified on behalf of toyota saying "in december we asked

exponent a world class engineering and scientific consulting firm to conduct a comprehensive independent analysis for electronic throttle system control with an unlimited budget." but what did exponent come back with? in march they released a report that did not conduct a corehensive report of toyota's electronic throttle control system and possible flaws, instead, their report was ent e entirely a critique of dr. gilbert's experiment. of course, scientific research can be questioned and disputed but exponent's efforts did not even attempt to find out what the american people or the subcommittee want to know. our constituents want answers, d they want an in-depth investigation that identifies the causes of potentially fatally malfunctions in their vehicles. i am glad that nhtsa has moved for and has asked both nasa and the national academy of siepss to help conduct an investigation that encompasses not just toyota but all vehicles with

i will have to say you have heard it from many others, i have concerns over the timing, i have concerns over the tone of this hearing and seems like we maybe little bit premature in convening this today. for the record, mr. chairman, i would like to submit a letter that i sent to chairman dingell in october 2007, asking for a hearing to look into the serious concerns in tennessee over sudden acceleration in the toyota tacoma that letter, again, was in october, '07. perhaps if we were a little more proactive in investigating this issue three years ago, we would not be in the position that we are now. all too on the, congress is

reactive. instead taking action in a timely manner when something is brought to our attention. as a result, we still don't have definitive answers as to what precisely caused the sudden untended acceleration and it is naive to believe any of the important answers are going to come to light in this hearing today. i fear that what we are doing is putting the cart before thee

in october, 2007. from what i understand from nhtsa and exponent, there is not even a viable hypothesis put forward as to this issue and a resolution. that being said, again, i want to welcome our witness as well and i'm looking forward to hearing from them. and i yield back the balance of my time. >> thank you. should be noted that mr. gonzalez, a member of the vote committee is here, cannot given a opening statement but when we go to questions, he will certainly be allowed to answer questions some, thank you for being here, mr. gonzalez. that concludes the opening statement by all of our subcommittee members. we will now move to our first panel and our first panel, we have the honorable david strickland, who is the administrator of the national highway traffic safety administration. mr. strickland, as you know it is the policy of this $áhp &hc% subcommittee to take all testimony under oath. please be advised by the -- please be advised, you have the right under the rules of the committee to be advised by counsel during your testimony.

do you wish to be represented by counsel? >> no i do not. >> okay. then i'm going to ask you, please rise, rai your right hand, take the oath. do you swear or affirm the testimony you are about to be give to be the truth, the whole truth, nothing but the truth in the matter now pending before this committee? >> i do. >> let the record reflect the wiess applied in the affirmative. you have now under oath. if would you like to begin with an opening statement, mr. strickland, we would appreciate it. thank you, chairman stupak, and burgess and members of the committee. we appreciate this opportunity to update you on the activities of the national highway traffic safety administration with regard to unintended acceleration involving toyota vehicles. nhtsa has been very active on the subject since secretary lahood testified before this committee in february. last week, secretary lahood and i traveled to japan to meet with officials of the japanese gornment and toyota. yota officials informed us of changes they have recently made in their management and

processes to ensure that toyota officials here in the u.s. have a direct role in making vehicle recall decisions. the secretary and i made it very clear to toyota, including ch r chairman toyoda himself, that the value of these organizational changes will be determined by the company's future safety actions. nhtsa and the department of transportation will be watching. as you know, we initiated three separate actions in february. a time query related to the traffic recall, a timeless query related to sticky pedal recall and an overall recall query looking at both of those recall it is they were sufficient in scope and whether there were other matters related to unintended acceleration in toyota vehicles. on april 19th, toyota agreed to pay $13.375 million in civil penalties in connection with the sticky pedal timeless queerry.

this is the maximum penalty that nhtsa can assess under current law. we believe the penalty was warranted because toyota filled to inform us in a timely way about th safety defect. concurrently, we continue to review the large number of documents submitted by toyota in response to the pedal entrapment queerry. we have not reached a decision yet on whether the facts of that case warrant a penalty. nhtsa is also reviewing an extremely large volume of documents received in response to the recall query. we have contracted with the department of justice to help us categorize and analyze those documents. that task will take us some time, but it is well under way. nhtsa has also started two research efforts to address the issue of unintended acceleration. the national academy of sciences, the nation's most respected independent body of top scientific experts, will examine the broad subject of unintended acceleration and electronic vehicle controls

across the entire automotive industry. the academy has begun the process of identifying panel members and t panel will be established by july. the panel then expects to complete its work within 15 months. the results of the work of the national academy of sciences will be important to nhtsa, not only because of unintended acceleration but also to provide advice on a range of electronics issues that might affect motor vehicle safety as new electronic crash avoidance and other technologies are rapidly proliferating within the vehicle fleet. separately, we have enlisted nasa scientists with expertise in areas such as computer-controlled electronic stems, electromagnetic interference and software integrity to help tackle the issue of unintended acceleration in toyota vehicles. nasa's review will be comprehensive and it will assist us in determining whether toyota vehicles may contain safety defects that would warrant a

formal investigation. we believe that the pressure applied by nhtsa has been instrumental in bringing about all the recalls toyota has undertaken to address unintended acceleration. we will go wherever the evidence leads us to address the root causes of unintended acceleration. we will open additional investigations and push for recalls where warranted. it is our hope that toyota's recently revamped approach to more effectively deal with safety defects will reveal a toyota that is quick to response to all vehicle safety issues, including sudden unintended acceleration. of course, nhtsa is working and will continue to work with this committee and with the senate commerce committee on legislative proposals that would address the unintended acceleration issue across the industry. if enacted, this legislation would suggest gantlyrbñ and enhance nhtsa's authority and the agency's leverage in

dealing with all manufacturers. this leverage would be particularly important in cases where manufacturers are reluctanto perform the necessary safety recalls or who are not completely truthful in committing information to nhtsa. thank you very much, mr. chairman, and ranking member burr jerks and i look forward to answering the committee's questions. >> thank you, mr. strickland. we are going to stand in recess until -- for one hour. they are gathering on the house floor. we must recess during this period of time, recess for one hour, have you come back in one hour. we will go right to questionings there by members of the committee. >> yes, ma'am. >> so this [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010]

>> they testified before the committee about an experiment he had run. he reported he had been able to induce sudden unintended acceleration without having the computers detected a problem. in briefings with staff, several engineers have described his work as sensible, reasonable, and a legitimate starting point

for an investigation into potential causes. these have discussed a variety of real world again second lead to the resistance their response to his testimony was not to investigate his work seriously. the object is credibility. he has taken a different approach. they have invited him to the testing facility said that he can discuss his work with federal officials. him to its testing facility so he can discuss his work with federal officials investigating sudden, unatteed acceleration in toyota vehicles and cars. is that correct? >> yes, sir, that is correct. actually the engineers at ntsa have been in fairly regular conversation with dr. gilbert to arrange a time. and it's my understanding that he will be visitin our facility

in east liberty, ohio, within the next two weeks where he will be given access to our laboratory and our facilitie to replicate his work, to discuss with our engineers and also with the nasa folks as well. his work in addition to other experts, it's very important for us to get to an answer and we're welcoming dr. gilbert's participation. >> toyota has described his work as pony, parlor trick, things like that. i suspect you would not invite him to participate unless you felt he had sothing to offer to the discussion. >> absolutely not. we believe he's replicated a situation whereas you described, mr. chairman, that heould have an incident of unintended acceleration while this being picked up in the ecm. that is the ce of everyone's question and we have to take his work very seriously. >> las time secretary lahood

testified, you were in the process of hiring engineers. >> we're in the process of recruiting severals. we're beginning the interview process. we hope to get a number of folks across electrical engineers, software engineersiing and othe soon. >> the white house in the last week or two put out initiative where you're trying to speed up, if you will, the hiring pross from five months to about five weeks or six weeks. have you found that hiring process to be a burden in trying to obtain expertise that you need? >> we're in the process of executinghrough the quick-hire process in the administration's reforms. we definitely appreciate these new reforms and we're using them to advantage of how to get folks on board as quickly as we can. the normal process does have -- does require some energy and the reforms are very helpful. >> let me ask you this. toyota indicated it would recall

lexus ls vehicles. has there been a recall issued yet? they said it might be as early as tomorrow. >> my understanding is toyota will be issuing their reqred documents to nhtsa friday. they haven't officially announced a recall, but it's my understandinthat will happen tomorrow. they have informed nhtsa of the issue that arose in japannd their plan of action. >> i think there's about another -- this is their top line of the ls lexus vehicles. those were also sold here in the united states correct? >> that is correct. >> have you worked with nhtsa on this? >> toyota, their work was with the japanese ministry of land infrastructure and transport. and through their work found that there was a defect recording the steering mechanism. once that was found, they reported to nhtsa about their plans in japan and planned to take the steps here in the

united states and we're working through the issues of the remedy, which i would imagine that will be announced on friday. >> all right. have you gone back through your data base to see if there have been steering problems with these lexus ls -- >> yes, mr. chairman, we have. to explain a little more fully, the vehicle population involves the lexus ls through the end of model year 2009 through 2010 which is a vehicle population of 3800 vehicles here in the united states. the office of defects investigation has gone -- is going through and has gone through our data base to see if there were similar steering issues. we have not found a complaint as of yet but we're continuing to search the data base, even absent that we appreciate toyota's being forthright and taking action independent of our own work. but we are looking to make sure that if we've had a similar issue. there were only 12 of these incidents in japan, if i'm not mistaken. >> last hearing in february i

asked the question of all the witnesses, mr. lentz in particular indicated that the mats and the sticky pedal accounted for about 16% of the intended acceleration. has nhtsa through its investigation found the cause for the other 84% of unintended celeration which remains unexplained? >> we're working through several field investigations. we have 38 field investigations ongoing, looking at span of toyota's unintended acceleration issues. we are leaving no theory unquestioned or unturned. we have found no evidence of additional causes of the defect but that does not mean we've stopped looking. we're going to turn over every stone, not only our research ongoing with nasa and the upcoming national academy of sciences stoitd but our work is also ongoing as any other possible issues that could be creating this fault. >> so we're no closer to resolving the unexplained 84% of

the sudden unintended accelerations. >> that is correct. >> mr. burgess for questions. >> thank you, mr. chairman. mr. strickland, the last hearing we had, secretary lahood said that toyota was -- had made some improvements and was gng to be -- then toyota stated they appointed a chief quality officer, then we had the whole issue come up with the 2010 lexus gs 460, so did that give you an ability to evaluate toyota's responsiveness to the problem with the lexuses compared to their earlier responses? >> yes, mr. burgess, it has. and i made a comment after the lexus gx 460 recall, the consumer reports recalled with the electronic stability control issue. i have found since i've taken office in january tha toyota has been much more responsive --

>> i don't mean to interrupt, but did the quality officer make a difference in that environment? >> i was just informed of his hiring proces the overall result is we have seen better responses. toyota's working through the organization ises, but these past two recalls have been -- i've been very happy with the responsiveness. >> one of the issues with professor gilbert's testimony last time, one of the questions he couldn't answer when i asked was how -- to give us a real world scenario of how that situation that he described to us would exist. would it be chafing of a cable holder? how would you get the correct amount of resistance placed across the two wires, and i never really got a straightforward answer to that. in what you have seen so far, has -- is that a question that has been satisfily answered in your mind? what is a real world situation that would have to occur in

order tore meet the conditions dr. gilbert outlined? >> i'll definitely have my staff and engineers get back to you after the hearing for i guess a more technical response. we're inviting dr. gilbert out to east liberty for him to replicate his test. we haven't had an answer in terms of what would be the real world situation to create this fault, but that is something we want to talk to dr. gilbert about. >> will in nhtsa evaluate that well? can we expect to see the results of that evaluation? >> it will all be made public and provided to the committee. >> in addition to meeting with dr. gilgilbert, who else are yo planning to meet? >> contacting exponent and having conversations with every expert working in this area. but we have not had a conversation with exponent as of this point. >> now, your contract with nhtsa, have any of the

independent groups aed to meet with nhtsa? >> there have been numerous conversations with experts around the country. i'll be happy to get back on the record to tell you which conversations have happened. >> have they refused any meetings with any particular groups? >> absolutely not. >> and you will make that information available to us? >> absolutely, sir. >> now -- and i don't have the data in front of me, but we just looked at the timeline for the uncommanded acceleration and the throttle control, the two seem to be superimposed events that occurred about in 2002. but to the bestf my understanding, they're really, through all of your work, there has not been a problem identified with the electronic throttle control, other than the testimony from professor gilbert. is that the only avenue of

pursuit that is occurring right now? >> we're looking at the whole -- the entire toyota fleet in regard to this issue through our field investigations. but in terms of have we found a defect involving the throttle control system from our past work, we have not at this point. but the reason why we're investing so heavily to make sure we have a full scope o every answer. that work is ongoing, but our past work hasn't shown a dect. >> was my e-mail correct about the rhonda smith car, find the car and tear it apart and find out the problem, you did look and right now nothing remarkable? is that -- is that still the answer? >> that is the still correct. the smith vehicle is one of our test fleet, over 20 vehicles total. we have begun work on looking at her vehicle in addition to thezg our investigation with nasa.

>> as i recall miss smith's testimony, it was very compelling. one of her complaints was no one at toyota would listen to her, but in fact no one at fñ%would listen to her. are you feeling the consumer complaints were adequately addressed or should more care have been ten at the time the complaint occurred? >> i'm very confident that the office of defect investigations did, we employed one of our best investigators. i've reviewed it and i believe that everything that should have happened in that investigation did happen and i'm very happy with the work. >> and that was the would, that occurred right after the incident >> that is correct. >> let me ask you this. when secretary lahood was here, i had -- i have a copy of the

publicly available report on a lexus that was damaged in a catastrophic accident in san diego. the mark sayler accident. there's a ption that's redacted. paragraph 5. i asked secretary lahood if -- i don't need a copy in my hands but i would like to look at the unredact report. i'm willing to come down to the department of transportation or your agency to make that review. i understand there maye sensitive information that the family would not want out in the public domain but i do think it's important that members of this committee be able to review an unredacted report of this accident. will you help me get that information that i've asked secretary lahood to provide to me as a member of the committee? >> absolutely. i will definitely refer you to

our chief counsel, kevin vincent. anything as long as we're doing everything within the law in the provision of information to the congress i will help you. >> i remind you we have subpoena pow power, yes, sir. >> miss christian for questions, please. >>fyñit's, mr. chairman. mr. strickland, in your testimony, we've heard it from several members that toyota paid $16,375,000 in civil penalties. they say that's the maximum penalty under law. do you think that's an adequate cap? >> no, ma'am, i believe that the size of the regulated

manufactures und manufactures, i think a $16 million fine may not necessarily give the correct deterrent effect. i've testified several times that i believe the cap should be significantly raised. i know in the motor vehicle safety act of 2010 the committee thought toremove the cap and allowed nhtsa the discretion to properly size a penalty. i believe that's the correct approach. >> thank you. you also say in your testimony that you haven't fñ%a basis for opening up any new defect investigations on unintended acceleration. what is a threshold? what would trigger a reopening of the investigation? >> well, the two investigations are ongoing in regards to time limits. so what we're looking for is any dock the or indication that toyota knew of a defect that

posed an unreasonable effect to safety. if they did not inform nhtsa within five days they are in violation of the safety act. we are reviewing several hundred thousand documents in that regard. when we have completed our review, if we have made a finding that there may be an issue regarding a violation of the timeliness mandates of the act, we will take action once again. but that is -- we have made no conclusions as of yet. the work is ongoing. >> thank you. just one other question. as i recall in the lt hearing, a lot of the decisions were being made in japan at toyota in japan. in your testimony you talk about meeting with the counterparts, your counterparts in the japanese government. so how do you -- how would you assess their effectiveness, their independence, their commitment to strong oversight. >> the road transport bureau and

the japanese ministry of land infrastructure and transportation is a very vigorous agency that has a very different approach and mandate under japanese law. they are very committed to safety. they do have a different relationship with the manufacturers, it is stat torely more collaborave than how nhtsa's is in the united states. however, they are great public service, great engineers and they do a solid job for the japanese people in terms of making sure they create a safe environment in terms of handling of their vehicles. but we do have different approaches. but i have every confidence that our counterparts are just as involved and just as intent upon making sure that the fleet that toyota puts on the road is safe. >> thank you. i don't have any other questions.

>> thank you. mr. burly for questions, please. >> thank you, chairman. >> thank you. >> it's been a while since our hearing on this topic where you testified and i want to start with a little house work. >> yes, sir. since that last hearing i've sent you three remember letters, march 1st, may 2nd and may 14th requesting information on complaints by toyota owners who said they'd experienced sudden, unanticipated acceleration even after their vehicles underwent recall service to modify pedals and replace floor mats. in those letters i also requested information about the steps nhtsa was taking to review toyota electronics and ensure effective repairs in all vehicles. to this date i have yet to receive a response from you or your department. can you give me some indication as to when i can expect a response to those inquiries? >> monday or tuesday.

if it's tuesday you'll get it very early tuesday. mr. bralye, it is my responsibility to makeure you, any member of the committee or congress gets a timely response. it is my responsibility that it happens. i apologize you have not received that response. i will make sure it happens immediately and on a foregoing basis that you get a timely response. >> thank you. i appreciate that. do you have a sense as you sit here today how many reports nhtsa has receivedf sudden, unanticipated acceleration in previously-serviced toyota vehicles? >> i -- we have had a number of reports, especially within, i guess within the february/march time frame period after repairs were executed. we have conducted numerous interviews and done field investigations. i'll definitely get back to you on the record with the specific number. i do know for a fact that the number of those remedy repairs

and complaints have markedly decreased since march. i know that our sta has worked very closely with toyota and informed them of our findings. there were some issues with how the dealers were applying repairs and i know that toyota made upon our request made several modifications to the instructions to the dealers on how they apply the remedies and we have seen a market decrease in the yti u(ju)áut to make sur the remedy is properly applied and any consumer that is still having issues, that we follow up. >> are those complaints on previously-serviced vehicles being forwarded to the entities such as exponent or the nasa investigators who are looking into the potential link between an electronic problem and the issue of sudden anticipated acceleration? >> i can speak to exponent getting direct access to our work or data upon request.

i mean their position is any private citin in terms of a full request or anything of that nature we are not collaborating with exponent. nasa is getting everything that we have in regards to our work on sudden unintended excel railings, including those remedy repair issues and in addition to all documents from toyota. so we are -- nasa is getting those documents. i don't know if exponent has made a request of that. >> have you been provided with copies of the materials that exponent has submitted tohe committee in response for requests for information about their work product in connection with this investigation? >> i have not, but i've been made aware of some of the responses by my staff. >> were you aware that the committee has been provided with a report from exponent that is titled, evaluation of gilbert demonstration? >> yes, i'm aware of it, sir. >> and we've also been provided with a powerpoint presentation with a similar title, evaluation of dr. gilbert's demonstration?

>> yes, sir, i'm aware of it. >> have you seen any other reports in either a preliminary, a draft or a final form from exponent detailing its work analyzing the potential problem of sudden, unanticipated acceleration in toyota vehicles? >> no, sir, i have not. >> were you aware exponent has willed approximately 11,000 hours of work since the beginning of this work on this particular investigation? >> i was unaware of that but that is a significant amount of work. and because it is a significant amount of work, do you find6cv at all surprising or disturbing that the documents we have received today from exponent a limited specifically to the testimony of one witness who testified at our previous hearing on february 23rd? >> that would not be nhtsa's approach if our work plan, would be incredibly detailed, every

minute of what we doment i would imagine the committee would have the same expectation of expone ent. the fact you don't have it, i imagine it being very troubling to the committee. >> thank you very much. i yield back. >> mr. waxman for qstions please, sir. >> yes, mr. rickland, just following up on that line of questioning, do you believe it's possible to conduct solid gineering work if you don't have a written plan f the research, you don't keep a written record of the work, which is apparently the situation with exponent? >> it would be my expectation of nhtsa and engineers that we have a proper flow plan and analysis. everything should be properly documented and also in terms of our work with nasa, we have to be prepared for a peer review to be conducted by our )÷volpi cenr in cambridge, massachusetts. so that would be an incredibly different tact, how we would execute a research plan. so i would say that that would

not be myxpectation if i was dealing with itn the private sector. >> we've learned that toyota's defense counsel controls exponent's work. they review everything that exponent ds and they have the right to prevent exponent from releasing unfavorable results. does this concern you, toyota is relying exponent to do its research and exponent is being directed by toyota's defense counsel. is this the way you think an investigation ought to be handled? >> there's twocomponents, not to speak for toyota, they can clearly speak for themselves, but there is, you know, eparation for litigation and then there's also a scientific investigation into a cause of a problem. and those could be mutually exclusive, perhaps exponent may be doing that additional work to juur'g the question, but from what i have understood, all the work has been in preparation for

litigation, i would say at this point they have not fulfilled as part of the, i guess, the solution in terms of trying to find the answer from what you've just derid. >> a vehicle software technology that many auto safety experts say would address the sudden unintended acceleration. with brake override if the driver applies both the accelerator and brake at the same time, in most situations the car will disregard the accelerator and apply the brake. i understand nhtsa is evaluating the brake override technology and considering updating its standards to require the technology in all cars. do you consider brake override to be a safety feature? >> we believe at nhtsa that safety of the brake override has huge implications for safety. it is something that we believe has great promise. we're doing our research and we do anticipate that it could have a great value to implementation

of the fleet but we have to do our work preliminary. but yes, it's a safety feature. >> we've been told that nhtsa suggested to toyota that toyota retrofit some of it models with this brake override. toyota advised the committee it has decided to make brake override a standard feature in all cars for the 2011 model year forwar toyota also told us it will upgrade the software from earlier models during service for other recalls. mr. strickland, after 2011 when toyota is done with its retrofitting, will there be toyotas on the road that will not have the brake override? >> i would imagine from your answer, sir, no there will be some vehicle that's will not have brake override. >> do you support making brake override a mandatory feature for all cars? >> we're beginning our reef search to justify such a move. but in the preliminary fashion,

the one goal we want to have is this. any driver that depresses the brake should be able to stop the car. and that -- with that goal we believe it has great promise. >> wel toyota's reached a conclusion that they want to have this brake override. they think it's important s there any reason why if they've decided a brake override is important for the future cars and some of the existing cars that they wouldn't want to make brake override available in all cars that are compatible with this feature? i'll ask them that myself, but can you imagine any reason they would not want to do that? >> from a consumer standpoint, i would imagine that every driver of a toyota that may have an issue regarding sudden unintended acceleration would like to have this feature on their car. speaking, just speaking as a consumer, toyota's decision making in terms of how they implement it is an ongoing question. but to answer your question, sir, i believe it will be a positive move for safety and for their own driving public. >> i look forward to hearing mr.

lentz's explanation for why it won't be available in all toyotas. because i don't see a reason to make it all available. make it available in all the toyotas. but we'll get his response to that. thank you mr. chairman. >> thank you. thank you, mr. strickland. toyota relies on two primary justifications for its assertion that electronics plays no role in sudden unintended acceleration. we've already discussed one of the shortcomings, one of the justifications, the work, the engineering firm exponent has done for toyota and the problem with that. the other justification toyota relies on is the premarket testing that toyota's own engineers do before manufacturing vehicles for sale to the public. our committee stafconducted a transcribed interview and two engineers in japan and asked them multiple questions about the testing calls. we learned this premarket testing hasignificant

limitations. toyota only conducts this test during the design phase of the vehicles. as one of the toyota engineers we interviewed told the committee, quote, once, quote, mass production is initiated then that means the design is completed so we don't conduct anything additional, end quote. so mr. schickland, is this premarket testing strike you as adequate to identify the cause of unintended acceleration? >> there's two componts that nhtsa is concerned about. it's compliance. before a vehicle is put into the stream of commerce it has to be compliant with all the federal motor vehicle safety standards. that's one set of issues that has to be taken care of. the second part after the vehicle's on the road, we worry about any defects expost. >> i understand what you're saying but now we're talking about before. but this is before mass production. let me go on.

toyota engineers also told us that toyota does not perform these design phase tests on a large number of vehicles and as a result it samples may not be representative enough to test for the risk of a rare event such as a sudden, unintended acceleration. some of the tests toyota relied on for its claim that the electronic system had undergone, quote, extensive testing, unquote, involve sample sizes of just one or two vehicles. so, mr. strickland, does toyota's approach strike you as adequate? >> the approach, every manufacture has a different approach. the only thing we're concern the about is what happensn the road. >> no, i understand, but you said there was a premarket phase that you required. is the test of one or two cars in the design phase, in your view, sufficient? >> i would have to compare that with other manufactures' testing protocols and i don't have that

offhand. but i will definitely get back to you on the record about it. >> sudden unintended acceleration occurs rarely and intermittent will he -- i asked you that. one or two vehicles. further more we learned fail safe mechanisms in toyota vehies are designed to detect single point, single event faults. in other words, fault that's occur in isolation and effect only one vehicle component. toyota's testing of critical components of the electronic throttle control system reflects this focus in that they do not test for multiple event or multiple component faults. numerous academics and independent exper told committee staff that rare multiple event faults could play a role in sudden unintended acceleration. it seems to me that toyota should try to identify all potential faults, not just the most frequent ones, and devop tests to prevent them. so, mr. strickland, do you agree toyota should take a comprehensive aroach to test for potential causes of sudden

unintended acceleration? >> they should take a comprehensive approach. nhtsa's work with nasa will be a multiple fault causation sdy which takes into account possible intervening events which could cause this. that is our study. that is our approach. and we would have the expectation from our finding that's if we do find vehicle defect that that will be part of our vee pons to toyota if that's the case. but nhtsa's approach is a multi causal analysis in how we can replicate that fault. >> based on the discretion of of toyota's premarket testing you've heard today, do you believe toyota's premarket testing provides a sufficient basis to conclude that there are no potential electronic causes of sudden unintended acceleration? >> i don't think you can use a premarket analysis as a determinative factor that there is no problem. i think you have to not only do premarket testing, but you have to dolong-term, you know, i guess long-term studies of how

your vehicle reacts in the real world as a number of manufacturers do. so i don't think that nhtsa would say a premarket test validates a lock term answer of the possibility of there being a failure. >> well i'm concerned about the premarket testing itself, and it seems toyota's is not an adequate subs tutd for thorough testing needed to identify potential defects after manufacturing is complete, and it's time for toyota to stop making public assurances about the infallibility of their electronic systems when they don't have comprehensive testing to back it up. thank you, mr. chairman. >> thank you. mr. schi in response to some of the questions from mr. burgess and chairman waxman, a couple questions. first one is a letter dated february 22nd, 2010, sent to secretary lahood by myself and mr. waxman. and on page four, sub part b

asks that nhtsa reopen its investigation of p.e., that's preliminary examination 0421 which had 37 consumer complaints on sudden, unintended accelerations in the camry, 2002, 2003 camry, solara and les. we've yet to have a response. are you going to reopen that investigation as requested? >> the universe of test vehicles assumes these, all of these parts that you asked for, so in terms of a defect investigation that's part of the nasa study that's ongoing, that will have done in the -- by the end of the summer. so to answer -- the short answer to your question is we are re-evaluating all this work in light of the nasa study. in addition to, that's going to be included in the nas study but we'll definitely get back to you

on the record in direct response to sub part b. >> well, in looking at that and in response to mr. waxman's questions, you said this brake override system is a huge sift issue. why wouldn't nhtsa require toyota then to have the brake override syste in 2002 and 2003 lexus es300s, the toyota camera and the toyota camera solera from 2002, 2003 since we had 37 consumer complaints and we've asked that it be reinvestigated? why wouldn't you require the brake override system be put in all vehicles o toyota models of vehicles that had this sudden unexplained acceleration. >> it is still an ongoing investigation, mr. stupak. if it is found that that is part of that, we would ask for a remedy and that bra override could be a mandated part of that remedy. because it is an investigation, it is ongoing, which is

inclusive and the key to the in as that study we are not in position to -- >> well. >> -- make that demand at this time. >> if toyota is putting it in some of the vehicles now, be in all vehicles in 11, then by putting it in certain vehicles now, is that admission, then, that you have a defect in those models and that's why you've got to put in this brake override? >> that isn't admission, you can ask mr. lens those questions. but from nhtsa's perspective, we can only force mantdtory recall if there is a defect we can prove in court and we haven't been able to do that yet. but the fact that toyota feels they need to install this in some vehicles may be indicative of what they feel would be a proper solution until they can come to their own answers. >> all right. i guess i'll save those questions for mr. lentz. let me ask you the other document i put before you. it's dated 5/2/2007, it's a

memorandum from scott yawn, this is on the smith vehicle that mr. burgess had asked about. in the last paragraph, first line it says discoloration rust and surface damage to brake rotors is visible through all four wheel ap tours. if you go on the next page, second paragraph, lower part of that paragraph, it indicates a brake components exhibit wear and damage inconsistent with normal operation and inconsistent with the indicated vehicle mileage. then they have a number of photographs which show the damage, showing brake temperature sws the brakes being applied while the vehicle is moving at speed. so the smith vehicle, maybe every time you turn the key you don't find a sudden unintended acceleration, obviously there is damage there outside the normal wear and tear on a vehicle of this age s that correct? >> yes, sir, that's correct. >> and you've never found any vehicles that's been considered

to have sua, sudden unintended acceleration, you haven't been able to turn the keys, you said you had 20 models and you haven't found this sudden unintented acceleration? >> we haven't had an event where the engineer turned on the car, was able to recommeplicate the because of something outside the parameters of a floor mat entrapment issue. >> and we don'tw when that occurs, that's why we give it this name, sudden unintended acceleration. >> we have to categorize all those events. thercould be multiple causes for that. that's the reason we're having our long-term investigation for the nional academy of sciences and having nasa specifically look at toyota's electronic throttle control system for the study that we're hoping to finish at the end of the summer. >> my time is up. mr. burgess for questions? >> thank you, mr. chairman. on the -- mr. strickland, on the order of the brake override that now is receiving so much

attention,ou menoned, i think, that installing it, the brake override in toyotas would be a positive move, is that correctly state your feelings? >> yes, sir, i think that would be a very positive move. >> what other manufactures have installed a brake override system on their cars? >> there are several manufactures that have brake override systems. >> are there some that don't. >> that are some that don't. >> why is that not a requirement if you think it would be a good move for toyota would it be a good move for other manufacturers? >> we have brake override has tremendous promise which is the reason we're taking our preliminary research for possible rule making in firms of dealing with this issue, i guess across the rest of the fleet, that's going to be part of a study and part of the one of the answers will be possible long-term solutions, either from the national academy of sciences, which mayinclude. >> rough numbers, what percentage of the fleet has the brake override right now? >> that i'm not surement i'll

have to get back to you on the record for that. >> why isn't it more widely used? what are the barriers to the implementation? >> there's different systems in terms of how the brake and the accelerator work in terms of their software configuration, their mechacal linkages. i'm sure every manufacturer has different strategies in manufacturing and construction which may lead to different decisions. >> i you're thinking about rule making, then presumably you're looking at carsith electronic throttle control would have a requirement for a brake override system. so that if the brake is applied, the throttle, the default is for the throttle to stop action. >> yes, sir, we're absolutely looking at that. >> so if that's good for toyota, then it's good for x-% of the fleet that does not have the brake overri system. >> the safety of the entire fleet, not one manufacturer. >> when we had the other hearing, and i don't have the information in front of me today, but it was a list rated, a numerical list of complaints

received by the -- your agency about cars, and toyota showed up on the li, but they were, i don't remember, 16, 17, 18 on the list. that means there were 16 other car manufacturers where the cars had more complaints. than toyota. and t here we are involved in a series of hearings over toyota. have you looked at the cars in the complaints that scored higher than toyota or worse than toyota, if you will, on that list? and are we -- are we actively pursuing the complaints that came into nhtsa for those vehicles as well? >> nhtsa looks across all manufacturers in terms of how the focus on toyota, there was clearly an anomaly in the acceleration events during the period that we're talking about, which is the reason why nhtsa has oped, you know, up until this point we had, i believe we opened eight investigations into this issue prior to the santy

crash. so we have taken a look -- we've et treated toyota as we would any manufacturer. yes, there are other manufacturers with similar complaints, more complats. we look at them just as vigorously as we do toyota. it's just that in terms of the actual profile and in terms of trend analysis, toyota in this area did have a higher tendency toward the later years of the camry after 2002. >> and was that all related to control? >> yes, sir. let me ask you this. let' talk about nasa for a minute before i run out of time. you referred to the research plan. has -- have you submitted a research plan to -- for nasa's ? >> we will be meeting with nasa next week. they have required a humge amout of work for the toyota source code. there were issues to overcome. there are a tremendous amount of

documents nasa had to receive in addition to our automotive experts working with nasa. so our hope is to have a test plan done fairly soon and hopefully once we get that finalized we'll submit it to the volpe center for peer review. we have not finished yet. >> so you will submit this analysis also for evaluation from the committeehen you have it in hand? >> absolutely. the timeline on the nasa review is for it to be completed by the end of august? >>hat is our hope. >> you don't have a plan yet, but we're going to get one. is that correct? >> yes. you will get that. >> what if we get to the end of august and we haven't gotten there? >> well, we have a timeline and a goal to make sure we have results, but the primary objective is to make sure we get it right. there are issues that may take more time. we'll update the committee about the issues as they arise.

our hope is to be done by the end of the summer. >> do you have enough funding to do what you need to do? we have not done a budget this year and won't do appropriations until late in the year. can you pay for the things you need to do to get this informatio >> at the time we are properly resourced now. if there are any resource issues that confront us, we'll come back and inform the congress. >> let the record show nhtsa is awash in cash and needs noore money. i think that's what he said. [ laughter ] >> thank you for the implication. >> any questions? >> administrator strickland, one thing i'm curious about is the work that your agency is doing looking at oth types of analysis that are being done by manufacturers in other par of the world looking into the problem of evaluating electronic

throttle control systems. are you aware of any of the work being done by the european manufacturers in terms of education and training to analyze potential problems with those systems? >> i am not, but i am certain that my staff is. more than happy to have them come and speak to you and your staff and get back to you on any questions regarding the differences in approaches between the european union, the japanese or any other manufacturer. >> i would be happy to do that and would encurrently your staff as part of its work on the investigation of the specific problem to look at what's happening with those other manufacturers, what lessons they have learned and what their safety record is on the issue of sudden, unintended acceleration after the programs have been implemented. >> absolutely. >> one of the other questions i wanted to ask you about is throughout this process, toyota

has represented to the committee that it retained exponent to conduct an independent investigation of the underlying causes related to these problems with sudden unintended acceleration. you have been here when we've talked about that. >> yes, sir. >> they have made similar representations to you. >> that's correct. >> now the company they retained to do that analysis, exponent, do you know about them and what they do? >> i am fairly familiar with the companynd its prior name and the issues that it's worked on over the years. >> its prior name being failure analysis associes? >>hat's correct. >> are you aware of any instance whereailure analysis associates or exponent has been retained to do ap independent analysis on behalf of a consumer who was injured in a defective automobile? >> my recollection of exponent or failure analysis probably

goes back to 1993. so that's the window that i have knowledge of. i am not aware of them doing work for a victim or consumer of a product. >> that's all the questions i have. >> that concludes the questions for this witness. administrator, thank you. for the record, i would like to enter into the record the two documents i presented to the administrator on questions of february 22, 2010, a letter from chairman waxman and myself to secretary la hood and the memorandum dated may 7, 2007 concerning the smith vehicle. without objection they will be entered into the record. thank you for being here. >> thank you very much, mr. chairman.

>> tha you for being here. you're on our secd panel. we have james e.lintz, president and chief operating officer of toyota motor sales usa incorporated. it is the policy of this subcommittee to take all testimony under oath. please be advised that you have the right under the rules of the house to be advise bid counsel during your testimony. doou wish to be representid counsel? >> yes. ted hester is behind me. >> you may consult wit him at the appropriate time. >> thank you. >> please raise your right hand and take the oath. >> do you swear or affirm the testimony you're about to give to be the truth, the whole truth and nothing but the truth in the matter pending before this committee? >> do >> i do. >> the witness is now under oath. if you would like to begin with an opening statement, five

minutes. if you have a longer statement we'll submit it for the record. >> thank you, chairman stu pack, members of the subcommittee. thank you for inviting me here today. i am the president and chief operating officer of toyota motor sales usa. i'm honored to return here to represent the 30,000 americansi thousands more from those who bring great dedication and spirito their jobs each and every day. three weeks ago i said toyota is committed to strengthening focus on safety and quality assurance, in communicating effectively with customers and regulators. in subsequent hearings four of my senior colleagues from the u.s. and japan including our president akio toyoda also prejudiced to improve responsiveness on safety issues. there is substantial progress in

monitoring the commitments. we are taking major steps to become a more responsive safety focused organization, listening closely to our customers responding more likely to their concerns and those of our regulators and taking actions to ensure they are among the industry leaders in safety. mr. toyoda has made improving quality assurance his priority. our company isobilized to ensure that toyota vehicles are safe and reliable for our customers. not only when they are first sold and leased but as they are on the road for years to come. under his personal leadership we have undertaken a top to btom review of our quality assurance process in all aspects of global operations. toyota has appointed a new chief quality officer for north america. a u.s. executive with more than three decades of manufacturing expertise to act as the voice of the customer in this region.

north america now has a greater say on recalls and other safety issues that affect vehicles sold in the united states. in fact, the chief quality officer has a direct line to mr. toyoda when it comes to ensuring our customers' safety. these changes are having a real impact as reflected in the speed and decisiveness of our response last month when consumer reports identified a potential software issue with the vehicle stability control in the 2010 lexus gx-460. in addition, our smart evaluation process has significantly improve the speed of our response to customer reports of unintended acceleration. start stands for swift market response team. the field technicians can be deployed anywhere to invtigate customer reports of unintended acceleration on site. under the new evaluation process

the company has completed more than 600 on site vehicle inspections. technicians have completed an additional 1400 inspections. these inspections are giving us a better understanding about the reasons for unintended acceleration complaints. none of these investigations found that our electronic throttle contr system with intelligence was the cause. we are now making an extraordinary effort to service recalled vehicles and equip new cars and trucks with more advanced safety technologies including the star safety system, brakeoverride and improved event data recorders or edrs that will read both preand post crash data. our dealers completed nearly 3.5 million recall remedies. that's more than 70% of the sticky pedal modifications and we'll continue to reach out to the affected owners to make sure they bring vehicles to their

dealers' attention. we are grateful to customers for the way they are standing by toyota. consistent with our pledge to congress, we now have 150 edr readout units in north america an delivered ten edr readers to nhtsa so they can conduct their own data retrieval during their investigation. toyota is well on its way to being the first to feature brake override technology as standard equipment on all vehicles sold in the united across our product line-up by the end of 2010. we are also taking the extraordinaire step of retro-fitting brake overrides on several existing models involved in the recalls as an additional measure of confidence for customers. toyota remains confidee that our et csi system isn't the cause ofintendinteed acceleration. they are designed so real world

uncommanded acceleration cannot occur. we test our vehicles extensively to make sure that the failsafes and redunncies work. nonetheless, we're making a major scientific effort to further validate the safety of our vehicles by opening up our technology to an unprecedented level of independent review by respected safety, quality and engineering experts. the engineering and scientific consulting firm exponent has already completed more than 11,000 hours of testing and the analysis of the etcsi system and its evaluation is ongoing. i have been advised by secretary slater that the quality advisory panel he chairs will invite a rigorous peer review of the process as part of its assessment of exponent's findings. it will be one of the topics of discussion when the panel meets with mr. toyoda next we in japan. as mr. toyoda told secretary la

hood, we are pleased to cooperate with nhtsa a with the engineers from nasa in their independent evaluation of the system. we also cooperate with the national academy of sciences on their evaluatio of toyota and lexus vehicles as they study the industry-wide issue of automotive safety. members of the committee, at toyota we are committed to dng more than just correcting mistakes from the past. we're learng from them and making major steps to avoid them in the future. i'd like to quote the words of mike getz, a toyota team member for 22 years from georgetown, kentucky. in one team on all levels a book which means what it is to work at our plant in kentucky. it's written by the team members of the georgetown plant. mike writes, toyota makes mistakes, but we are expected to

take ownership to prevent reoccurrence and learn from them. we just don't say that. we do that. that's been the toyota way for 70 years. for the future, by acting swiftly on safety issues when they arise we are determined to set a new standard for quality customer care for vehicles. our goal is to lead the way for our industry. thank you very much. i'm happyo answer any of your questions. >> thank you. thank you again for being here. let me srt -- i asked mr. strickland, so let me ask you this question. you testified that the mats and sticky pedal accounted for 16% of the sudden unintended acceleration and that's 84% of them we have no answer for. are we any closer to finding out what about the other 84% of the sudden unintended acceleration, what's the cause of it? >> i think it depen on the database that you're looking at. in the case of nhtsa's database,

it's lumped together as speed control. so i includes not only events of sudden unintended acceleration, but it includes any other type ofurge or hesitation event. so when we spoke last, i'm confident of three things -- that the sticky pedal is bng repaired. we're already almost 70% repaired. >> correct. >> i'm confident we'll be under control on the mats -- >> but even if you do 100% mats, 100% sticky pedal we have 84% -- and these were numbers from last time. 2,262 sudden axlcceleration reports. 19 deaths in the united states. the 84% of the 2262. so even if you did a 100% mats,

100% sticky pedals we have 84% we have no answer for. you tell us you have 11,000 hours that exponent has done. what did they conclude? what did the tts show? we have no reports. they won't give us any. what was 11,000 hours of testing on? electronics? computer? micro pressers? we don't know because exponent give us the answers. >> quite a number of questions there. first off, in terms of surges and hesitations, the possibility of pedal misapplication,ven though we are going to do these two mechanical fixes, those are going to exist. they can still be reported to nhtsa as speed controls. that's part of the 84% number.

in terms of exponent and the scope of the work they provided the committee back around the time i testified. >> an interim report. >> veryih$jz a small portion of what they are testing. i believe yesterday they provided a second report to you all with more information, but they are testing not only vehicle electronics. they are testing emi. they are testing everything that could possibly create unintended acceleration. >> i guess i would agree with you. you come and say we're doing everything and exponent has this open-ended ability to do what needs to be done. you testified there was 11,000 hours. what exponent say -- and all we have is february -- is it's important to note at this stage of our work we neither claim to have looked at all issues nor to

have opined on the cause of incidence of unintended acceleration reported. we agree further work needs to be performed before we reach such opinions. when we asked we received to reports. just saying, work is under way. is this in some engineer's head? no one writes down what they are doing for 1,10 hours? how do you pay them. we have the payment schedule. $485 for this person or that person. how in the heck do you know if you're getting anything for your money? >> well, you know, i am convinced that in the end when we see the final report and it will be made public it will be peer reviewed and secretary slater is also going to review what's taking place. i'm confident we'll see an independent report. >> when will we see a final report? >> i don't have an exact date.

>> we're looking for the end of august. >> i don't think they have committed to me a given date. but i will tell you i the case of exponent, you're right. i have listened to the comments of the past that they were reporting through product liability attorneys. that changed this week. exponent is now reporting to steve st. anglo and all of the work will report through steve. i know we have a conference call as we do every week with the steve, being he's from the manufacturing side he's going to demand we have a work process with exponent going forward. as soon as we have that, you will have that.

>> okay. your counsel has indicated that exponent's contract didn't change at all. willhis be a new change or will it be reduced to writing about how they are going to get this to your safety? >> a letter h gone to exponent from steve -- >> when you get a chance will you ge it to the committee. can we see the document? >> it was submitted with our written statement. >> let me ask you one last question. is there going to be a recall tomorrow on the lexus ls vehicles? >> i don't know for certain the timing. >> but there is going to be a recall on a steering problem? >> yes. it is because of the experience in japan. the steering component that creates this is standard in japan on lss. >> it is a computer-driven steering issue. >> it is. >> have we had complaints in this country about steering? >> we have not. now thatapan has had the issue

we are combing through our files to see if they haved with anything. it's on roughly 50% of the lss in the united states. it's not standard like it is in japan. >> about 3800 vecles? >> 2500 that have been sold and 1400 in dealer stock or on the way to us that could be impacted. >> mr. burgess, questions? >> thank you. mr. lentz, thanks for being with us this afternoon. chairman stupak's opening statement made a lot of reference to polling. would you care to respond to some of the statements made in the opening statement by the chairman of the subcommittee? >> we have the polling company and i cannot recall their name

now. they have done polls for us for three years. >> bennett's strategy? >> yes. they have done polls for the last three years. they have probably done at least two dozen polls in the past. the poll that's in question was done soon after my testimony. it was done soon after the expose ran about unintended acceleration. there were questions about dr. gilbert and abc. there were a lot of other questions of the things measured as well. yes, we did research polling about the work done by dr. gilbert. >>f it's not proprietary can you give us an idea of the polling sample size? >> i believe it s around 1,000. i may not be exact. it was 980, 990. >> and you would have no reason to publically state the fact you're doing a poll. typically a company would not

publicize that it's polling because it might influence the poll. >> correct. >> you did this in response to the abc news piece. sit unusual for your company to do polling related to other issues of th day that may relate to your particular industry? >> i think it is. i think the abc news piece was unusual as well. it was a clear attack on the reputation of the company and really cast doubt about the throttle control system. so we felt it was very, very important our customers, our dealers. >> sir, if youidn't maket public and it was obviously in your best interest not to go public with the information, who did? >> made which public? >> the poll on the abc news

piece. >> i don't know the answer to that. >> you did not and your company -- >> not to my knowledge. >> so it was leaked to a usually reliable source. >> possibly, i don't know. at the time we were doing that poing we didn't know how much damage the abc report had done to our reputation and we were contemplating whether or not we would have to do newspaper advertising to explain our side and the results of the polling indicated that consumers didn't know much about what theyaid and didn't care about it. so we didn't end up doing anything about it. >> you asked your representative to replicate the conditions that professor gilbert gave to us here in committee. was that decision made before you commissioned the poll from the strategy group? >> that actually took place the

evening before my testimony. when we found out24ñabcas running that, exponent worked that night to see how many other vehicles they could replicate. that would have been before the polling. >> did you receive information based on the polling? >> some of the advertising in terms of toyota in america has been run based on some of the polling information, but to my understanding with regard to gilbert & cane, i don't believe we have run anything on that. >> we have had talk about the brake overrides and fixes for the sudden unintended acceleration last fall your company announced it will be introducing a brake override on certain models. will this cover all toyota models that were the subject of unintended sudden acceleration, going back and installing the

brake override system? >> not on every vehicle. the first cut to decide where we would put those were really on all vehicles that had the push button start-stop. so camry is an example. we put it across the entire line. same withi.s., e.s. and avalon. we then took a second cut and took a look based at nhtsa's sudden acceleration. what other vehicles might we add for additional consumer confidence? >> why not all models for consumer confidence? >> it's an additional eight million vehicles. in some cases, some of the models, when you look at the nhtsa database actually has a much less than average incident rate of sudden acceleration. it's not the same across all vehicles on the toyota or lexus side. i think part of it is the tremendous amount of engineering

resource and time it takes to do that. >> you're trying to rebuild consumer confidence aer a very damaging series of events the past eight months. it seems like i would make sense if that's the way to repair consumer confidce, add the feature and none of the rest of us have to worry. would the brake override system prevent every and all instance and type of sudden unintended acceleration? >> it only work ifs you step on the brake. >> okay. let me ask you this if i could. you've been very indulgent. i want toay at least in my part of the world that your dealerships have done an excellent job opening early, staying late. i have had my own experience with your dealership in lieu wisville. i think they have done well by your company in what was a tough

time. they stepped up, met the challenge and have taken it -- met it head on so your dealers in the texas area a doing a tremendous job. >> thank you. they understand the value of taking care of customers. thankyou. >> mr. chairman, mr. waxman for questions please. >> i'm still confused. as i hear you saying exponent is continuing to do research for you but not for the trial lawyers. they will do it for one of your corporate executives. >> i don't think they are mutually exclusive. as i has evolved -- >> so they are still doing research? >> yes. >> you told them to do a comprehensive evaluation, spare no budget, do everything that needs to be done. have they completed their

research? >> no. >> when you were here last they had done an interim report. that's all we had at that point. the interim report didn't tell us much, yet yound -- well, others from toyota assured the american people that it is not the whole electnic system that could possibly be the cause of the sudden acceleration. how could you b so sure about that? >> the only way we can be sure and i'm more confident today than i was in the past. we know that we do a lot of work and a lot of researcbefore we put the vehicles on the road. i know you will have additional questions on that. today as the smart teams are going out and investigating these -- >> we were told that you were relying on exponent's research

and conclusions, b you weren't relying on their conclusions because they still haven't finished the report. >> no. >> so you are rying on what you were told about the work that was being done in japan bere the products were put into production. >> yes. >> i raised concerns about that in my opening statement. let's go back to exponent. it's been held out to us that exponent has put this issue to rest. that's why exponent is doing this work. i just can't understand why you're so absolutely certain -- you say you'reven more certain nothan you were then but you have exponent's report. you will have it peer reviewed. why are you bothering to do it if you're convinced based on the other work you're doing? >> we want to ensure the public and our customers that they have the confidence that this has

been reviewed independeny, scientifically, peer reviewed even having secretary slater review the process. >> former secretary slater. >> yes, i'm sorry. >> well, weeard from the head of nhtsa, mr. strickland. he doesn't feel he can rely on what he knows o exponent's work. exponent seems to be working for the lawyers. everything that they have shown us by way of documents gives us no sense that they have come to any conclusion. in fact, we have no sense they are looking at the issue because they don't even have it on the list of things that they are evaluating. if exponent is doing the job you describe in your testimony providing a comprehensive assessment it presumably would be undertaking complicated multi disciplinary investigation

involving numerous rounds of testing and analysis. but dr. surey told the staff at any time 10 to 25 people could be working on the toyot project and there is no written communication among these people. there is notng by way of written notes. science is what we need to have evaluated. so ii!uñ just raise that issue. i stillm not satisfied because you're now relying on something other than exponent to give you that certainty. i want to ask you a different question before my time is up. that's this question of the brake override. why are you doing a brake override? what's the purpose? >> to help with added consumer confidence on our products. >> is it for safety? >> i think for some people it could be safety. i can't speak for allhe consumers to say 100% of the consumers will see it --

>> not how they see it. i don't care how they see it. will it make cars safer? >> there are other redundancies within a car today that will make that car stop. today, even at full throttle, full brake pressure -- >> so you don't think there is a safety need for it. >> i believe there is. otherwise we wouldn't be putting it on future models but it adds future -- >> it seems you're saying it will make people feel better. that's consumer confidence. but are you willing to say it's going to make the cars safer. >> i can't say 100% that it necessarily makes cars safer. they're different. it's just like cars. >> it costs around $50 to do is. but you're not doing it for all cars. you're retro-fitting some cars, but not otrs. why are you made that decision? don't you feel those driving less expensive toyotas should

have that sense that they have a brake override that's going to protect them? >> it's not a question of what people pay for their cars. we started with the four vehicles that had pus button start -- >> are you going to get to the other vehicles? >> we then went to an additional three models that were high on( list. >> are you going to get to all the other vehicles. >> we are not going to get to all the other vehicles going back. >> do you have a brake override in your car sp? >> i drive a hybrid that has the equivalent leapt of it. my son doesn't have it in his and i don't feel that he's not safe. >> what if i, as a toyota owner wanted to spend $50 and get it in my car? >> if it hasn't been develope it's not developed. >> it's developed enough that you are putting it in most toyotas. >> it's unique to every vehicle. >> you will put it in all future

toyotas. >> yes. >> each and every vehicle for toyota in the future and you're retro-fitting for some but not all. >> it is unique to every vehicle. the amount of time it would take to do it is just not -- >> with all due respect, i hear you saying you want people to feel good so you tell them exponent said it's not the electronics. i don't believe you can say that. that was past testimony. you're saying people ought to feel good about the brake override but you're not willing to say that's really for safety. i don't see that you are giving us assurances on safety. it seems to me you're worki around attitudes. that attitude you want to develop is people should feel good about toyota. i want people to feel good about safety. >> it is an extraordinary effort. i don't know of another manufacturer that's gone back to

retro-fit vehicles with any type of safety like this. even to do three million going back on these seven models is an extraoinary evident for any manufacturer. >> my time is -- i don't want to interrupt you. my time is more an expired. thank you, mr. chairman, for letting me go over. as you can tell, i'm still not satisfied. thk you. >> mr. christensen for questions. >> thank you, mr. chairman. in a prior hearing i asked a question that a the major decisions were being made in toyota japan. there seemed to be a disconnect between what was happening with toyota made cars in different parts of the world. no communication of what was happening in europe toyota e.u. and toyota u.s. for example. how would having a special committee on global economy and a chief quality officer have

made a difference in f those offices existed back then. >> the bigst difference is not only did we have a global quality officer but we have an individual who was responsible for recalls in the united states. the world has been divided u into six different regions. europe has a representative. china has a representative. the u.s. has ap representative. they will share in all the information and data that's going on on a global basis. >> that didn't happen before. >> that did not happen before. the decisions were made in japan and communicated to us. now that information will be sible to this individual. this individual will work with one other person in japan to make that decision whether or not there is a recall. if he's not satisfied, steve saint angelo has the ability to go to akio toyoda and discuss

the situation. not only do we have input but we can go to the president of the company if we are not satisfied with what the decision is. that's very, very different than before. >> okay. you have the north america quality advisory panel. they are appointed and paid by toyota? >> yes. mr. slater was initi ly suggested by toyota and he basically hand-picked the presentatives on the committee. >> so other than relying on the high respect that we have for the stewartship and integrity of rodney slater who may not always be -- for any number of reasons, how do we ensure that there is adequate independence in this advisory panel? >> you know, i think you have to look at the results of what happens over the next few years.

we are confident that not only mr. slater but the additional members of his panel, they have already spent time wh our people. they have already spent time with exponent. they seem to be ve, very independe independent. very, very up front and are asking tremendous questions. i think they will add tremendous value to our overall organization. >> my last question, initiatives such as smart happening in the territories and the states, we have a big toyota market in the virgin islands. >> i can't tell you specifically many the virgin islands, our smart team has not been requested to go, but after your comments today i will make sure japan understands ifhey need technical expertise i know on the engineering side that they cover the caribbean. our smart team does not outside

of puerto rico under tms control. >> puerto rico covers the u.s. virgin islands. thank you. >> thank you. >> mr. braley for questions. >> thank you. welcome back. >> thank you. we'll explore in more detail toyota's relationship with exponent. when you appeared on september 23, 2010 you submitted a written statement. >> yes. >> on page two you sd we asked exponent a world class consulting firm to conduct a comprehensive independent analysis of the electronic throttle control system with an unlimited budget. do you recall making that statement. >> yes, sir. >> at the conclusion i requested a copy of any documents that would verify the nature of the relationship between toyota and exponent. in response to that request we received from your attorneys king and spalding a copy of a

document listed asttachment a which we'll put on the screen and which you have in front of you. this is an agreement dated december 7, 2009, between joel smith at bowman and brook law firm in south carolina with exponent. would you agree with that? >> yes. >> and under the term "subject" it says toyota class actions. do you see that? >> yes. >> a class action is a group of claims against a manufacturer that have been accumulated for the purpose of pursuing relief. did i state that correctly? >> yes. >> and in the first paragraph, it says dear joel and it outlines the scope of services under the agreement. it says our scope of services is anticipated to inclut engineering services related to class actions filed against

toyota. do you see that? >> yes. >> y would agree class actions against toyota are separate and distinct fromn independent analysis of what's causing this problem? >> i understand that. i can tell you that -- >> let me go on to the rest of this letter. down in paragraph three it says -- and this is an agreement between bowman and brook, a law firm in california and expoept. it says it is our understanding that exponent's retention on this project is solely with your organization and the organization that exponent is referring to is the law firm of bowman and brooke. you would agree with that? >> yes. >> it says all charges incurred by expoept on this project and that's the toyota class action project will be the responsibility of bowman & brooke, independent of other parties involved. do you see that? >> yes. >> it's clear wn exponent was

first retained they entered into an agreement with a law firm in south carolina, not just with yota directly and the subject of the agreement was to investigate class action claims against toyota. we heard from administrator strickland and he put this in perspective when he said there is preparation for litigation and there is scientific analysis skising of a detailed analysis of the cause of a problem and c eliminating it. you would agree there is a distinction? >> i don't know that for certain. >> let's look at it. we also received an attachment d, a summary of what exponent had been paid by toyota over the years and it says that bween 2000 and 2008 toyota paid exponent about 11 million dollars for consulting services and during the period between 2004 and 2009 it was 9.1 million dollars. there is statement here.

exponent believes the result of the search provides a reasonable gross revenues from toyota but they know if the agreement doesn't refer to toyota by name it may show up in the revenues. it's clear that toyota paid a substantial amount of money to exponent. my question is how can you claim that exponent was retained by toyota to conduct an independent investigation when this agreement we have been provided with makes it clear that they were retained by the defense law firm and it was for contested litigation which is in no way considered an independent analysis. >> that is how the relationship began. but as this has evolved -- >> well, as of this week before you came here you testified that they were reporting through product liability attorneys that it changed this week. >> correct. >> we also asked questions from

toyota and received responses. i want those put up on the screen. question and request number 15. it says the overall amount exponent billed for work related to toyota since e exponent was retained in 2009 the answer the committee received was exponent billed $3,330,552.36. so you indicated in your written statement today that exponent has already completed more than 11,000 hours of testing and analysis. that means that at 11,000 hours that they are billing about $302 an hour for this incredible amount of work that they have done on the project. >> i don't know. i don't know what the specific contract is. all i can say is i understand the perception that this is not a transparentprocess. >> you have provided in your written statement today with the letter to mr. sabai who you have

indicated will be communicating directly with mr. saint angelo and when toyota's counsel talked to committee staff yesterday they said the letter to exponent that you provided with your attachment does not change exponent contractual relationship with bowman & brooke. >> not yet. >> is it your understanding that it will. >> i don't know that for a fact. >> will you commit to the committee today that if it does you will provide us with any documents that change the relationship between exponent and bowman & brooke or toyota andny of its various entities related to the project that we have been talking about during the two hearings? >> absolutely. >> i see my time is expired. i will yiel >> thank you. we wanted to go another round of questions but we have four votes on the floor, plus the committee mark-up on the bill on the nhtsa bill at 2:00.

we're going to cut it short. before i go, i wanted to get into questions about the polling but i can do that in writing. i'll follow these up, but last time you were here in february i asked you about a lot o discussions about the event data recorders. >> yes. >> we received no information yet other than you provided some. but i had asked, mr. rush and others asked specifically about the november 27, 2009 accident involving a 2010 camry in auburn, new york. i asked about december 26, 2009 accident in south lake, texas, involving a 2008 toyota avalon. i asked about jeff pepski of minnesota, 2007 lexus es 350 about their black box recorder. i also asked and questioned you on the february 20th, 2010

washington post article on the camry's 2005. in fact, three fatal accidents in the course of 2005. camry is not subject to any sudden unintended acceleration though the three fatal accidents did. we are looking for information on the black box recorders. i will follow up in writing. that and oth questions i have. >> i apologize if we haven't submitted that to you. i can tell you that the black box recorders, we have lived up to our commitment that we have 150 of the devices, the data retrieval devices in the marketplace. i can also tell you -- >> correct. we want to know what they say. >> yeah. i can tell you they will be made commercially available by about september of 2011 to make it much me readily available for police across the united states. >> and consumers i hope. >> consumers will have access. >> that will be part of the bill

today. we'll follow up. quickly, sir. >> before you close, i would ask that the response from king and spalding that we received are w all the relevant attachments and the e-mail we had on the screen dated wednesday, may 19 with be included. >> no problem as long as we have redactions on some of the names. that would be the only thing i have to insist upon. other than that, i have no objection. do you havany objection as long as we redact the names? >> i have a question for the chairman why we would redact names provided in response to an official request. that's the policy if they are not subject to it the names of those engineers by exponent, their names don't need to be in the public record. >> the only exception i would request, mr. chairman, is there are people -- mr. sabai is listed as the first person in the interest. he's been the subject of the discussion at the hearing and there is no question based on

the letter that the witness has provided that his name be left. >>correct. without objection. so that will be included with the redactions of professional engineers not subject to or signing that letter. that concludes -- >> mr. chairman, just one observation since everyone else s gone ov. >> all right. >> you're going to a mark-up. i am no longer on the subcommittee, but you're going to mark up legislation but we haven't finished our work here that is supposed to influence legislation being marked up this afternoon. there are huge hole that is need to be filled with the need to get this done -- >> the legislation we are marking up doesn't just include the subject of this hearing. there are also others. there have been hearings on the legislation that witnesses have testified. i know you're not on the subcommittee. >> we do this time and again.

i'm reclaiming my time. you don't have any time. >> we did it with clean water and we are doing it this afternoon. it seem it is committee should take things in a methodical way and not be doing things in a haphazard arrangement that seems to be so prevalent in the committee. thank you. i will yield back. >> you will have a chance to voice those objections when it comes to full committee. as you know when it goes to the subcommittee level it must come to the full committee. you will have a chance then. that concludes all questioning. i want to thank our witnesses for coming today and your testimony. the committee rules provide members have ten days to submit questions for the record. i ask that the contents be entered into the record provided that the staff may redact as it relates torivacy concerns. the documents will be entered in the records. let me acknowledge two key staff

persons, alan tindale and karen christensen of the republican staff. both women are expecting a child soon. we appreciate their work on this hearing and evious hearings for the committee and our subcommittee. we wish them well in the coming days and weeks ahead as they transition from work exhaustion to childbirth exhaustion. that will conclude our hearing. this meeting is adjourned.

>> we have got to get that balance right between the technology when it is allowed to run and win is not allowed to run. we have to put the human factor back into it. >> my time has expired. i would like to revisit it. >> thank you. >> thank you, mr. chairman. thank you for your testimony. why is there a circuit breaker on the way up? >> interestingly, there were

five securities whose stocks were executed at $100,000 going up very dramatically. hewlett-packard was one. apple was another. people are disadvantaged when they buy a stock as much as someone who has been disadvantaged when they sell a penny. dennis really dictates that the circuit breaker work in both directions. >> if i might add, in the futures market place, there are small pauses. sometimes in a nanosecond, there are a sufficient number of buy orders or sell orders. that liquidity pauses in the

futures market five or 10 seconds. we are not a price-setting agency. it is about orderly markets. >> so, after five minutes you have this breaker. is there any issue with what order they are traded in after that? i assume there is a backup. >> the primary listing market will be responsible for reopening the trading after the five menopause. during that period they will try to track liquidity and to establish a new price. they will do it the way they do it now when there is a halt. i am sure they can and so that -- answer that question in more detail. i'm sure as we put these rules

out for comment there will be specific technical and limitation issues we will have to work through during that 10- day comment period. >> the whole issue -- i know there have been a number of issues regarding breaking trade -- we had this situation where we engage in a lot of technology where people are most concerned about how close they can locate two exchanges. that all works to the gut. on the other hand, we break trades when things get out of alignment. it deals incredibly arbitrary. it does not feel -- why do we not do that? >> i agree to go on one hand, we

create these tremendous advantages and when it does not work well, we figure out a way to make it work well. >> that is one of the reasons for circuit breakers. it is our view that circuit breakers could dramatically decrease the number of trades that have to be broken because of a price that is clearly iran yes. -- erroneous. we probably would not have had nearly the number of broken traits. it is not a good position for us to be in. we are cleaning up afterwards. that is what breaking trades is all about. you diminish the number of trades that might have to be broken. i am sure we will never eliminate them entirely. people will make mistakes when they enter orders.

they should be minimized. >> i think you both know that i respect but that you enjoy working with both of you. since you are both here, could you explain any rational reason that both the sea tse -- and the sec exists? >> german gensler will want to speak to this as well. i have had experience with both agencies. they are incredibly talented people. it is my view that if we were creating a regulatory system, we would not have two separate agencies. the products tremendously overlap. the issues between our two agencies are extensive.

were it up to meet -- and of course it is not -- we would have one agency. chairman gensler and i are committed to working together. >> the first part of your question, we exist to protect -- the second part of your question really dates back to the 1930's when our predecessor and president roosevelt asked for the two agencies to be set up. it was called the commodities market. our oversight was on derivative contracts. it has been the will of congress for seven or eight decades to have two decades. i think we work very well together, not just the two of us, but the staffs of the two

agencies. we are working very well with congress to fill the derivatives market place to make sure we cover that. our focus at the cftc is exchanges. we covered a lot of the same market participants. we have complementary regimes. that is the way we have been for seven or eight decades. >> thank you both. i think you have great staffs. i appreciate working with you. i realize another issue. we have not dealt with one of the core issues regarding this last financial crisis with this bill.

we lack the courage to deal with an obvious issue and that is the two issues -- agencies are separated. i thank you both for being here. i am sure you will remain separated for many years. >> thank you senator mccord her. they keep for your testimony. >> one of the potentially disturbing aspects of the testimony is that you are both not quite sure what exactly happened. it was a confluence of events. if i understand the testimony, the precise sequence has not been identified yet. is that a fair statement?

chairman shapiro and been chairman guzzler -- >> it has been two weeks. our staff has been working around the clock. there is an extraordinary amount of data we have to process. we have so many trading been used. we do not have a consolidated audit trail. will be tried to create one for the first time. we have audit trail data from the exchanges, from the nasdaq, for the new york stock exchange. we keep full audit information. they assemble records requirements. we had 19 billion shares traded that day with 16 million different traits. 17 million were between 2:00 and 3:00. there was an enormous amount the data coming from the various sources.

it is creating an enormous amount of work for us. our technology is not great. it has fallen behind over the years. our capacity to handle the date it we are getting slows us to a halt sometimes. we are trying to catch up. our staff is doing an extraordinary job. we need to get them to the technology resources. we are looking at bringing in a third party to help us crunched the numbers. over the long run, this agency has to have the capability to process this kind of emperor mission quickly and effectively so we can reconstruct markets. >> chairman gensler. >> this is an enormous amount of work that needs to be done. i think the combination of events, the economic news that is coming out of europe -- by the middle of the day there was

a lot of uncertainty in the market. sometimes market signals or fundamental, like jobs data are what is going on in europe. we saw a lot of trading data in treasurys, in currency markets that had a higher uncertainty. some of the securities were going to be slow-mode. the market is down to to -- 2% to 3%. we still have a lot more work to look into the cross linkages of securities. in the futures markets, with salt liquidity dislocations. sell orders were outstripping buy orders in the critical minutes into the downward drift.

in the midst of that, some liquidity providers who do not have an obligation to be in that marketplace, began to limit their participation. in addition, we had won sizable sell order in the midst of that. put in an automated execution system and put it to a pop-down window. it is able to limit my persists a patient to 9% because they thought it would not have a market impact. that may have been a different feature. those are some of the factors that we have looked at. we still have to prove out some of the theories. there are a lot of cross- linkages that we will study together. >> you cannot assure us that this problem would have been self-corrective given the market

mechanisms in place. is that a fair judgment? >> the fact that the market bounced back so quickly and prices recovered so quickly suggest that there may have been sufficient liquidity present but the market could not get to it. it was not protected are accessible. that is a market structure problem. that is why we use circuit breakers to try to pause the markets and bring that liquidity back. it is why we are looking at things like the use of market orders, stop-loss orders, and all of these other issues. if you are asking me if i can guarantee that this will not happen tomorrow, i wish i could tell you that i am. i cannot. >> another way to look at the issue is that this was a hugely disruptive situation. we do not know what factors

caused it and what factors we have to control. we also really do not know what factors caused the recovery. there is a distinct possibility that this situation might not have naturally bounced back, but could have deteriorated further to a point where the markets were paralyzed. the fall would have been much more severe. without being hysterical about these things, does that possibility exists? >> we really do not know all the answers yet. >> we know one thing about the recovery. it took eight by second pause. it was in the automated system. it has a liquidity stock -- the stop-logic functionality. these are words i hope to forget

one day. nonetheless, that i'd second pause to allow more orders to come into the book was a coincidence. that contract moved up at the end. seven seconds later, the broad market changed funds. seven seconds later, that started up. that is the natural progression. >> we have to be very tough- minded about the potential problems. one could suggest that with all of these good things happening, those things might not have been

sufficient. the point i thing we have to look at this what are the standby arrangements? if you cannot get this right, if the circuit breakers do not kick in correctly, with those arrangements being in place -- >> we do have existing market- wide circuit breakers. if the market goes down 10% before 2:00 and this halted for an hour between 2:00 and 2:30, there are declines in the gal.

at a 30% decline in be dow, the market pauses. it is a pretty strong signal of a big problem if they are traded. that is the reason we want to recalibrate those. >> what i presume that does is to give you time to act. what actions can you take? >> i think the market participants had the opportunity to try to gather liquidity into the market to find whether there might be buyers or people to consolidate debt interest in buying this securities. it is about giving the markets a time-out and human beings an opportunity to turn off the algorithms, change the algorithms, or do what ever it

takes. they have traditionally built interests. . >> do you think they can get it right without any assistance? >> at the end of the day, the markets will find their natural level. the best we can hope for is an orderly decline. >> chairman gensler. >> i think the market-wide circuit breakers are set up after the 1987 yvettes' which was triggered -- the events which was triggered. market participants will then have the time, whether it is 30 minutes.

for information to come into the markets for him is to be there, a lot of the algorithms are roped. they are even dome. they do what they are programmed to do. given the 30-minute policy in the enter market circuit breaker or even overnight guest humans a chance for information to come in. it allows the news media to comment. i agree, ultimately, markets will find their way. >> unfortunately, i think when it comes to the media, the headlines would be "market's crash, clothes, may not open." >> thank you, mr. chairman. thank you for holding this

hearing. i thank our witnesses. this reminds me a little of that new the "2001" where it started out with men and machines and machines took over. that is what we have here. everything is so mechanized with very little human interaction. much of the time it works very well, but some of the time it does not work well at all. i worry about it. i worry that we let the technology get too far ahead of us. i am hopeful that the solution that you oppose solves it. i had the feeling we will have other kinds of problems. everything is so new and everything is so quick. machines are very smart and very dumb. it is good to see both of you here together, two agencies

cooperating, but i do think there is a problem there, too. we have the circuit breakers imposed on the equities market, but not in the futures markets. what kind of coordination is there? i think most people agree that future spread to equities. what are you doing to -- doing with that kind of synapse? >> we do have these inter-market circuit breakers that were set up in the '80s. we are committed to take a look at those. we want to see whether the level should be adjusted. right now, it is a 10% decline before a certain time.

the cross-market stops. the index futures market closes. everything closes for the 30 minute are our depending on the time of the day. who would take a look at that very closely. >> what happened this time? >> the circuit breaker was not triggered because the market had not gone down 10%. >> got it. >> that really is what it is. we have to look at it and reexamining its. >> the next question relates a little along the lines of my opening remarks. dark pools -- sec, nasdaq, we have registered market makers. we have a little bit of the human element. we get to the dark pools and you do not. this is a potential for problems. by nature they are dark.

someone can hide what they are doing and not reveal to the market that they are making a large purchase. i understand that. it may also create problems we do not know about. does what happened in the last couple of weeks make you feel that we should be examined what is happening in dark pools as well? >> absolutely. we proposed requiring that dark pools make their orders available for the public said that we do not end up -- >> when? when do they have to make their orders available publicly? >> our proposal would have them display quotations broadly, not just to a select group of participants like they do now. the goal is to not allow the two-tiered market to continue to develop where participants get access to " that the general

public does not have access to -- quotes that the general public does not have access to. there are very large blocks where there may be legitimate interests. >> the dark pools may become a little less dark. i am far openness and sunlight first and foremost. i worry when we do not have it. my final question relates a little bit to what senator bunning talked about. i would like to follow up. some markets are canceling traits that were executed after stocks dropped 60%. there are a lot of investors that sold when their stocks were down 20%-30%. they lost thousands of dollars even though the stocks closed right back where they started. what is the sec doing to help these investors get their money back if anything? >> i recognize that we have to

deal with the 20,000 or so brokerage rates that were done on 86. with respect to those, we are looking very carefully at whether broker-dealers handled a lot of retail flow, gave -- we will continue that investigation very quickly. there are clearly going to be angry customers. going forward, we have to fix this process. it is very badly broken. >> can i ask one final question? in general, do you think that in this area the rules that apply to equities and options should be the same kind of uniform rules across the board in

general? i would like each of you to answer that. >> uniform rules in the equity training -- trading then use is my goal. we will meet on monday. one of our task will be to look at the two marketplaces and where we have our roles that may be contributing to market volatility. we would expect to use those market experts to help us figure out exactly what ought to be the same. the circuit breakers have to work across the markets. they must be the same. >> market pauses and circuit breakers have to operate the same. it has to link into the same single stock broad market whether it is and s&p future, s&p option, wherever.

there are also risk management standards that happened in the futures market. they are easily to deal with because there are not 50 or 70 been used. v enues. -- venues. >> i am troubled by the way exchange traded funds and closed end funds move differently than the stock they are supposed to track. as you can of imagine, if those funds do not accurately reflect the value of the underlying stocks they will -- there will be serious consequences as investors lose faith in them. what have you found out about what happened to them? >> it is a great question. it is a huge area of focus for

us. if you look at the castle trades, 70% were -- here is what we are looking at. we want to know did the loss of access to arca's liquidity pool routed around them to trade it disproportionately impact the liquidity. we want to understand why the etf occurred after the price declines and held that linkage works. the and ability for market makers could june 82 the lack of liquidity. did institutional investors

short the etf to hedge their broader market exposure as the market was declining? we are looking at that very carefully. and that real people. we are looking at this. particularly closely. >> i happen to be watching the market very closely when this was going on. i watched a stock called procter and gamble at $61 per share. the next share -- trade was at $37. the next trade was at $39. this did not come within those parameters that you set out. in other words, the stock drop was not significant enough to be

included. >> my understanding is that procter and gamble declined 36% in three and a half minutes. the proposed circuit breakers of the 10% drop -- >> your proposed. i am talking about current. >> that is right. procter and gamble also recovered back to that $60. >> if yes they did. it wound up at 68 something that day. what happened to the so -- poor person that sold at $37? >> they do not fall within that 60%. >> where is the market maker in proctor and gamble? what was the the quiddity in the market maker? >> that would be a great question for the next panel of exchanges. >> ok.

i will wait to ask that. when you update the circuit breakers for stock indexes, the you expect to harmonize the rules between equities and futures in the same index? >> absolutely. one of the things we are looking at is whether we should move from the dial to be sec. of the thresholds' right? >> you may get another chance at this. >> great. >> i just want you to know. >> clearly, you have to be highly coordinated between these two markets. >> i am worried that my lack of not getting something done, we could have a repeat. we are all almost 300 points on the dial right now -- dow right

now. the s&p is right at 30. the other stock exchange is right around 60. if we get bad news out of the imf art gris -- or greece or something that would have an impact on our markets, we could see the same reoccurrence. we have not done anything. >> i share your sense of urgency. we are moving very quickly. we are living click work -- quicker than i have seen the sec move in a long time. it is not quick enough. the existing circuit breakers will have to be our fallback -- >> i think there comes a time when you take emergency actions.

if we are in that situation, and in a market situation where we need emergency powers, all you have to do is come here and ask. we do not want 8 reoccurrence. we surely do not want to order surely break up trades that were legitimately done under a set of rules. i would urge you to come out and directly ask this committee. i have one more question. i think you are all hearing our concerns. my only other question is -- we are trying to get in place rules

for circuit breakers. we are trying to get in place rules if we had this precipitous fall and how we make good or breakup traits that are a result of this technology run amuck. i think there is also a bigger problem about market trust. i spent the last year and a half on this committee tried to get up to speed on how we could put in rules. we may be looking at the beginnings of what could be the next crisis. there are probably not many folks who really understood the first time this was discussed.

you have said we are two weeks into this and -- what i am not being critical here -- how do we make sure we have rules in place to prevent or ameliorate technology run amuck. these firms that are getting this technology advantage are not doing it simply to add liquidity to the marketplace. they are not doing it simply as a sign of good corporate citizenship. they are trying to get a competitive edge advantage.

they are getting the competitive advantage over the jim bunning said that used to trade, or the mark warners at that used to trade. my appeal is if you need not only action in terms of making sure we have the circuit breakers in place, but how do we also make sure you have the technology and tools in place? it was not market reactions but something else going on. >> the technology and tools are critical for us to understand exactly what went wrong here. that would inform the kind of fixes we would put into place. we do not have all of those

answers yet, but we do not want to wait to ameliorate the impact of what happened. what ever it was, whatever the causes, linkages between the two markets. that is why we are moving quickly on things like circuit breakers. we are jumping on the things we can fix immediately. we are doing this auger and deeper dive. i hear you saying to pick up the pace and figure out what is more -- broken and get them fixed. that is what we are trying to do. >> i am also asking, as we sort through how we try to prevent this, we also have to sort and make sure that everybody is operating on a level playing field. >> there is no question about that.

the markets are far building capital and creating jobs. those are the no. 1 and no. 2 purposes of markets. everything else has to be put into context of those two goals. >> i would agree with what chairman shapiro said. we are not going to stop technology, but we have to make sure that markets are fair and orderly, transparent, they are not just mechanized creatures, but they work for investors. they work for corporations who want to hedge their risks or raise capital. the markets reflect where buyers and sellers are coming together. >> thank you, mr. chairman. i want to follow up on senator warner's question. we have competition among

various exchanges, too. some of them gain an advantage by being less regulated, if you will. i am not sure if that is good or fair. they do not have to have registered market makers nor do they have to have a consolidated audit trail. it is hard to find out what happened to correct them. why should they be allowed -- why should other exchanges like the nasdaq have these regulations? we have other so-called exchanges which do not. why should they not have them? why are they it -- why are we letting them do this? i am not so sure it is the technology as much as it is because they have less regulation. >> i think over the last several

years the markets grew, fragmented, and splintered. you have to encourage loss of innovation and lots of tradition. we lost sight of the fact that we also have to ensure that there are obligations on these other trading been used -- venues. i am highly focused on that. we will have, i believe, a consolidated audit trail next week. that will require all of the data from all of the trading venues. >> what about the idea of registered market makers? no one should have a monopoly, but if they are gaining share, not because they have better technology, but because they have fewer obligations, we have big trouble.

i am worried that this is what we have. >> i understand that. the self-regulatory obligations do not exist the way they exist on our exchange. >> are you looking -- >> it is part of what we are balking at in our view of market structure. >> i am going to be watching closely and carefully. let me ask you this question. is there any justification why these two exchanges should not have a consolidated audit trail? >> i cannot speak to what has happened historically. my view is no. the sec has to have information across all of the trading venues. >> any justification why they should not have registered market makers? >> i do not know the answer to that. i would like to come back to you on that.

>> could i ask unanimous consent that the sec chair who i have tremendous respect for have applied days to submit a answer to that question in writing for the record? >> absolutely. >> thank you, mr. chairman. >> thank you, mr. schumer. one of the critical events was unusual trading of a futures contract regulated by the cftc. this would affect a stock like procter and gamble which is sec regulated. it begs the question, other than an formal cooperation, do we

not need some more regular systematic review of the rules? do we need consistent rules? chairman shapiro, what is your view on that? >> i think we can bring much more consistency to these markets. that is one reason we created a joint-advisory committee to help the two agencies understand where we could benefit most from having similar or the same rules. whenever version of legislation passes, we will have a fair amount of joint rule making. >> the present legislation before us excludes most joint rule making. can i assume that you would, maybe not prefer, but for the baker view would participate? >> joint rulemaking has its own

challenging. -- challenges. whether it is joint rulemaking or parallel rulemaking, we need consistency in the regulatory regime that governs these instruments. whether it is identical rules, ideally it would be one regulator, we cannot allow their to be differences are gaps where problematic on debt could be hiding. >> given the institutional -- there may not be the same meeting of minds that you both exhibit, there has to be an institutional structure that guarantees that this will happen. >> i agree with that. >> i think that through the financial reform package, it appears congress will at some of

that. there is joint world bank -- a joint rule making in the derivatives market. this heavy consultation, i believe, we have set up memorandums of understanding. i think if the finance reform package went through, we should embark to update that to include all of the new authorities. i agree with the senator that the cooperative relationship that we have now will be out of these jobs at some point. there will be others out -- people such -- people at some point. >> the reality is, had we started this fresh there would be one agency dealing with

products that could be one for the other. that is not going to happen. this notion that we are going to let the good-will of the regulators rule, does not work. we need an institutional structure that does not cause excessive delay. it should require not just discussions but joint action. this situation will still be existing. >> i agree with that. >> we have jointly asked for congress to include product review. if the two agencies can not approve a product, we put in a judicial review feature. i think that is very sound. we will anticipate that there

could be different perspectives and there has to be action. if we allow this whole enterprise to be based upon the cooperative and collaborative model you have shown, things change, people change, and acting we would be very foolish. you might want to comment about this. this was an accidental, unfortunate confluence of circumstances. it could be a deliberate attempt to disrupt training. -- trading. are you prepared to deal with that? >> our staff spends a fair amount of time working with the exchanges and markets. we have our requirements for backup facilities and annually

review the adequacy of those with the markets that we regulate. >> or you and your staff concerned that this is a real possibility and not just theoretical? >> in this world, i have no evidence or reason to believe that something is imminent or will happen. we absolutely must be prepared for that possibility. to the extent that we suffer from this very fragmented equities market structure, the one good thing is that we have multiple trading venues where if you have a attack on one, we can pick up the slack summer else. that is the silver lining of our structure. >> are you comfortable that the present legislation pending would prevent any assistance to these entities if they were subject to such a physical or

sovereign attack? >> i believe so. >> if you are comfortable that in a situation where the trading has been disrupted deliberately that the market itself will correct without any assistance -- >> i am sorry. i misunderstood your question. there clearly would be some need for the federal government's support in some way. i do not know at this financial support our other kinds of support. >> you are aware that the pending legislation would prohibit that support? >> i am. >> pinkie. >> in a series of comments. we have been working with the exchange's. we are going to put out a proposed rule later this year. it will strengthen some of the

backup recovery and disaster recovery. there are a series in the futures market where we are benefiting. there is a risk management standards. any contract, in a transaction that comes in has to meet the risk management standards at the clearing house. there are a series of filters before they come in. that does not mean that somebody could not possibly come in, but there is a lot of risk management practices. we are going to look to see if there should be more. on federal assistance, there is a little bit of title 8 allowing for federal assistance and title 7 which is not. there is inconsistency there. from my perspective, the federal

reserve has the authority to come in in case of an emergency, but not necessarily have daily access to the discount window. that may sound like it is slicing desk, but i think the emergency sources are important. >> i would agree with a policy of providing the federal reserve board the ability to provide immediate liquidity under emergency circumstances. i have long supported ensuring this systemic risk regime would have a second set of eyes in addition to those of the regulators. i am comfortable with that at the federal reserve as well. >> in the we should be clear. there appears -- i think we should be clear. there is contradictory language,

but title 7 excludes the federal government from assisting in a general way. your view would be that that power should be preserved. >> i believe it is section 716. i would retain the part of 716 that limits the daily access of the discount window, but allow in emergency circumstances for the federal reserve to lend to participants in generalized liquidity programs. the participants would be able to have that emergency access. >> thank you very much. >> there are several proposals

that would it is sensual band -- essentially banned over-the- counter swaps. is that a good policy to pursue in your opinion? >> i think derivatives are important risk management tools for municipalities, corporations, and ultimately their customers. i am not familiar with the pending amendment. a lot is going on in the last 24 hours. risk management tools of corporations, if they are customized are tailored, we still think there should be comprehensive regulation of the dealers. it is a comprehensive regime. it is standard enough to be a clearing house. if it is a list of all, there is a clearing requirement and under

certain sum it -- certain circumstances, a listing requirement. >> chairman shapiro? >> this is a question i think should be addressed to you. >> the key policy question is whether that would provide our create a legal uncertainty for swaps that are accidently not cleared or whether it creates an opportunity to fix the system. we already have under the federal securities law similar provisions that have not been applied in the context of requiring something to be cleared or not. it may move more into the

direction of the federal security laws. it could also create legal uncertainty. >> if it was a question about -- there is one issue. if over-the-counter derivatives are deemed to be credible and deregulators have determined that it must be cleared, in that circumstance there is a mandate that it must be cleared if somebody does knowingly -- does not knowingly paula that. to be clarified to state that that transaction is unlawful is consistent with what the intent is. it is a mandate once you have this public comment period. then it is a real mandate. >> i think part of this, some

reading this proposal would suggest that they go beyond that. if you have an over-the-counter derivative that will not be cleared, if you enter into that contract, it is illegal. i think we have provided some insight into the proposals. i thank you for that. >> may i clarify the record on one thing i said in response to senator schumer? she specifically mention the two marketplaces. the decision about whether to have designated are registered market makers has been an exchange by exchange decision. it is something we would be happy to look at. >> thank you both. thank you for your vigorous and

demanding service to the nation. >> thank you, mr. chairman. >> called the second panel please. >> how come i do not feel any better? >> thank you all, gentlemen, for being here today. our first witness is mr. -- d c e l of the -- mr. ketchum serves as ceo of the stock exchange regulations of the new york stock exchange. he has also worked for

citigroup, nasdaq, and the sec. our next witness is mr. leibowitz. he joined euronext in 2007. he has also worked for schwab. our third witness is mr. eric noll. he joined nasdaq and has also held positions at the philadelphia stock exchange and the chicago board options exchange. mr. terry duffy is our final witness. he has served as chairman of the board from 1981 through 2002. all of your statements will be in the record. mr. ketchum. >> chairman reed, ranking

members, members of the subcommittee, thank you for inviting me today. i commend you for having today's hearing. i thank you for the opportunity to testify. i would like to commend chairman shapiro and chairman gensler for their own leadership during the last two weeks. immediately after the market yvette's on may 6th, in coordination with the sec, we began the process of trying to identify unusual activity that could have contributed to the rapid market drop. even before the data had been collected, we attribute approximately 20 firms during the period of the decline to the period of the decline to determine if