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r1-ro.y\c_cr:e4_ 04 Federal Reserve Bank of St. Louis  roceechr9S ) Nov.7 /9 -79  1  Collection: Paul A. Volcker Papers Call Number: MC279  Box 25  Preferred Citation: Transcript of Proceedings: Committee on Banking, Finance and Urban Affairs, Subcommittee on Economic Stability: Hearing on H.R. 5805 Chrysler Corporation Loan Guarantee Act of 1979, 1979 November 7; Paul A. Volcker Papers, Box 25; Public Policy Papers, Department of Rare Books and Special Collections, Princeton University Library Find it online: and The digitization ofthis collection was made possible by the Federal Reserve Bank ofSt. Louis.  From the collections of the Seeley G. Mudd Manuscript Library, Princeton, NJ These documents can only be used for educational and research purposes ("fair use") as per United States copyright law. By accessing this file, all users agree that their use falls within fair use as defined by the copyright law of the United States. 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Policy on Digitized Collections Digitized collections are made accessible for research purposes. Princeton University has indicated what it knows about the copyrights and rights of privacy, publicity or trademark in its finding aids. However, due to the nature of archival collections, it is not always possible to identify this information. Princeton University is eager to hear from any rights owners, so that it may provide accurate information. When a rights issue needs to be addressed, upon request Princeton University will remove the material from public view while it reviews the claim. Inquiries about this material can be directed to: Seeley G. Mudd Manuscript Library 65 Olden Street Princeton, NJ 08540 609-258-6345 609-258-3385 (fax) Federal Reserve Bank of St. Louis  F  Xonse of ieprestittatitles  • Transcript of Proceedings  COMMITTEE ON BANKING,FINANCE AND URBAN AFFAIRS SUBCOMMITTEE ON ECONOMIC STABILIZATION  Hearing on  •  H. R. 5805 CHRYSLER CORPORATION LOAN GUARANTEE ACT OF 1979 - - -  Washington, D. C. WEDNESDAY, NOVEMBER 7, 1979  •  MONICK - SULLIVAN Official Reporters 444 North Capitol Street Washington, D. C. 20001 NATIONWIDE COVERAGE Federal Reserve Bank of St. Louis  i  Telephone: (Code 202) 347-4912  674  CR8190  CONTENTS  1  •  PAGE  2  STATEMENT OF:  3  HON. RUSSELL B. LONG, United States Senator from the State of Louisiana  676  HON. G. WILLIAM MILLER, Secretary of the Treasury  718  4 5 6I 7 8 9 10 11  •  12 13 14 15 16 17 18 19 20 21  •  22 23 24  Ace-Federal Reporters, Inc.  25 Federal Reserve Bank of St. Louis  CR8190  675 Hearing on  1  H. R. 5805  2  410  3  CHRYSLER CORPORATION LOAN GUARANTEE ACT OF 1979  4 5  WEDNESDAY, NOVEMBER 7, 1979  6 U. S. House of Representatives, 7  Committee on Banking, Finance, and Urban Affairs,  8  Subcommittee on Economic Stabilization,  9  Washington, D. C.  10 11  O  12  Rayburn House Office Building; the Honorable William S.  13  Moorhead, chairman of the subcommittee, presiding.  14  Present:  Representatives Moorhead, Blanchard, Lundine,  15  Vento, Ashley, Hubbard, LaFalce, Evans (Indiana), Oakar,  16  McKinney, Kelly, Green, Shumway, Hinson, and Paul.  17 18 19 20  •  The subcommittee met at 9:15 a.m. in room 2128 of the  21 22 23 24  Ace-Federal Reporters, Inc.  25 Federal Reserve Bank of St. Louis  Also Present:  Representatives Reuss, St Germain, Leach,  Bethune, Cavanaugh, Stanton, and Barnard.  CR8190.01 HEER rmg 1  676 1 2  •  3  Mr. Moorhead.  The Subcommittee on Economic Stabilization  will please come to order. The Subcommittee is pleased to welcome a very distinguished  4  guest from the other body, Senator Russell B. Long, United  5  States Senator from the State of Louisiana, and also ChaiLman  6  of the Senate Finance Committee.  7  Won't you come forward, Senator. STATEMENT OF RUSSELL B. LONG, UNITED STATES SENATOR, STATE OF LOUISIANA.  10  •  Mr. Chaiiman and Members of this very  11  distinguished Committee, let me say that it is a please to  12  be here before this Subcommittee, and as you know I am  13  interested in the question of providing financial assistance  14  to Chrylser Corporation.  15  At this moment I have not yet decided whether financial  16  aid should be given, but I have publicly stated my strong  17  belief that any such financial assistance should be tied to an  18  employee stock ownership plan for Chrylser employees.  19  •  Senator Long.  In this statement, I have been joined by the Senator  20  Majority Leader, Robert Byrd; by Senator Donald Steward of  21  Alabama; Gravel of Alaska; Nelson of Wisconsin; and Mathias  22  of Maryland.  23 24  In addition, Senator Don Riegel of Michigan has introducedi a bill in the Senate to provide financial assistance to  Ace-Federal Reporters, Inc.  25 Federal Reserve Bank of St. Louis  Chrylser, and this bill contained a requirement for the  677 rmg 2  1 2  •  If  an American business wants to receive this type of financial  4  aid from the United States Congress, we should not simply go  5  along providing a windfall benefit to that company's existing  6  shareholders. Rather, that business should be required to share this  8  financial assistance with its employees through a stock  9  ownership plan.  10  I am aware that the Secretary of the Treasury had proposed  11  his own version of the legislation to provide assistance, and  12  I am also aware that this proposal contains absolutely no  13  reference to employee stock ownership.  14  because of this.  15  And I deeply troubled  Frankly, Mr. Chairman and Members, I do not believe that  16  I can support a legislative proposal to provide this type of  17  relief for an American business unless the employees of that  18  American business are going to share in the benefit.  19  O  I believe that the sentiment of the Senate is clear.  3  7  •  inclusion of a stock ownership plan as part of this relief.  I don't mean that they should share in it simply by the I believe that they should  20  fact that they keep their jobs.  21  share in the benefit by acquiring a significant stock ownership  22  in the company.  23  I understand that the Chrysler Corporation and its  24  employees have agreed that a representative of the employees  Ace-Federal Reporters, Inc.  25 Federal Reserve Bank of St. Louis  will serve on the board of directors.  I think that this is a  678 rmg 3  •  good decision.  2  so good a step as it would be for the employees to acquire  3  substantial ownership positions.  4  I am sad to say  laws to promote employee stock ownership.  6  that at the time we provided financial assistance to the  7  Lockheed Corporation, I was not thoroughly familiar with stock  8  ownership plans. Had we required that the Lockheed Company establish an  10  employee stock ownership plan as a part of the financial relief  11  and the transfer of stock for its employees, the value of the  12  stock held by the employees today would be over 10 times what  13  it was when we provided that assistance.  14  This would not be a case of the rich getting richer.  15  Rather, it would have been a situation in which the employees  16  who never had an opportunity to acquire ownership of corporate  17  stock would have been given the ability to do so and to acquire  18  the major stake in the future of their company.  19  •  Over the past seven years this Congress has enacted eight  5  9  •  However, I don't think that this is as nearly  1  My proposition is this:  That as a part of this type of  20  legislation, we should require that the company establish  21  an employee stock ownership plan and give its employees a  22  significant ownership in the company.  23  enhancing the possibility of Chrysler's revitalization and  24  recovery.  By doing so we will be  ce-Fecleral Reporters, Inc.  25 Federal Reserve Bank of St. Louis  One of the essentials for recovery is productivity on the  679 rmg 4  •  •  •  An employee stock ownership plan  1  part of Chrysler's employees.  2  helps to provide motivation for that productivity.  3  several senators and congressmen have asked whether this will  4  simply be a free gift to employees.  In addition,  5  My opinion is that it would be fair for us to require  6  that the employees themselves make a meaningful contribution to  7  the plan.  8  purchase additional Chrysler stock with their own money, or  9  by requiring that they either forego a part of their wage  This could be done by requiring that the employees  10  increases or take a part of those increases in stock instead  11  of cash.  12  incentive to help the company recover.  13  By doing so they would have a very strong financial  I also feel that we should require a greater financial  14  commitment from Chrysler's suppliers, dealers, and creditors  15  as a part of this legislation.  16  problem -- the company, its employees, shareholders, creditors,  17  suppliers and customers make a genuine commitment for the future  18  of the company can this endeavor succeed.  Only if all the parties to this  19  Thank you very much, Mr. Chairman.  20  Mr. Moorhead.  21  I notice, looking over the testimony of the Treasury  Thank you, Senator.  22  Department, they say, "We are not opposed to these programs,"  23  meaning stock ownership programs, but do not favor conditioning  24  this guarantee legislation on employee ownership.  Ace-Federal Reporters, Inc. 25 Federal Reserve Bank of St. Louis  Would you care to comment on that?  680 rmg 5  •  1  its employees that does not raise its cost or increase its  3  expenses is to provide the employees with some stock in the  4  company.  5  employee benefit that I know of that is not inflationary.  That is not inflationary.  That is about the only  Now, if the Treasury understood -- and I think we ought  7  to help the Treasury understand -- when they come up here asking  8  for taxpayers' money to help a private corporation, that they  9  had better have the employees in on this deal.  10 11  They wouldn't  bring them up here without the employees in on it. For example, at some point we ought to make it clear to  12  them -- I wish we had done it with the Lockheed situation;  13  if it had occurred to me at that point, I would have insisted --  14  in offering and then saying, if we are going to take this  15  risk for the government, we want the employees to be a part  16  of the action.  17  Of course, part of what this whole situation has to do  18  with the productivity you get for workers.  19  at the second part of it.  20  •  Well, the one thing a company can do for  2  6  •  Senator Long.  Well, let's look  The second part of it is government policies over a period  21  of 200 years, whereby 15 percent of our people own 85 percent  22  of all the wealth, and 85 percent of the people own the other  23  15 percent.  24  another 35 percent own only 5 percent of what we have in the  Ace-Federal Reporters, Inc.  25 Federal Reserve Bank of St. Louis  country.  16 percent own nothing, less than zero, and  681 rmg 6  •  1 2  therefore when they work for a company, that is those other  3  guys, that is those so and so's over there that we are nego-  4  tiating with.  5  for themselves, that they are part of what they are working  7  for, you just get a lot more productivity.  8  from the Labor Department that says that, and it is not close,  9  it is a tremendous amount of additional productivity.  And we have studies  In fact, America's secret weapon is how hard little people  11  will work to make their business succeed.  12  overtime.  13  putting it.  14  They will work  They will work just like beavers putting a sacrifice  I couldn't help but think when I was over in the Soviet  15  Union some years ago, you see those little plots of land that  16  people were farming for themselves.  17  1 percent of what they had in production, and they were producing  18  about 15 percent of what was being produced over there on their  19  farmlands, or more.  20  •  When you have people feeling as though they are working  6  10  •  93 percent of the people own no corporate stock, and  Now, that was less than  They said that land wasn't getting any fertilizer -But if it wasn't getting fertilized,  21  that is what they said.  22  it was sure getting all the tender, loving care that people  23  could put into something that was his, and that was the  24  tremendous productivity that you get when people feel that they  Ace-Federal Reporters, Inc.  25 Federal Reserve Bank of St. Louis  are working for themselves.  I.  682 rmg 7  •  1  Mr. Moorhead.  2  Mr. Kelly.  have an opportunity to have a conversation with you, because  4  you certainly are one of the people that I recognize as a  5  great national leader and have for some time.  7 8 9 10 11  But it becomes my lot to ask you a couple of questions that occur to me: If bailing out Chrysler is a lousy idea, then why would we try and make it better, or how would it be better with what I think is another lousy idea? In this country, we have a system, an ESOP that involves  12  a guy working hard, saving his money, and buying anything he  13  wants to.  14  to own the whole plant if he has got the grit to hold himself  15  together while he gets the job done.  16  •  Senator, it is a real excitement for me to  3  6  O  Mr. Kelly.  And a worker in this country has an opportunity  Now, I think that the suggestion that you make here this  17  morning looks like we are getting ready to give somebody  18  something at the taxpayers' expense.  19  to the Chrysler program, but this is just another opportunity  20  for the members of Congress to give something to somebody at  21  the expense of the economy and the taxpayers and the people  22  of the United States in general.  23 24  That may not be justified. understand what is going on.  Now, we are tieing it  It may be that I don't  But this is the concern I have,  Ace-Federal Reporters, Inc.  25 Federal Reserve Bank of St. Louis  and I wonder if you would address yourself to that concern.  683 rmg 8  O  1  Senator Long.  Well, if we do what we ought to do, Now, if it doesn't work then  2  Mr. Kelly, this thing will work.  3  all of us will look like a bunch of idiots for having anything  4  to do with it; I would be the first to agree with that.  5  But if we do what we ought to do, we would insist that  6  management do its part, and that the workers do their part,  7  and that the government should do a part in a helping role.  8  All we would do is to endorse a note on behalf of this govern-  9  ment in an enterprise that we think would work, and because  10  it did work, I am led to believe that that is worth about $2  11  billion to the U.S. government or something like that.  12  It is worth a lot of money to the government.  13  Mr. Kelly.  14  It occurs to me that if the unions, for instance, that have  Then let me ask you this:  15  a great deal at stake, because they are highest paid industrial  16  workers in the country, they have got the best industrial  17  jobs they are --  18  Now, if they had taken the 25 percent pay cut in this  19  particular company, they would have provided $1 billion a  20  year to Chrysler, and there wouldn't have been any problem  21  about their finances.  22  have put Chrylser on top of the heap.  And if they had worked hard they could  4110  23 24  Now, they would have done that themselves.  increased productivity, and we wouldn't have started another  Ace-Federal Reporters, Inc.  25 Federal Reserve Bank of St. Louis  We would have  welfare program.  684 rmg 9  •  But it seems to me, Senator, that what we are doing is  1 2  saying, look, it is going to cost us a lot more in welfare if  3  we don't bail Chrysler out.  4  program that won't cost quite so much for another welfare  5  program that will cost us a lot more.  So we will substitute this welfare  And I am just not real sure with what's going on in the  6 7  Middle East right now that we need another welfare program --  8  maybe a few more divisions and a little more productivity, but  9  I am not real keen on the idea of another welfare program.  10 11  Senator Long.  Mr. Kelly, if you think it is a welfare  program, you ought to vote against it; I know I would. Now, please, understand this.  12  I am not proposing something  I am proposing that these workers receive some-  13  for nothing.  14  thing for the work that they do.  •  Now, let me give you a simpler illustration of this thing  15 16  which I think people can understand. Some time back, over at South Bend, Indiana, you had a  17 18  lathe company.  19  going broke.  20  own.  21  O  Those are high paid workers.  The company was  I believe Studebaker had it before it went on its  And so the workers tried to save their jobs. They put up the money themselves.  They borrowed what they  The local people put money into it.  And I personally  22  could.  23  called Ben Maisel and asked him to make a loan on behalf of  24  the EDA to help them get some capital with which to operate.  Ace-Federal Reporters, Inc.  25 Federal Reserve Bank of St. Louis •  They took that company over and it has made a profit from  685 rmg 10  Now, they did not have to cut their pay  1  that day forward.  2  after they had been at it for a while.  3  themselves a pay raise. The point was that they were getting better productivity  4 5  They were able to give  because they were working for themselves.  6  Mr. Kelly.  But in this particular case aren't you  7  suggesting giving labor something more than they already have?  8  In other words, we have got the mass of workers out there that  9  work.  10  Half of the workers work for less than, 100 percent  less than these workers at Chrylser.  11  And now we are telling all of those millions of workers  12  out there that we are going to have you help us to give more  13  to those that have already got a welfare program for Chrylser  14  and a welfare program for the highest paid production workers  15  in the United States.  •  16  Senator Long.  No, not necessarily.  What I am suggesting  17  is that this government, speaking either through its Secretary  18  of Treasury, who should be speaking for this Administration  19  or speaking to this Congress, ought to say to labor, "Now,  20  we want you to do your part," and we ought to negotiate with  21  them.  22  "Here's what we think your part should be.  And part of  • 23  what you get for doing your part is you would get some stock  24  in the company."  Ace-Federal Reporters, Inc.  25 Federal Reserve Bank of St. Louis  I think that labor should make an additional concession  686 rmg 11  1 2  •  The  Secretary of the Treasury didn't negotiate that package.  4  am told that he is in a position to say what he is willing to  5  do as a part of recommending that the government endorse that  6  note, and you are in a position to say what you think the  7  government ought to do as a part of endorsing that note.  9  Now, I have indicated what I think we ought to do as a part of endorsing it, and I think that stock ownership ought And I think that when the government gets  10  to be a part of it.  11  in these things, we ought to see to it that the workers would  12  be a part of it.  13  Now, if you go back into World War II aid other areas,  14  we had all of these programs where the government would take  15  all the risk out of it, guarantee that this thing succeeded.  16  Someone would make a lot of money --  17  O  Now, I didn't negotiate this package, Mr. Kelly.  3  8  O  beyond what they have done.  Take all of the risk by the government signing up to  18  guarantee the loan or whatever it took to get the money.  19  invariably, there was a situation where the investors, the  20  business people made all of the gain out of it.  21  been -- the workers got wages and that was all.  22  And  The money had  If I had my way about it, we would have required that  23  part of that be that the workers would own some stock in the  24  company.  And just check it out.  ice-Federal Reporters, Inc.  25 Federal Reserve Bank of St. Louis  I will be glad to furnish you a study that indicates that  687 rmg 12  •  1  where the workers own a substantial equity position in a  2  company, you just get a great deal more productivity. Mr. Moorhead.  4  Before you proceed, Jim, I would just like to say to  5  Members that the distinguished Chairman of the Finance  6  Committee has other things to do across the aisle, so if we  7  could be brief, I think it would be helpful.  8  Mr. Blanchard.  9  Mr. Blanchard.  10  O  Thank you, Mr. Chairman.  I just simply want to thank Chairman Long for being here  11  and indicate I am more than willing to try to work on some form  12  of ESOP in this bill.  13  Mr. Chairman, I have been working on this bill for quite  14  some time, and I am aware of your interest in employee stock  15  ownership plans, and want you to know that I would be more  16  than willing to try to work something out.  17  •  Mr. Blanchard.  3  I think in the House directly, we have some jurisdictional  18  problems that such an amendment would cause, but assuming  19  either we can conquer those problems or at some later point  20  work out an ESOP, I want you to know that I will be more than  21  cooperative if we are lucky enough to get a bill passed here  22  in the House of Representatives.  23  Thank you for being with us.  24  Senator Long.  Thank you, sir.  Mr. Moorhead.  Mr. Green.  Ace-Federal Reporters, Inc.  25 Federal Reserve Bank of St. Louis  688 rmg 13  •  •  1  Senator, you said in your remarks that if we  2  are going to take this risk for the government, we want the  3  employees to be part of the action.  4  if we are going to take this risk for the government, and by  5  that you really mean the American taxpayer, shouldn't the  6  American taxpayer be part of the action and shouldn't the  7  American taxpayer have an equity interest in Chrysler through  8  some form of equity kicker to the government in exchange for  9  this loan guarantee?  I would like to ask you  Well, we haven't done that and I don't  10  Senator Long.  11  think we ought to.  12  make a lot of money out of it by saving a tremendous amount  13  of unemployment benefits that we will have to pay.  14  If it succeeds, the government is going to  And the government will make money by collecting taxes It is worth billions  15  on those wages and all the rest of it.  16  of dollars to this government for that company to succeed  17  rather than go broke.  18  O  Mr. Green.  Mr. Green.  But if a private investor were taking this  19  kind of risk -- and none of them will take it, so it is  20  obviously a very high risk -- they would certainly not make  21  this loan in consideration simply of a loan guarantee fee.  22  They want some equity participation.  23  American taxpayer get that directly?  24  Senator Long.  Why shouldn't the  Well, I don't think that our purpose is  Ace-Federal Reporters, Inc.  25 Federal Reserve Bank of St. Louis  to try to acquire stock for the United States government.  The ,  689 rmg 14  •  1  government will be an indirect beneficiary to the tune of  2  billions of dollars if this endeavor succeeds.  3  the government has an interest in the welfare of its people.  4  It took a long time to get that agreed through American  5  history, but it seems to me as though we have pretty well agreed  6  upon that today, and it would seem to me as though that this  7  government ought to want to save employees, to see employees  8  own something more than just an equity interest in their home.  9  1111  Mr. Green.  I am not quarreling with the proposition  10  that if that is something the union wants and the union members  11  want it, that is something that the union and the employers  12  should bargain for.  13  But I am saying that when the American people take risks  14  that are like those of a venture capitalist, they ought to get  15  the kind of rewards the venture capitalist gets.  16  •  But I think  Senator Long.  Well, we are taking risk, and we are going  17  to take a lot more.  We are going to take risk in these  18  energy investments.  But it seems to me all  19  if you look at what the bottom line is, the government takes  20  the risk and so further on down the line you have got some  21  people who are very, very wealthy as a result of that.  22  along the line,  And I am not against any of those people, they are very But you  23  nice people, public-spirited citizens and all that.  24  could have had it so that by the time you got through with all  Ace-Federal Reporters, Inc.  25 Federal Reserve Bank of St. Louis  that, the rank and file would have been a part of all this.  690 rmg 15  •  Now, in my judgment, Mr. Green, if this system of ours is  1 2  going to succeed, you are going to have to have more than 10  3  percent of the American people who want an equity in this  4  productive society of ours.  5  then they are not going to be very enthusiastic about it.  6  Mr. Green.  it up to the UAW to decide what it should bargain for in  8  negotiations with Chrysler, rather than us? Senator Long.  Well, I am sorry, Mr. Green, that the  10  labor unions have not put stock ownership high on their list.  11  Most of them don't put it on there at all, they don't ask for. And I think one reason they haven't is because they are  12  O  If we believe in collective bargaining, isn't  7  9  O  And if they are not a part of it,  13  inclined to feel that when those employees own stock in the  14  company they start thinking like capitalists, they start  15  thinking like businessmen and they do, there is no doubt about  16  it.  17  Look what happened to Chicago and Northwest Railroad  18  when they started an employee stock ownership plan there.  19  labor leader bought all the stock he could find and encouraged  20  everybody else to do likewise.  21  succeeding, the people that didn't buy in wanted to buy in.  22  So they met and they said, well, these other guys want  That  When the thing started  Shall we take them in at the price we paid,;  23  to buy some stock.  24  or for what it is worth now?  Ace-Feclerai Reporters, Inc.  25 Federal Reserve Bank of St. Louis  What do you think those guys said?  Why, heck no.  They  691 rmg 16  1  can pay what it is worth now.  2  the risk later on.  3  •  5  Why, heck, no, make they pay what it is worth now.  6  what it was worth when we went in.  9  We paid  They start thinking like businessmen when they own an equity position in something. And this thing of giving somebody a piece of the action, They have been afraid of it  10  they have been afraid of it.  11  because they are a little afraid those fellows might not want  12  to go out on strike when they are asked to go out if they  13  own the thing, own a substantial equity interest in it.  14  They have been a little worried about that.  But they  15  are finding, though, that employee stock ownership plans  16  do not destroy labor unions.  17 18 19 20 21  111  They had a second tier of fellows that said, well, do we pay it at the price you paid, or pay for what it is worth now?  8  end #1  They made another opening.  4  7  •  We took the risk, let them take  22 23 24  Ace-Federal Reporters, Inc.  25 Federal Reserve Bank of St. Louis  Mr. Green.  It just does not happen.  I have no further questions.  692 0 02 01 mgcHEE  1 2 3  Mr. Moorhead.  I would recognize our resident expert on  employee stock ownership plants, Mr. Lundine. Mr. Lundine.  Thank you, Mr. Chairman.  I thank you and  4  the other members for your courtesy in arranging this  5  testimony this morning.  6 7  Senator, you are acknowledged as the leader in this country in the area of encouraging employee stock ownership, and I really appreciate your testimony here today.  9  411  Well, I'm willing to share this with  10  anyone who will get involved, Mr. Lundine.  II  should try to work together on that.  12  •  Senator Long.  r. Lundine.  I  think we  Well, I intend to do that, sir.  If I  13  understand your testimony, you do not intend the government  14  requirement of a guarantee, an employee stock ownership  15  plan, to be just a gift on top of all of the other benefits  lo  that employees have, and those would be union and non—union  17  employees that would penefit from it.  lo  you expect those employees to participate in some way by  19  foregoing some benefits that they might have or subscribing  20  to the stock in some way, so that the Chrysler Corporation  21  would likewise benefit from this participation.  22  Is that accurate?  23  Senator Long.  But in a general way,  I would like to see the workers do  24  something, make some contribution, and it should have been  25  in there in the beginning. Federal Reserve Bank of St. Louis  In other words, the idea would  693 10 02 02 mgcHEE  1  from square one to talk about providing a plan where the  2  workers would own some stock as a part of this operation.  3  But if it wasn't raised and wasn't negotiated at the point where the Secretary of the Treasury comes into it,  I think  he ought to put it in the package, and if he doesn't put it o 7  in the package, I tnink we ought to put it in the package. Lundine.  If we out it in the package, how much,  dollar—wise, should we require the minimum stock ownership investment to be? 10  Nell, at this roment, I wouldn't want to As I  H  name a precise price, but let me just make this point.  12  understand ic in that negotiation -- and I had no part of  13  it, but I'm just saying from what I heard, and I don't even  14  know if this is true, out I believe it to be true -- it is  lt  my understanding that those workers agreed to defer part of  lo  their pay raise, when you compare what General Motors is  17  paying its employees, in consideration of working this whole  10  thing out.  lY  rather than defer some of their pay raise, that that part of  20  the paY raise would have been put into stock for the  21  employees.  22  111  Senator Long.  And they could just as easily have agreed that  Now, if they did that, it should be the type  23  situation -- end they have ways of doing this on the stock  24  market where you can't sell that stock; that stock has got  25  to be held until this thing is worked out, until the company Federal Reserve Bank of St. Louis  694 90 02 03 mgcHEC  1  is in good shape again -- it could have been worked out in  2  that fashion, and I have no doubt it would have been if it  3  had been in there to begin with.  4  me that they could reopen negotiations where they could --  5  the Secretary of the i'reasury could negotiate about the matter.  7 6 9  10 11 12  •  If he thinks they ought to do more, le c him take it  up with them. The difficuly of us negotiating, Mr. Lundine, is, by the time we get a parliamentary body, we've got so many people in the act that we can't speak with one voiced. I'm acutely aware of that, Senator.  Mr. Lundine.  Thank  you, Mr. Chairman.  13  Mr. Moorhead.  14  Mr. Shumway.  Mr. Shumway? Thank you, Mr. Chairman.  I would like to  15  express my appreciation to the Senator for being here this  16  morning and helping us try to reach some resolution to this  17  difficult question.  16  Senator, you indicated in your remarks that whatever  1  asssistance we do provide to Chrysler Corporation should be  20  designed to benefit the employees, and you therefore  21  suggested the device of an employee stock ownership plan.  22 23 24  410  But even now, it seems to  25 Federal Reserve Bank of St. Louis  Senator Long.  Please understand, I'm for benefiting  both. Mr. Shumway.  I understand that, but what's good for the  employees is certainly good for the company.  695 90 02 04 Senator Long.  1  mgcHEE  If this government is going to endorse a  2  note for $1,500,000,000, it seems to me as though it ought  3  to be something than just cenefit the existing shareholders. Mr. 6humway.  4  The employees in this case are represented  by the united Auto Workers, and as you know, they recently conclucea a contract with th..-3 United Auto Workers. 7  Prior  to that annoucement, however, Chrysler employees were making something on the average in excess of $18,000 per year.  In  the contract in there, there are some deferred increases.  111  10  It nevertheless guarantees them over the next three years  11  something like, perhaps, a 10 or even  12  per year when you include the cost of living adjustments as  13  well as fringe benefits.  14  percent increase  They are going to receive those cost of living It seems to me that we have  15  adjustments right on scheoule.  16  not seen in the conclusion of these labor negotiations the  17  kind of concessions that Mr. Fraser told us that his union  Id  and his employees were willing to make.  1  Now I ask you, do you believe that the Chrysler  20  employees have demonstrated the kind of sacrifice or  21  concessions that would be required to justify the kind of  22  assistance that would be given to them under an ESOP?  23  111  11  Senator Long.  I think that the company is in a The company is on the ropes  24  weak bargaining position.  25  financially, and frankly that is a big strong union, and I Federal Reserve Bank of St. Louis  1  696 90 02 05 mgcHEE  I think the UAW is a great  1  regard it as a great union.  2  union, and they are hard bargainers, and they ought to be  3  nard bargainers.  4  who was a tough bargainer if I were in that union. But if you  If I were voting, I would vote for a guy  look at the weak position the company is in,  I would think that they are not in a position to be very 7  tough from the management side, and the Secretary of the Treasury or failing him, those of us up here are in a  9  111  position to be in a tougher bargaining position because  10  we're in a position to say, ",14e11, you want $1,500,000,000;  11  this doesn't look like a very good deal to us.  12  look to us like you're doing what you ought to do.  13  have the right to ask more of you, and we ought to talk  14  about what that ought to be."  It doesn't Now, we  Now, I would hope that the Secretary of Labor -- pardon  15 16  me, the Secretary of the Treasurey would speak for you and  17  for me and for the Congress in general, and he says he thinks that employee stock ownership is a good deal.  19  you would put that in the package and negotiate with labor  20  about that and management, too. Now he is in a strong bargaining position, and it seems  21  •  I wish  22  to me that he is in a stronger bargaining position than  23  management or labor.  24  it.  25  their jobs, so that he ought to be our spokesman, and I hope Federal Reserve Bank of St. Louis  He doesn't have to put anything into  He can just sit there and watch them go broke and lose  697 90 02 06 mgcHEE  1  that you can prevail upon him to be our spokesman in that  2  respect. Mr. Shumway.  3  Well, I will certainly try, but it seems  to me, Senator, that of all of the times that the union and  •4 5  Chrysler have met at the bargaining table to discuss  6  contracts for employees, this time when the very livelihood  7  and jobs of those employees are indeed at stake, I would  8  think that management's position at the table would be strengthened, that they would be in a position to require  111  10  the kind of sacrifice that I think this Committee and the  11  American public is expecting will be forthcoming from the  12  employees in orcer to save their jobs because it's important  13  to them as well as the country.  14  Iell, I don't see that the position is  15  strengthened, Mr. Shumway, when you're on the ropes, when  16  you're standing on quicksand.  17  in no position to stand a strike, for example, so I would  18  think that they are not in a strong position.  lY  111  Senator Long.  Mr. Shumway.  It seems to me that they are  But on the side of labor, do you think  20  they are standing on anything but quicksand, that their  21  position is stronger.  22  Senator Long.  'Nell, in negotiating with the United  23  States government, they are not in a strong position because  24  this government is in a position to endorse that note or not  25  endorse it. Federal Reserve Bank of St. Louis  So this government is in a very strong  698 10 02 07 1  mgcHEE  and I think we ought to act from strength on our side.  2  Mr. Shumway.  3  Mr. ,ioornead.  4  Mr. Vento.  Thank you, Mr. Chairman. Mr. Vent°.  Thank you, Mr. Chairman.  Senator, I appreciate your testimony.  I think I would  6  just make a point here that the UAN has deferred these  7  payments, but in a very real sense, it may be actually assuming more risk than what would be envisioned under an  •  411  employee stock option program by deferring that.  Nho knows  10  whether or not they will ever get the increases?  So I think  11  that this is something that, ought to be looked at.  12  know where they are standing in line in terms of bankruptcy,  13  and I don't think that you do, Senator.  14  I don't  One of the points that we have is -- I mean, we have got There's a stock option  15  employee stock option programs now.  16  on a voluntary basis, so what you are suggesting, I guess --  17  what is being suggested by advocates on the Senate side and  lb  the House side is to mandate this type of program to force  1  participation, and it is sort of, I think -- is somewhat  20  bothersome.  21  The first question is, would we give up anything, and  22  would this cost the federal government anything in terms of,  23  if we put the money out at nine or ten percent to Chrysler,  24  will we put it out at less than that by virtue of imposing  25  this particular type of mandate with regards to our $1.5 Federal Reserve Bank of St. Louis  699 10 02 08 mgcHEE  1  billion guarantee as opposed to others?  2  Is it your intention that it would cost that?  3  Senator Long.  Nell, I'm not sure that I understand the  4  question, but our thought is that the company is willing to  5  do the kind of thing that I'm suggesting.  My understanding  is that as far as the company is concerned, they want to 7  negotiate about what the extent of this employee stock ownership arrangement would be.  And that's proper.  3ut they are presently content to go along with the 10  concept, and they're perfectly willing to go along with it  11  to a very substantial extent.  12  from the management side.  13  111  So I don't see any opposition  Now as far as labor is concerned, they're willing to So far they haven't been asked to  14  have this in the picture.  15  pay for it, and if it had been in the picture to begin with,  lo  I think the package would have had some concession.  17  Now I don't want to pass judgment, Mr. Vento.  lo  Mr. Vento.  Well, I think the whole thing is, it sort of  19  stands -- the voluntary investor kind of idea and I'd say,  20  so you are going to put out some preferred or some class of  21  stock and you're going to give it to employees by virtue of  22  receiving this loan.  23  value of the existing stock.  24  intention, by virtue of this guarantee.  25 Federal Reserve Bank of St. Louis  Senator Long.  Certainly, we're going to increase the At least that is our We hope we do.  Well, if we do what we ought to do -- to  700 1Y0 02 OY mgcHEE  111  1  do what we ought to do, the employees will get stock by  2  virtue of the government participation.  3  we ought to do, the employees will make a proper  4  contribution to participate in a plan to save that company  5  and save their jobs.  And if we do what  Now I didn't negotiate that deal. 7  Mr. Vento.  well, what I want to know, do you envision  that that will cost anything, that that is going to cost us more money to buy that program than to buy a strict 10 11 12 13  111  Senator Long.  It  I don't think it would cost anything.  won't cost you a nickel. Let me put it this way.  To me, it would be just as  14  though -- as it was when the Lockheed people came to us.  15  They wanted us to endorse a note for about $100 million, if  16  I recall the figure.  17  "Look, we will sign a note for you on one condition.  its  have got to put your employees in here as part of this.  1J  •  guarantee with a matching commitment type of program?  Mr. Vento.  4e could have just as easily said, You  Well, what it really boils down to is,  you  That is what  20  say that you must invest to keep your job.  21  you're saying -- that you have to invest, and of course I  22  mean it does depart from that voluntary investment.  23  saying you have to invest in something that might not be as  24  good an investment as something else.  25  bothersome. Federal Reserve Bank of St. Louis  You're  And that is somewhat  I don't know what the mechanics are of it.  I  701 [90 02 10 mgcHEE  I think that the UAN has  I  can understand your sentiment.  2  already done something, and we ought to look at that as opposed to that value as opposed to what this particular  4  tyce of commitment is that you and others are suggesting. I don't  o  the ramifications, but I co want to estaolish -- first of  7  all, I don't think this ought to cost us anything more in  6  terms of what we're doing.  9  program into place really gains us very little.  10  III  now, frankly, it we have time to look at all  If it does, then putting this  Ana, of course, I think you have to balance it off One of the biggest  H  against what is already being done.  12  problems that Chrysler had was the stock option program.  13  has almost stopped that because it cost money.  14  inducement that cost Chrysler -- selling below the market  ,  rate its various types of stock classes.  16  that type or -- putting that program in effect under those  17  circumstances is a much different type of situation than  lo  what you are envisioning.  It  It was an  And I think that  I would hope that that is what you mean. 20  Senator Long.  Nell Chrysler, as I understand it -- and  21  I'm not familiar with the details, but as I understand it,  22  they have made their employees some very tempting offers in  23  terms of stock ownership and that the union hasn't been  24  particularly interested in it.  25 Federal Reserve Bank of St. Louis  I'm not in a position to pass judgment on it.  702 190 02 11 1  mgcHEE  111  I'm not either, but it's my understanding  Mr. Vent°.  2  that a program on the other side, the management side,  3  actually ended up costing them money, and I don't think that  4  is what you're proposing in terms of your ESOP program.  5  you a nickel. 7  My thought is that it's not going to cost  Senator Long.  It's not going to cost you one nickel more to  require that the employees have some stock in the company if this thing succeeds.  9  •  possibility of its succeeding. Thank you.  10  Mr. Vento.  11  Mr. Moorhead.  12  dlr. Hinson.  13  Senator, the distinguished Chairman of our Full  Mr. Hinson.  Thank you, Mr. Chairman.  14  Committe, Mr. Reuss, has a statement before the Committee  1  this morning which indicates his intention of introducing an  16  amendment to the bill that the Committee has that will,  17  among other things, allow for the Secretary of the Treasury  lb  come back to the Congress and request some additional  19  authorization if he deems it to be in the public interest.  20  111  And I chink that will increase the  Do you agree with that, and would you generally support I have a great deal  21  this kind of approach to the problem?  22  of concern about this.  23  going to be adequate, or do you think that Chrysler might  24  well be coming back to us for additional funds?  25  you support such an additional request, it it was made? Federal Reserve Bank of St. Louis  Do you think that $1.5 billion is  And would  703 190 02 12 mgcHEE  Well, I don't know the answer to that.  Senator Long.  1 2  haven't studied the Reuss Amendment, and I haven't even  3  heard the sponsor of the amendment explain this amenament,  I  so I'm not in a position to pass judgment on his amendment What I think about them coming  5  with regard to the issue.  6  back -- I don't think you ought to vote for the thing unless  7  You really believe that you have put together a package here where everybody is going to do his part and that you think will work.  10 11  and you may have, too, of urging the SBA or the EDA or  12  somebody to make a loan and then have this fellow come back  13  in later on and say, "That's not enought; I need more  14  money."  15  That is tough, to come back the second time.  You had better put together a package you think will  16  work the first time if you're going to have anything to do  17  with it. Thank you very much.  lo  Mr. Hinson.  19  Mr. Moorhead.  Thank you, Senator, for excellent  20  testimony and the suggestion which, I can assure you, the  21  Subcommittee will give serious consideration to.  22  •  Now I have been in the embarassing position, Mr. Hinson,  Senator Long.  Thank you very much.  23  Mr. Reuss here, Mr. Chairman.  24  judgment on your amendment.  25  explained. Federal Reserve Bank of St. Louis  I'm pleased to see  I'm not in a position to pass I just haven't heard it  704 90 02 13 mgcHEE  111  I appreciate that.  1  Mr. Reuss.  2  Mr. Moorhead.  At this point, the Chair would like to  3  recognize the presence here of the Chairman of the full  4  Banking, Finance, and Urban Affairs Committee, the  5  distinguished gentleman from Wisconsin, Mr. Reuss, for a statement.  7  Mr. Reuss.  Thank you very much, Mr. Chairman.  I had a  written statement which I have circulated to members of the Committee, and I would like to ask unanimous consent that my 10  Nithout objection, so ordered.  11  Mr. Moorhead.  12  (The complete statement follows.)  13  •  statement be included in the record.  14 15 16 17 lb  20 21 22  • Federal Reserve Bank of St. Louis  705 0 02 14 mgcHEE  Mr. Moornead.  1  I want to apologize.  you down there, Carroll. Mr. Hubbard.  3  111  I just aid not see  I would have recognized you.  Mr. Chairman, I accept your apology and no  I listened as carefully as I coula, as I was in  4  problem.  5  and out of the Committee Room this morning. arriving.  7  I was late in  I am a Kentuckian who has been called to the  phone numbers of time to give praise this morning to Phyllis George and John Y. 3rown, Jr.  9  10  411  •  (Laughter.) Mr. Hubbard.  And during Senator Long's testimony, I was  11  trying to hear as much of it as I could in order to have  12  some intelligent questions.  13  primary in Kentucky and having been overwhelmed by the  14  beauty of Miss America and Phyllis George and the  15  multimillions of George Y. Brown, Jr., and having witnessed  16  the overwhelming landslide yesterday in Kentucky of John  17  Y. Brown, Jr. for governor, I would say to my dear friend  Id  and colleague on the Subcommittee, Jim Blanchard of  19  Michigan, who is doing his best to convince all of us to  20  vote for this legislation, that having seen what I have in  21  Kentucky, that I would recommend to Jim Blanchard that he  22  seriously recommend to Chrysler that they replace Chairman  23  of the Board, Lee Iacocca, with Colonel Harlan Sanders of  24  Kentucky Fried Chicken fame and that they advertise Chrysler  25  as being "finger—lickin' good." Federal Reserve Bank of St. Louis  Having run for governor in the  706 YO 02 15 mgcHE  1  (Laughter.)  2  Mr. Moorhead.  3 4  Committee.  3ack to the Chairman of the full  Excuse me.  Mr. iReuss.  Thank you for the very jolly intervention.  Sometimes in the course of legislative events,  he respect  for the members of this Subcommittee should compel me to 7  give my views in a timely way on the legislation before the Subcommittee, which I commend you all for working so hard on and for getting ready to mark up in the next day or two.  IC  In a nutshell, I am compelled to oppose H.R. 5805, the  11  Administration's Chrysler Bill, in that it proceeds on the  12  theory that what is good for Chrysler is necessarily good  13  for the country.  14  If the bill can be turned around so that what is good  • 15  for the country is the main purpose and if Chrysler wants to  16  qualify and get aboard that train, it is more than welcome  17  to, then I think it would be a bill I could entirely  Id  support.  I think we nave to look at this legislation in the  light of the country's economic problems -- why at one and  •  20  the same time we are faced with terrible inflation and  21  oncoming unemployment, our existing economic programs.  22  Fighting inflation by super—tight money simply seems to  23  increase unemployment, and fighting unemployment by spending  24  increases or tax cuts simply seems to make inflation worse.  25  And when you combine both of these macro policies, what you Federal Reserve Bank of St. Louis  707 YO 02 16 mgcHEE  1  get is the kind or low growth, low productivity stagnation  2  that ails us. So I suggest that what this country really needs in  3  111  4  addition to sensible macroeconomic monetary and fiscal  5  policies is an all out government/business/labor cooperative team effort to reform our economic structure in scores of  7  different sectors ranging from food to health, to housing,  6  to transportation, which is what concerns us this morning. A reform of our economic structure which would enable us  111  10  to get a grip on inflation and recession will take some  H  time to achieve.  12  getting on with the job, it is all the more reason to start  13  at once.  14  avoid is taking further interventions which will simply make  15  our structure worse.  JO  And meanwhile, one thing that we should certainly  Now the Administration's $1.5 billion loan guarantee  17  essentially says to Chrysler, whicn has suffered from its  lo  attempts to emulate General Motors and offer a full line of  19  automobiles, "Keep on doing what you have been doing."  20  111  But far from this being a reason against  file Chrysler plan, as I understand it, is to expand its  21  Omni and Horizon production and to keep on making on about a  22  two to one ratio, as Mr. Ricardo told me, non—sub—compact  23  cars on the ground, among others, that that is where it  24  makes the money.  25  conducting an energy program, $1.5 billion worth, in which Federal Reserve Bank of St. Louis  Vell, that puts us in the position of  708 ,C) 02 17 mgcHEL  •  I  we are making possible Chrysler's current subsidy, $300 to  2  everYone who will buy a non—sub—compact car from them, and  3  provided the dealer will promise in the future to keep up an  4  entire line of sub—compacts and cars that aren't so gas economical.  6 7  So the question is, shall Congress go along with that kind of a loan guarantee?  In my judgment we should not, but  I hope it will be possible to fashion an altered Chrysler 9  rescue mission -- one which combines federal planning and  10  financial help with a program designed to provide jobs for  11  Chrysler's workers and which takes into account their human  12  needs and the production of useful equipment:  13  economical sub—compact automobiles, mass transit equipment  14  including buses and commuter rail possibly, the kind of  15  energy saving cogeneration equipment which Fiat of Italy has  16  evolved which consists simply of a sub—compact automobile  17  engine.  ld  This is practical. I've seen it.  super gas  They are making it in  There is now one on demonstration by the Brooklyn  19  Turin.  20  Gas Light Company, to its eternal credit, and why we sit  21  atrophied here when there is a great oppotunity to combine a  22  real attack on the energy/transportation shortage and in the  23  process see that Chrysler workers get useful employment, I  24  don't know.  • 25 Federal Reserve Bank of St. Louis  The amendment which I hope the Subcommittee will  709 190 02 01 mgcHEE  1  seriously consider and which I herewith offer for your  2  consideration has the following outline:  3  One, the bill's purpose on the amendment would be twofold -- (A) to maintain employment for Chrysler  5  Corporation employees under acceptable conditions, and (B)  6  to produce goods which meet national transportation and  7  energy goals -- in a nutshell, those that lessen our dependence on  oil imports.  Ehose include not only real gas saving automobiles but mass transit buses.  11  of Transportation put out bids for mass transit buses, it  12  turns out that no American manufacturer bid on them.  13 14 15 16 17 16 19 20 21  •  Just the other day when the Department  10  24 Federal Reserve Bank of St. Louis  710 190 03 01 Another very real possibility is commuter self—propelled  mgcHEE  111  2  rail cars.  3  makes these.  Very substantially, not American company now Again, Fiat of Italy is the sole manufacturer,  and as with its cogenerator, Fiat of Italy is very eager to get into a :o—venture with some American company. 5  So it is perfectly possiole to put together a package of energy saving transportation which Chrysler could be  3  proaucing.  9  motor cars.  I don't see why they can't concentrate on  13  fuel—efficient motor cars and such other energy saving  ii  devices as is thought in the national interest.  12 •  They now produce tanks and trucks as well as  So the amenament I propose would fortify the Se:retary  13  of the rreasury when he wor:cs out this plan oy °ringing into  14  the team the Secretaries of Transportation, Energy,  lp  Commerce, Defense, and Labor, as well as the recipient of  15  the loan guarantees. Secondly, the $1.5 oillion matching loan guarantees in  13  the oill ougnt to be mace atonable to Chrysler Corporation,  19  in my judgement, if it qualifies for this kind of a plan, if  20  it is willing to sit down and concentrate on the national  21  interest rather than just on the Chrylssr Corporation's  22  alleged interest.  23  111  And I hope they would.  President Iacocca, I am assured by -- Pete Rodin° is a  24  tiger, and I am sure that he could sit down with Miller and  25  Miller's colleagues, and something worthy of the nation Federal Reserve Bank of St. Louis  a  711 190 03 02 mgc9EE  111  If Chrysler doesn't qualify, if  I  could come forth from that.  2  .Ar. Iacocca is not a tiger, then the amendment would permit  3  any other entity or entities, any other corporation which  4  the Secretary determines is better able than Chrysler to carry out such a program which has, as its aim, the provision of decent jobs for the men and women who now worl< for Chrysler ano the production of products which help solve  3  our transportation and energy problems. Third, if the Secretary at any time ouring the four year  13  period of the loan guarantees determines that amendments are  11  needed in the law, ne is as'<ed to tell the Congress that.  12  He shouldn't just suffer in silence and keep to himself the  13  fact that one or another amendment might be needed.  14  sorry that my colleague, Mr. Hinson, should attack my little  13  baby before it was even born because it really isn't  13  terribly radical to ask the person directed by the Congress  If  to carry out this plan, the excellent Secretary of the  19  Treasury not to keep mum, not to keeo it all to himself if  I'm  ne finds that in order to keep the nation from losing its 23  111  ante, additional amendments are needed.  21  Fourth and last, the amendment would require that the  22  Administration report to Congress every year on how it is  23  doing.  24  here it is that people make mistakes. Federal Reserve Bank of St. Louis  If there's one thing I've learned in my years around Even the Federal  Reserve, whom I thought was impervious to that human ailment  712 190 03 03 mgcHEE  1  made a $4 oillion one in the money supply figures last month.  3 4  So we of the Congress, I think, should keep abreast  of what is going on. So there, in a nutshell, Mr. Chairman, is the amendment which I respectfully propose to your Suocomnittee.  6  essence, what it does is to take the emphasis out of doing just what Chrysler wants an  111  In  5  puts the emphasis on doing what  9  is good for the 150,000 men end women who work for Chrysler  9  and those associated with them and the country, which is  10  seized with very serious energy and transportation problems  11  which are, in large part, responsible for our ramshackle  12  economic structure which is causing, in my judgment, much of  13  . the inflation and recession from which we are now suffering.  14  So I know that I can rest the matter in your capable  15  hands, and I would conclude oy saying that with such a  13  turnaround of the bill, I will vigorously support it.  1,  without it, I will have to oppose the bill.  13  pledge I have earlier made because of the importance of the  19  subject matter.  20  full Committee and to the floor  21  legislation -- so that the full House may vote on it even  22  though I may be constrained to vote against it myself.  I will do my best to qt it through the •••••=1  the Chrysler  23  Thank you very much, Mr. Chairman.  24  Mr. Moorhead.  23 Federal Reserve Bank of St. Louis  But I repeat a  Thank you, Mr. Chairman, and I know that  the members of the Subcommittee will give your amendment a  713 190 03 34 mgcHE  i  great deal of attention, and I, for one, want to thank you for getting it to us early so we would have a cnance to loo'‹  •  at it and study it and so it doesn't just aopear on the 4 D  first day of markup. The Chair received a letter from one of the members of the 'Subcommittee objecting to the hearing of the Secretary of the Treasury at this time because the testimony wasn't in  3  at least 24 hours in advance.  Does the memoer want to  pursue that position. 10  Mr. Kelly.  Yes, Mr. Chairman, I do want to raise this  11  point of order because I think that it is quite clear that  12  if we are going to undertake to invest S1.5 billion of the  13  taxpayers' money that the Secretary of the Treasury who has  111  set forth the parameters of the plan and is going to 1D  administer it at leust ought to have his act together well  15  enough so that he can give us the testimony the 24 hours in  1J  advance that our rules call for,  13  obvious that we are in a better position to evaluate the  1)  statement if we have an opportunity to examine it and  20  consider it.  21  ecause I think it is  I think it is a reasonable request, and it is the rules, and I think they should be abided oy.  23  110  Mr. 'iloorhead.  The Chair is ready to rule.  The Chair  24  appreciates having tne letter in •advance because the Chair  23  was able to discuss the matter with counsel for the Federal Reserve Bank of St. Louis  714 190 03 05 1  mgcAEL:  Subcommittee, and the legislative history of this particular rule, Number 7(b), was originally drafted to say that each  111  3  witness who is to appear befnre a S'iocommittee shall file with the Clerk of the Committee at least 24 hours in advance  3  of nis appearance 100 copies of his testimony. On a motion of a member of the minority, the words, "so far as practical", were added, whicn I think was intended to give the Chair of the various subcomlittees some leeway. are :oming to the end of a Congressional session.  13  Ne  ihe Chair  nad a great deal of difficulty in arraniing with the Secretary about coming here on this day because the  111  originally scheduled to testify on Thursday  12  Secretary  13  before this Committee and on Ylednesday oefore the ivays and  14  Means Committee at the reauest of the Chair, and thanks to  1J  the :ooperation of the Chairman of the Aays and Means  1J  Committee, we have changed this date.  W35  In view of the time, I think that the Chair will rule  111  13  that the Secretary has acteu, insofar as practicable, and we  1  would now like to --  20  Mr. Stanton.  21  Mr. 'Aborhead.  22  Mr. Stanton.  Mr. Chairman. I would yield to the gentleman from Ohio. I appreciate the Chairman yielding, and  23  may I sinply say on that ruling that I would back up the  24  ,:hair's ruling in that regard, because I was responsible for  2D  it a couple of years ago, with the Chairman working out that Federal Reserve Bank of St. Louis  715 90 03 06 1  mgcHEE'  language that the gentleman just -1'ioted.  But I would lie  to add further in regards to the rulind, thought, that of course the judge's idea and motivation oehind his reouest  111  goes far deeper than just the listening or the hearing of D  the Secretary's forthcoming 48 page statement and then additional naterial. It does °other me consi.Jerably, though, and perhaps the thing could oe resolved to the judge's satisfaction if we ouli get some assurance from the Secretary that he will  411  1.)  come bacK at the time the full Committee meets and if any of  11  the memoers of the full Committee that they want to ask --  12  and I'm sure they will at that particular time -- of course,  13  it is out of the realm of the Chairman's jurisdiction to  1;  answer that question, but I would hope sincerely that the  15  Secretary would make himself avail3ole to t.le full Committee  13  when the time comes for further mar'cup of this legislation.  ld  Mr. :stoorhead.  That would oe the jurisdiction of the  Chairman of the full Committee and the Chairman of the 1  411  Subcommittee.  23  Mr. 31anchard.  21  Mr. Moorhead.  22  Ar. Blanchard.  Mr. Chairman? .4r. Blanchard? I understand all members of the full  23  Committee have been notifed of this hearing today.  24  correct? Federal Reserve Bank of St. Louis  Mr. Moorhead.  Is that  It is the Chair's intention after navinq  •  716 10 03 07 mgcHE  1  3 first round of memoers of the Suocommittee to recognize memoers of the full Committee who nave come here.  3 Stanton.  I appreciate the gentleman's comments from  'Aicnigan, but my question was, if we have any further 3  information we desire from the Secretary after today's nearing -- we don't know how it's loinq to proceed -- but if that is the case, and I think it is in the oest interests of  9  the legislation and those woo are for it, to have full and complete hearings, and so that they would oe held on this  1)  legislation, and that's the very minimum that we owe the taxpayers of this country.  12  Mr. .400rnead.  The Secretary has always peen very I'm sure he would do so again, out  13  ,:ooperative in the past.  14  I would have to. defer, of course, to the Chairman of the  lp  full Committee.  13  Mr. dIcKinney? Mr. McKinney.  'Ar. Chairman, I apologize for the Eastern I  just want to welcome the Secretary and  13  Airlines shuttle.  1)  state that there are many differences between the Blanchard  20  3ill and the Administration Bill.  21  Administration Bill by request, but I am particularly  22  interested, and I hope in his testimony or in his synopsis  23  of his testimony, the Secretary will address the questions  24  of the Secretary alone rather than the Board making Federal Reserve Bank of St. Louis  I listed my name on the  decisions, the time limit on the guarantees, and the  717 190 03 08 disposition of assets ouestion.  mgcHE:i  fhanK you, Mr. Chairman.  111  4r. Aoorhead.  J 4  Aow the 3uocommittee looks forward to  hearing from the -fonoracle G. William Miller, Secretary of the Treasury, and we welcome you, anj if you want to  D  introduce any of your associates, Ar. S?cretary, you may do so.  3  13  12 13  •  14  13  20 21 22 23  •  24 Federal Reserve Bank of St. Louis  (The complete statement follows.)  I  718 90 03 09 STATEMENT OF  mgcHEE  HE HONORA3LE G. AILLIAM MILLER,  SECREI-ARY OF THE TREASURY OF THE UNITED STATES.  •  3 4  Secretary Miller. will as  Than  you very much, Mr. Chairman.  I  you to bear with me for a moment to test the mikes,  and I hope you can near. satisfactorily?  Are you ale to hear me  Is everyone able to hear?  Mr. Chairman, let me first offer my personal aoologies 3  to the Committee, Mr. Kelly, and to all of you for the fact  9  that we were not able to suomit the testimony earlier.  13  was working on it last evening at eight and left my  11  associated who worked late into the night, anJ it was printed overnight.  I  Of course, we were working on a schedule  13  that originally contemplateJ my testimony tomorrow and that  14  was :hanged.  13  that we continued to obtain the best and latest up—to—date  1)  information and give you the fullest possible report that we  1/  have been so tardy.  13  allow me the time to review this testimony and to call your  19  attention to the supplements to it and that I can say  23  certainly for myself personally that I, as always, would be  21  halDdi to be availble to any member of the Committee or to toe  22  on call to respond to any further information that will oe  23  needed.  24 Federal Reserve Bank of St. Louis  But it is only because we felt it so important  I hope you can understand that and can  I have noted Chairman Ruess/ proposal and his comments this morning.  I would hope that this might be taken up in  719 190 03 10 mgc'AE  1  the course of our discussion, and at the moment, I will try not to turn to that subject but rather to stay with the  3  primary tasK of presenting to you the reasons for and the  4  particular aspects of the Administration's proposal on the Chrysler loan guarantee program. ',Ir. Chairman, with your permission, I would like to sudgest that my statement along with the three appendices be  3  included in the recora.  The appendices include a Treasury  staff analysis of the economic impact of a shutdown of 10  Chrysler Corporation, number one; number two, some material  11  on historical patterns of Chrysler and of the auto industry  12  in the United States; and number three, a review toy Ernst 8,  13  Whinney, a major public accounting firm retained loy the  14  freasury, of the Chrysler Corporation proposal and their  1J  analysis of the cash requirements.  1.5  Those documents are before you, and I would like, with  1/  your permission, to have them in the record, but to  13  summarize them and then turn to your questions.  1) 23 21  Mr. Moorhead.  ilithout objection, the attachments to  /our statement will be made a part of the record. I think, Mr. Secretary, that you had better cover your  22  relatively brief statement substantially in full because we  23  did not have it to read last night.  24 23 Federal Reserve Bank of St. Louis  Secretary Miller.  Yes, I shall do so.  Mr. Chairman and  members of the Committe, I would like this morning to  720 90 03 11 mgcHEE  I  discuss with you the Chrysler loan guarantee program, ana I would like in the process of doing it,  35  my statement does,  the reasons for suggesting aid for  3  to cover four points:  4  Chrysler first, and second, the Chrylser situation; third, a review of the Chrysler financial needs  35  we see them; and  fourth, the Administration Proposal itself. Now, the reasons for considering aid for Chrysler are 3  numerous, out I will summarize the main features which we  9  oelieve justify considering a federal assistance program.  10  One, of course, is the impact upon employment and the rise  11  of unemployement that would result from a shutdown of  12  Chrysler or for a major interruption of its production.  13  This not only is a question of the impact upon the 113,000  14  Chrysler employees themselves but there are some equal  13  number of employees or more in the Jealerships who see!  ID  Chrysler products.  1/  supPliers who sell components to the Chrysler Corporation,  13  and it would be our analysis, as you will see from the  There are 150,000 employees and  materials we have submitted, that if Chrysler were shutdown,  •  2D  if it went into a reorganization ana was not able to  21  continue, the unemployment would increase somewhere between  2  /5 to 100 thousand jobs -- unemployment lost jobs -- in the  23  1980-1981 period.  4 25 Federal Reserve Bank of St. Louis  Now, this is the overall impact, some of which would be offset by later employment in other producers to ma'<e up for  721  190 03 12 mgcHEE  1  the lost output of Chrysler, but there would be this I. mmediate ilpact, and it would persist until such times as  111  J  the production facilities could be reordere.,:l. rine local aspect of this falls very heavily on Detroit and the 'ylicnigan area, although other areas are imoacted. Over half of Chrysler's employees are in the Detroit area. fhat is, over 60,000 of Chrysler's ,Jresent employees are in  3  that area, and there are somewhere between 20 and 43 thousand employees of suppliers in Michigan who also feed  10  into this stream of production.  11  It is our estimate that the unemployment rate in the  12  Detroit area would increase oy some four percent if Chrysler  13  were to shutdown, and the unemployment rate in that area is  14  already high, higher than the national average, so there  13  would be a particularly heavy imoact upon Detroit, 'Aichigan,  15  and many other areas of the Aidwest.  1/ 13  Aow, a shutdown of Chrysler means tnat while other U.S. suppliers might make uo the lost production an  provide  the Jroduct, because of the production schedules, because of  411  20  trie availability of stepping up production, and because of  21  consumer preferences, it would be our expectations that some  22  of the Chrysler production would be displaced by foreign  23  imports.  24  impact on the balance of payments.  ?3  would lose some SI billion to overseas purchases, which Federal Reserve Bank of St. Louis  So a shutdown of Chrysler would have a negative Our estimate is that we  722 190 03 13 1  means an increase of $1 Pillion in our deficit, and that of  2  course comes at a time when we are oarticulurly anxious to  3  return ourselves to balancing the international accounts.  mgcHEE  4  Now, in addition to these kinds of issue, we also have the question of competition. important industry.  The automobile industry is an  It is important that we maintain an  important snare of that marKet as  411  3  world—wide mar'<et.  3  Following World War II, the United States was the major  9  producer of automobiles.  At one time, about 80 percent of  10  the automooiles in the world were produced in this country.  11  That has declined substantially, and the loss of Chrysler as  12  a producer would not only reduce the competitive forces  13  insia, the country, reducing. us to two major competitors,  14  out it undoubtedly would lose market share oermanently for - tates. the United S  1  And so, the impacts on poth domestic competition and on world competition and America's share of that competition  13  110  would be adverse.  19  Now, quite apart from these considerations, there is  20  perhaps an even more important consideration in terms of the  21  alternatives to an aid program.  22  continue, snould be shutdown because of its inability to  23  finance itself, there would be from the unemployment, from  24  the lost production, some cost to tne economy.  25  be an increase in unemployment compensation costs. Federal Reserve Bank of St. Louis  In case Chrysler should not  There would There  723 190 03 14 mgcHEE  There would be  1  would be an increase in welfare payments.  2  costs in retraining workers.  3  revenues because of shrinkage of the local economic activity  4  and the tax oase.  There would be a loss of local  There would be a loss of federal revenues  because of the loss of income.  And all of these plus the  balunce of payments would add up to a substantial impact on our economy. 3  It is our estimate that the federal deficit or the  9  federal budget decision, just federal, not local, we would  13  lose in revenues -- or on the one hand, lost revenues or  II  increased expenses on the other -- some $2.75 billion in the  12  years 1980-81, should Chrysler shut down on January 1, 1980,  13  so that the cost of not continuing Chrysler would be far  14  greater in terms of direct impact on federal revenues and  13  expenses than the risk involved in an appropriate loan  1.5  guarantee program or an appropriate financial assistance  1/  pac(age.  19  So now I have discussed Some of the reasons why we feel Let me turn to the second  19  that this proposal is justified.  2J  major point, and that is just to discuss briefly the  21  Chrysler situation.  22  why is it that contrary to our general philosophy, we would  23  consider this a case deserving of federal assistance?  24 Federal Reserve Bank of St. Louis  How did it get in this condition, and  In the first place, there has been a substantial market shift for a number of reasons.  There is a long term  724 190 03 15 mgcHEE  1  transformation of the automooile industry, snifting from what was previously the preferred American automooile, a  111  3  large family automooile, a luxury automobile, towards  4  smaller, more fuel efficient cars.  5  automobiles held 16 percent of market share in 1968.  These kinds of They  are now up to 35 percent of market share, and by 1985 they will be somewhere Petween 60 and 80 percent of the market 9  share. Now this major transition which has teen  13  oecause of the problems of availability and cost of energy  H  and because of other strains on resources and money is a very expensive transition.  411  rought about  The industdi capital needs in  13  the United 3tates -- that is, the main producers in the  14  United States -- between now and 1995 will need to expend  13  $80 billion in capital investment to make this transition.  16  The Chrysler needs to retool are estimated at $13.6 the period 1980-1985.  Now these financing  1/  pillion  19  needs are beyond what Chrysler has peen able to finance  19  itself from retained earnings and from its other resources.  20  And the particular financing needs now come at a difficult  over  time because with the recent gasoline shortages and increase  110  22  in gasoline prices, there is an acceleration of the trends  23  and there is a mismatch of production facilities with market  24  needs. Federal Reserve Bank of St. Louis  There is also an economic slowdown, a recession, that  725 190 03 15 mgcHEE  1  will impact the cesh flows and profit opportunities of all  2  of the automooila industries during this period.  You notice  the very dee° decline in profits for the other major manufacturers in the third quarter and the very substantial loss suffered by Chrysler. •J  3 ‘,) 10  11 12 13 14 13 16 1/ 13  23 21 22 23 •  24 26 Federal Reserve Bank of St. Louis  CR8190 HEER rmg 1  •  726 1 2  a more than proportionate slowdown in automotive sales.  3  have seen this recently in the October sales figures --  4  September was aided by promotions and rebates.  5  But this slowdown means that that is an additional burden of a cash requirement to make the transition during hard times.  7  And of course the efforts to increase sales through rebates  8  merely increases the amount of cash strain that is required  9  to finance the company. So let us turn now from the financial situation of  11  Chrysler itself to looking at the financial needs as we analyze  12  them, and to our adaptation from the figures submitted to us  13  by Chrysler itself.  14  You will recall, Mr. Chairman, that when I was sworn in  15  as Secretary of the Treasury on August 6, one of my first tasks  16  was to respond to a then request by Chrysler for assistance.  17  O  We  6  10  •  In addition to the economic slowdown, we are experiencing  After discussing this with the President, the Administra-  18  tion took the view that we would not be interested in or  19  willing to recommend unconditional tax credits to Chrysler,  20  but that we would consider under certain conditions as a  21  unique exception to normal practice a program of assistance  22  through loan guarantees, provided we could see a program  23  that would bring Chrysler through this transition period and  24  return it at an early date to a condition where it could be  Ace-Federal Reporters, Inc.  25 Federal Reserve Bank of St. Louis  a viable private corporation with the capacity to finance  727  rmg 2  1 2  •  This was a  It did include the $13.6  6-year business and financial plan.  4  billion of capital spending that I mentioned a moment ago.  5  did include the absorption of operating losses through 1980  6  of some $1.5 billion.  7  period of time, peaking in 1983, of $2.1 billion over existing  8  resources.  10 11 12  It  It did show a cash flow need over this  It did indicate the source of the $2.1 billion would be from the following sources: First, $850 million from asset disposition, financial institutions, state and local grants, and other sources.  13  $500 million from constituents and employee participation.  14  And $750 million was requested from federal loan guarantees.  15  Shortly thereafter the consultants for Chrysler Corporation,  16  Booz-Allen & Hamilton, submitted additional information in which  17  they expressed the opinion that as much as $700 million  18  additional was needed to assure that the company would have  19  adequate financing.  20 21  •  On October 17, Chrysler presented a plan.  3  9  •  itself without federal aid.  22  That their view was that with that additional cushion, the total financing needs would be about $2.8 billion. I might add that in addition to Booz-Allen, that Chrysler  23  had retained the investment banking firm of Salomon Brothers  24  to assist them in looking at their financial requirements  Ace-Federal Reporters, Inc.  25 Federal Reserve Bank of St. Louis  and trying to organize a plan of assistance.  728 rmg 3  •  1 2  a major accounting firm, so that we would have professional  3  resources to examine this.  4  from Chrysler, Ernst & Whinney, under the direction of their  5  senior partner, Joe Keller, organized a team of 25 professionals  6  who worked very long and continuous hours in Detroit to dig  7  into the plant, to analyze it, and to consider whether it  8  covered all of the risks in financing Chrysler through this  9  period.  10  •  As soon as we received the plan  In addition, we retained John Secrest, a former financial  11  vice-president of American Motors, who had experience in this  12  kind of problem, to assist us.  13  staff, which is fortunate in having many highly professional  14  officials, was able also to work on it through its own.  15  And of course, our own Treasury  One of the first observations I would make about the  16  period of our examination is that during this period itself,  17  it became obvious that the outlook for the industry was not  18  so favorable as had been contemplated.  19  forecasters during this period indicated softer market conditions  20  and lower sales.  21  411  On our part at the Treasury, we retained Ernst & Whinney,  A number of independent  So, as a result of all of these examinations and reviews,  22  we tried, as professionally and as objectively as we could,  23  to bring forward a series of possibilities, looking at various  24  options and risks, that would show us the true  needs of  Ace-Federal Reporters, Inc.  25 Federal Reserve Bank of St. Louis  financing for Chrysler during this period, the more reasonable  729  rmg 4  1  level of needs that would assure that we would achieve the  2  objective of Chrysler becoming a self-financing company.  3  •  It would be, it seems to us, a disservice if the  4  Administration should recommend to the Congress a program for  5  aid to Chrysler that was not up to the task.  6  an insufficient program, that if we inaugurate it, it would  7  result in failure and disappointment.  8 9  None of us want  It would be better for us to face the reality of the needs and the likely needs, and decide on the merits whether  10  it is justified to provide that, and if not, it would be best  11  not to go into an inadequate program that would only come back  12  to haunt us.  13  I will remind the Committee that Chrysler's plan indicated  • cash requirements at these levels during the period.  15  peak requirement would have been in 1982 at $2.116 billion.  16 17 18  O  The  14  In the case of our analysis, we developed three cases to vary from these figures.  Base Case 1 does several things --  Incidentally, as you will notice, in each of these cases  19  we have tested it against achieving 100 percent of the sales  20  outlook; what would happen if only 95 percent was achieved;  21  and what would happen if 90 percent was achieved, so that  22  we would have a range of possibilities in case there were any  23  marked conditions in the future where the company did not  24  achieve the sales level which supported these figures.  Ace-Federal Reporters, Inc.  25 Federal Reserve Bank of St. Louis  The Base Case 1 assumptions projected that industry sales  730 rmg 5  •  1  for the next two years would be less than the Chrysler case,  2  and this is based upon many independent projections.  3  particular, we decreased the outlook for the industry from  4  10.5 million auto sales in 1980 to 9.3 million, and we decreased  5  the outlook for 1981 from 11.1 passenger automobiles to 10.3  6  million.  7  1110  So there was a downgrading of the market outlook.  On the other side, we did include $200 million additional  8  for the recent settlement between Chrysler and the UAW, so  9  we put $200 million back in to cover that.  10  And we did make some adjustments in certain of the Chrysler  11  cost savings, but we incorporated the substance of those savings  12  in the base case.  13  As you will see, if the 100 percent volume were achieved,  14  then the maximum cash requirement would be some $2.3 billion.  15  If 90 percent of the volume were achieved, then almost $4  16  billion would be required.  17  •  In  The second Base Case makes an analysis of the cost  18  savings projections by Chrysler and makes certain adjustments  19  in reductions by referring back to their existing programs.  20  The history of success in acheiving objectives looks at both  21  the variable margin improvement and the fixed cost production  22  program, and makes some judgments as to the pxcentage possibility  23  of achievement and gives, in our view, a realistic outlook  24  for those achievements.  Ace-Federal Reporters, Inc.  25 Federal Reserve Bank of St. Louis  In addition, there is an adjustment in the advertising  731 rmg 6  410  1  and sales costs to reflect the level of volume that would be  2  involved, and it does assume that some additional sales rebates  3  might be required during this period in order to meet the sales  4  targets.  5  In Base Case 2, you see that the requirement could go up  6  on a 100 percent sales achievement to some $3.3 billion, and  7  could be as high as -- that is a mistake, I am afraid -- that  8  should, I think, be $4.8 instead of $3.8 -- so that it could  9  be as high as $4.8 billion.  10  I am sure the figures in our tables here are correct.  11  Yes, it should be, the second base case, that should be $4.789;  12  these are reversed.  13  here and this one should be over there.  14  adjustments.  That is all.  This figure should be over So those are the  •  15  Now, let me turn to the adjustments to Base Case 2, Let me just point  16  which we believe the more realistic look.  17  to these for a moment, a realistic look at what would actually  18  be required, the adjusted base case.  19  We believe that the most reasonable approach leads up Where we get to that $3 billion  20  to this $3 billion number.  21  number is, this is a repeat of the same figures you were just  22  looking at.  • 23 24  And if you assume 95 percent of the sales volume achieved, then the peak cash requirements will be just over $3 billion.  Ace-Federal Reporters, Inc.  25 Federal Reserve Bank of St. Louis  We arrive at that figure by taking the Base Case 2 and assuming  732  rmg 7  1  that capital expenditures of $1 billion out of $13.6 billion --  2  •  3  Mr. Kelly. corresponding  4 5  on the financing needs for Chrysler. Having done these studies, it was our judgment that Chrysler could, in the years 1982 and 1983 -Mr. Kelly.  13  Mr. Miller.  Mr. Kelly.  15  Mr. Miller.  19  •  You have just changed the form, is that it? Well, this is only the same figures, right  here, that appear here (indicating).  17 18  Adjusted Base Case 2 appears on page 10 of  my statement.  14  16  Mr. Chairman, I still can't identify the  data that is being displayed with the chart on page 10.  12  •  In the testimony on page 10, you will  But let me just focus for a moment on where we come out  10 11  Yes.  find the same information.  8 9  chart to the ones being displayed?  Mr. Miller.  6 7  Mr. Chairman, could we inquire is there a  Mr. Kelly.  1593,  1994,  2196 --  I have been able to identify it now, thank  you. Mr. Miller.  But the point I was trying to make is that  20  looking at the various adjustments and probabilities and the  21  possibility of forecasting future markets, it is our best  22  judgment that this level of requirement is the most reasonable,,  23  because it represents adjustments from the levels of forecast  24  that Chrysler had made itself, that are reasonable in relation  Ace-Federal Reporters, Inc.  25 Federal Reserve Bank of St. Louis  to current economic outlook, and reasonable in relation to  733  rmg 8  •  1  current market outlook, and which provide the possibility if  2  there is any shortfall, of, in these two years, deferring or  3  cancelling $1 billion of capital expenditures out of a total  4  of $13.6 through the period to 1985 -- which would result in  5  a net saving of cash of some $600 million.  6 7  is because the $1 billion itself would generate some income,  8  and the deferral of $1 billion and the loss of $400 million  9  of revenue would net out to $600 million, a cushion that could  10 11  •  be used in case this turns out not to be the optimum track. So our analysis for this process leads us to the view  12  that under current conditions and current outlook, the most  13  probable needs for financing Chrysler during this transition  14  will be $3 billion, rather than $2.1 billion.  15  O  The reason that it would not be a saving of $1 billion  Chrysler, in its proposal, had indicated that it could It seems  16  raise from nonfederal resources some $1.4 billion.  17  reasonable to us that under today's conditions and with the  18  additional support from guaranteed loans, that the proper  19  balance in achieving this $3 billion cash needs, would be to  20  achieve it 1/2 from nonfederal financing sources, and 1/2  21  from guaranteed loans, up to $1.5 billion.  22  Mr. Chairman, I would like to pause for a moment to point  23  out that this analysis comes to the conclusion that the most  24  likely financing need for Chrysler's $3 billion, that does not  Ace-Federal Reporters, Inc.  25 Federal Reserve Bank of St. Louis  mean that Chrysler would currently, or at any time would borrow  734 rmg 9  It means it must get $3 billion of cash over and  1  $3 billion.  2  above the sources it had on October 17th from various areas. And it must get them in a timing which fits its operating  •  4 5  If any of the $3 billion is to be borrowed, the concept  6  would be to create a total financing package and the actual  7  borrowing would be made only if and when Chrysler needs the  8  funds to carry out its plan.  9  •  plan.  The main point being that the company needs a complete  10  financing package in place so that it can make the steps and  11  can make the capital commitments along the way to achieve  12  this transition.  13 14  Where will the money come from for the nonfederal financing?  It can come from a number of sources.  15  It can come from banks and financial institutions who  16  already have a financial stake in Chrysler and to have a reason  17  to see that it makes this transition to a self-financing  18  corporation rather than going through the process of re-  19  organization.  20  It can come from Chrysler's suppliers.  There is a very  21  large amount of purchases made by Chrysler each year, and  22  even more favorable payment terms can generate very large  23  amounts of additional capital.  •  24  It can came from labor unions and employees.  The UAW  Ace-Federal Reporters, Inc.  25 Federal Reserve Bank of St. Louis  settlement recently completed with Chrysler does reduce cash  735 rmg 10  •  1  requirements by some $200 million from what was included in  2  the October 17 plan, so that part is more or less already  3  available.  4  It can come from state, local, and other governments.  5  And these governments have a stake in this situation because  6  they, too, will lose revenues if Chrysler fails.  7  If Chrysler shuts down, various states and cities will  8  lose revenue and will have increased costs, so they have a  9  stake in providing some assistance.  10 11 12  It can come from Chrysler dealers who have an interest in the continuity of their business and their product lines. It can come from shareholders.  Shareholders will be  13  required to forego dividends, but there could be possible other  14  inputs from shareholders.  15  And very importantly, it can come from asset dispositions,  16  the sale of assets which Chrysler does not need to carry out  17  its core business.  18  this nature.  19  sold many of its overseas operations which are not primary to  20  its business, and it has some other properties that it is  21  considering for sale and could be offered for sale.  22  Chrysler has already made some sales of  It has sold the real estate business.  It has  So through all of these sources, based upon Chrysler's  • 23  own analysis and our analysis, it would appear reasonable  24  that $1.5 billion could be achieved.  Ace-Federal Reporters, Inc.  25 Federal Reserve Bank of St. Louis  The other $1.5 billion for the financing package would  736 rmg 11  •  then come from federal guaranteed loans.  2  loans would have to have a series of safeguards because we  3  obviously are not interested in a program in which there could  4  be an ultimate cost to the taxpayer.  5  will be well designed enough so that it will work, and if it  7  works there will be no cost to the U.S. taxpayer.  8  there is a risk that if it does not work, there might be some  9  losses.  Of course,  But to minimize the risk of loss, not only do we need  11  an adequate financing package, but we need a series of safe-  12  guards to make sure that we have a handle on the future plans  13  and programs and operations of the company.  14  First, we need to be sure that in order to make our  15  commitment there is a sound operating and financial plan for  16  the period ahead, and that it will be revised from time to time  17  as we make actual loan guarantees.  18  So that we are constantly monitoring the progress of  19  the company and do not add more financing if the program is  20  failing or is not meeting its targets.  21  O  It is our plan that this program will be sound enough and  6  10  O  These particular  1  There needs to be a continuation of the present financing If they were pulled out, then of course the  22  commitments.  23  company would not have enough resources.  24  assurance that waivers and commitments from those who are  So we must have  Ace-Federal Reporters, Inc.  25 Federal Reserve Bank of St. Louis  providing the present financing, that those will be continued.  737  7mg 12  •  1  There must be reasonable prospect for repayment of these  2  guaranteed loans.  3  Of course, we must make the terms of repayment and the  4  telms of maturity reasonable in relation to the cash earnings  5  and other cash generation of Chrysler in future years so that  6  it can reasonably repay them.  7  We need to design a series and will design a series of  8  restrictive covenants that restrict what the company can S.  9  and make it committed to sticking to its last, and carrying  10  out this plan and not taking on new areas of responsibility  11  or risk while we are involved in this financing program.  12  We need to maximize the position for guaranteed loans in  13  terms of collateral and priority among creditors so that if  14  there is for some reason a failure of this plan, that there  15  is a high probabty of minimizing or eliminating any loss  16  to the government or to the taxayers from paying off  17  guaranteed loans.  18  And we must receive resonable compensation during the  19  period of guarantees to cover the costs we will have, and to  20  cS ver some compensation for the risks assumed by taxpayers  21  in making this kind of commitment.  22  Mr. Chairman, to summarize  what I have tried to cover  23  this morning, let me say that it is a general principle of this  24  Administration to respect the merits and the vitality of our  Ace-Federal Reporters, Inc.  25 Federal Reserve Bank of St. Louis  Srivate enterprise system, and to minimize government  738 Lmg 13  •  intervention.  2  unusual case that government financial aid should be considered  3  or granted.  4  this assistance is justified as an exception to the general rule  6  and is justified because of the unique conditions and because  7  of the impact upon out economy and because of the impact upon  8  various regions of the country and because of the impact  9  upon competition, and because of the impact upon the balance  10  of payments, and because of the cost for the government of a  11  failure of Chrysler.  We have done so carefully.  estimates of the financial needs.  14  And we believe we have a plan that good management can carry  15  out successfully to achieve a return of Chrysler to a successfup.  16  self-financing company. We believe the proposal we have made is responsible, and  18  one that responds to the conditions that we now have, both  19  in terms of the proper role of government, and in terms of  20  the timetable we have to respond in order to be of assistance.  21  end #4  We believe we have made reasonable and professional  13  17  •  We do believe, for the reasons we have outlined, that  5  12  •  We do believe that it should be only in an  1  And I appreciate very much your attention, and would be  22  pleased to try to answer now any of the questions that you or  23  others may have.  24 1,ce-Federal Reporters, Inc.  25 Federal Reserve Bank of St. Louis  739 /I 90 05 01 gshHEE  III  1  Mr. Moorhead. Thank you, Mr. Secretary.  2  the full committee has asked me to recognize him because he  3  has to leave.  4  Ar. Reuss?  D  Mr. Reuss.  Thank you, :oir. Chairman.  felcome, Mr. Secretary.  41O  As you know, Mr. Secretary, I  i  hvae a little different view on the form and structure of  3  the aid which we ought to give to the people who work for  )  Chrysler and the people who pay the taxes in the United  10  States.  11  III  The chairman of  And I sent to you yesterday my proposed amendment, which  12  basically takes your bill, H.R. 5805, and makes a vary small  13  though crucial amendment in it, which really has two  14  aspects: One, instead of accepting Chrysler's full line  13  strategy and thus subsidizing further waste of gasoline, it  15  requires that the plan concentrate on energy conservation,  li  real gas—saving automobiles, mass transit equipment, perhaps  13  automobile—related cogeneration; an  19  the amendment says that the aim of this is not primarily to  20  benefit Chrysler stockholders and Chrysler's banks, but to  21  benefit the people who work at Chrysler and the people of  2.  this country who are confronted with a terrible energy and  23  transportation crisis.  24 23 Federal Reserve Bank of St. Louis  secondly, it says that  Thus, under my amendment, while Chrysler Corporation would have first dibs and sort of veteran's preference in  1  740 90 05 D2 gshHEE  the whole deal, if Chrysler isn't able or willing to do it  1  all, then you, as Secretary, and your consulting cabinet  411  3  cohorts would have an opportunity to bring somebody else in.  4 5 5  rhat, in essence, is the amendment.  All else remains in  HR-5805. You have shown a remarkable ability to put your excellent mind on complicated propositions in a hurry.  8  Chrysler's proposition just came to you, as I understand it, on October 1  111  i.  1J  ilhat is your feeling about my proposed amendment?  11  Mr. Miller.  'Ar. Chairman, we would certainly welcome an I, philosophically, I certainly  12  opportunity to review that.  13  have no dispute with the idea of moving Chrysler or American  14  productive capacity in the direction you in,:icate.  1_)  I would make a couple of points.  15  At the moment, Chrysler is more concentrated in small cars than the other major producers.  13  this point is generally known.  I don't think that  It was among the first and  certainly the first American manufacturer to move into the 20 21  front—wheel drive kind of sub—compact. The Omni Horizon line is, of course, just the kind of  22  direction that we need to go for fuel economy.  23  cars have been very popular and have sold well.  24 25 Federal Reserve Bank of St. Louis  And those  One of the problems is, of course, tnat Chrysler has limited capacity to produce them.  741 90 05 33 gshHEE  So that those are cars that they sell all they can make  1 2  while other cars that are of more traditional lines, they  3  naven't Peen able to retool yet and they need to retool over  4  to their new K—body to carry this out through their program. As time goes 0y, their commitment has to be and will be and we certainly will want it to oe in this operating plant moved toward fuel efficiency cars.  8  Thether or not Chrysler, with its financing needs that I nave outlined, would be able to take on a new major project,  13  tooling up for a mass transit or other things, we would have  11  to examine.  12  And I would hope in your amendment you would bear in  13  mind just the possioility that we might have to get them  14  healing oefore we put them into another area, or that if we  13  divert funds from here to some other manufacturer, Chrysler  15  might not have enough to get by.  17 18  if we may, and see if we have a way to accommodate your  1)  thoughts because they certainly are consistent with where  23  the nation should go.  21  111  But I think that we would like to examine that with you,  Mr. Reuss.  Nell, I appreciate your sympathetic  22  opservations and just responding briefly to your statements,  23  on your second point, my amendment would contemplate, and I  24  refer here to the statement of it, that loan guarantees to  2.)  Chrysler in carefully controlled amounts may be granted Federal Reserve Bank of St. Louis  742 190 05 04 gshHEE  1  oefore completion of this plan if the Secretary determines there is emergency need.  3 4 3  Thus, I would not want to come around and seize Chrysler if they were on the verge of showing the world the way. On your first point, that Chrysler is less awful than 3eneral Motors and Ford, in its past gas—guzzling addiction and sitting by while the nation's suocompact business went  9  to Volkswagen, Fiat, Renault, Datsun, Toyota, Honda, et al, that is true.  13  •  We are talking about Chrysler.  And if the nation is  11  Ford.  12  to put at hazard $1.5 billion of the taxpayers' hard—earned  13  dollars, I would hope that we wouldn't just ratify what  14  Chrysler management dreams for itself is another full—line  1D  producer.  16  But anyway, I am delighted at your sympathetic reaction,  Ii  and thank you, Mr. Chairman, for giving me this opportunity.  18  Mr. Moorhead.  In view of the fact that the Chair was  1,)  recognized, I think it only appropriate to recognize the  20  ranking minority member of the full committee, Mr. Stanton.  21  110  But here we are not asked to aid General Motors or  Mr. Stanton.  Thank you very much, 'Ar. Chairman, and I  22  appreciate the courtesies of the suocommittee, and I will be  23  extremely snort.  24 25 Federal Reserve Bank of St. Louis  My first question, Mr. Secretary, and more out of curiosity, it was by coincidence, I think, on Thursday  743 90 05 05 gshHEE  III  I  morning early that I was reading in the New York Times an  2  article oy a Mr. Rattner, quoting you  3  oefore that no decision had been made on Chrysler.  4  as  saying on the day  And adjacent to it was an Associated Press story from the Nashington Post that on that afternoon, the day before,  5  the president of the United Auto Workers had appeared at the  /  ithite House and tnat a decision was made on Chrysler to go  3  forth.  9  III  10  roughly, that the decision  11  or Wednesday eyeing?  12  Mr. Miller.  as made on Nednesday afternoon,  Mr. Rattner's statement was correct.  I  13  can't rememoer the days, but at the time that I had lunch  N  with the New York Times, some of the officials and  13  journalists of the New York Times, we had not presented a  lp  position paper to the President, and no Administration  11  decision ha.1 been taken because it is ultimately a  18  presidential decision to approve this proposal.  19  that had not been done, and so it was aosolutely correct  20  that no Jecision.  21  decision.  2: 23  III  My question, number one, is is that the time s hedu13,  And the President might have made another  So at that point, it was uncertain what the Administration's position would be.  24  As to Mr. i=raser being in town and meeting, there has  2  been, as this decision was tenatively made oy the President, Federal Reserve Bank of St. Louis  744  90 05 06 gshHEE  1  a round of consultations with banks, with Chrysler, with the consultants, with the labor unions, to inform them of the  3  direction of the decision and the timetable for any meeting  4  with Mr. Fraser would have Peen after the President had made a decision and to inform him that this was going to be, and to seek to Tiake it clear that this ,dlan would contemplate $1-1/2 billion in contributions from nonFederal sources that would have to include all of the constituents, including  9 10  employees. Mr. Stanton.  As I say, my question is out of curiosity  and having deep respect for you in your former position in 12  the Pusiness world, and knowing how difficult it is, really,  13  for you to appear before this committee or to reach the  14  conclusion that you have reached.  13  I was mainly curious and just from a casual reading of  15  the papers as to whether or not the decision was made and  1/  then subject to the approval of the United Auto 4orkers and  13  what they brought in in consultation.  19  changed from the time of the President's decision?  20  Mr. Miller.  And was the plan  From the time the President approved our After he  21  proposal, no changes were made in it of any 'Kind.  2z  approved it, we had to go through the clearance of the  23  actual draft language with OMB, which is a regular procedure  24  and with interagency groups to clear the language of the  2d  proposed legislation. Federal Reserve Bank of St. Louis  745 190 05 07 And we consulted and informed various constituencies  gshHEE  that were directly involved and who would be called upon to 3  make contrioutions that this was a forthcoming decision, so that they would oe aware of it. And nobody changed the decision, varied it, or negotiated it.  It was a decision made oy the  Administration. 8  It was recommended oy the Treasury.  It was  unanimously supported by the economic advisors to the President and he approved it.  I) Ii 12  111  Mr. Stanton.  Thank you very much and I do appreciate  the courtesy of the Chairman. Just one last quick question to follow up on our On page 6 of your testimony, you stat -?  13  Chairman's question.  14  that the company's strategy is to remain a  13  automobile, truck, and car producer. And the Chairman has either put forth a very meaningful  If  amendment or one that could be taken very lightly, and then  13  down the road, done away with.  1) 23  hope that it is possible to fashion an alternative Chrysler  21  rescue measure.  22  111  But the Chairman states in his statement that I would  Would you look upon the Chairman's amendment as a major Nould it not require an  23  amendment to this legislation?  24  additional plan to oe submitted by Chrysler?  25 Federal Reserve Bank of St. Louis  Mr. Miller.  Ne are already doing additional work to see  746 190 05 08 gshHEE  I  what the alternatives are.  And one of the comments in my  presentation was to suggest that at least one billion 3  dollars in capital expenditure might be deferred in this  4  time frame and to minimize the number of models and to have a slightly smaller line in order to minimize capital  6  commitment. And we are looking at those and other alternatives.  8  Our  objective, the company's objective, when you talk full line in the future, is a full line of cars in terms of their  13  appointments and the degree with which you might consider  1i  them a luxury car.  12  410  But they will all be smaller in  They will all be  They will all be much different cars than  13  fuel efficient.  14  you are used to now.  15  SiZ3.  3ut Mr. Stanton, we are looking now at whether or  16  changes could be made and part of our effort if this  1i  legislation is enacted is a continuing process on our part  13  to optimize the company's plan in terms of national  19  objectives, in terms of how the company can work and  20  succeed.  21  Mr. Stanton.  22  Mr. Moorhead.  Thank you, Mr. Chairman. Mr. Secretary, obviously, the number one  23  question we have to ask ourselves is, if we go through this  24  exercise, will it succeed?  23 Federal Reserve Bank of St. Louis  And some of your testimony gives me a little concern.  747 190 05 09 gshHEE  1 2 3 4  At page 4, you say that our conclusion is that Chrysler can recover.  Not that they will recover, but can.  on page 10, you say that the plan has the potential of assuring the company's viability. And on page 11 , you say, even with the $3 billion, Chrysler's situation will remain very tight. Those are little disturbing words for those of us who  8  want to support this legislation, if we can be reasonably assured that it is going to work.  13  Secretary Miller.  Mr. Chairman, it is our opinion that I  11  there is a reasonable probaoi lty of this plan working.  1)  don't think that anyone can give a guarantee because none of  13  us can predict what will happen.  14  I think that we have to present to you the reality that  1_3  this is our best judgment in today's conditions, and what we  1j  know today, that we wouldn't present it if we didn't believe  1/  it was adequate to accomplish the task.  13  3 ut we  now  that even today there is interruption of And if there were another  19  pumping and loading oil in Iran.  20  oil interruption and another major impact on the automobile  21  industry a year from now, two years from now, I think we  22  just don't know what that would mean.  23  And to guarantee that this would work, regardless of  24  future events I think would be imprudent because none of us  23  can tell that. Federal Reserve Bank of St. Louis  748 190 05 10 gshHEE  111  1  fie have tried to put in variations from volume.  fie have  And we have  2  tried to put in a harder view of the potential.  3  tried to cost it out.  4  rose—colored glasses and put on just plain old glass,  D  "plainos," to look at the world as it really is and to  5  our best.  And we have tried to take off the  Q0  3ut we cannot give you a guarantee. 8  Mr. Moorhead.  ',Ir. Secretary, on page 13, you talk about  asset disposition, saying the company owns several large 13 II  411  assets which are marketable. I wonder if you could give us some idea of what they  12  are and particularly whether they include such things as  13  Huntsville, Alabama or Chrysler Financing?  14  Secretary Miller.  Nell, there are some more obvious The company,  ID  assets that I think might come first to mind.  15  as a result of disposing of some of its European operations,  le  owns 15 percent of Peugeot's stock, which has no mission in  13  its strategy.  1)  And it would seem to me that that stock being marketed I think whether or not  20  could raise quite a bit of money.  21  the company would feel that its cash needs in this $1-1/2  22  billion could be best served by selling off their tank  23  operation or one of their gear plants.  24  think, is a decision that we're going to have to face later.  25 Federal Reserve Bank of St. Louis  Or Huntsville, I  I think, Mr. Chairman, the problem will be one of  749 190 05 11 gshHEE  1  deciding whether the continuity of a particular operation does play a role in the general strategy or Nhether the  3  raising of money oy disposition, which means non—interest  4  bearing money -- you know, it is money that doesn't have to  D  be paid bacK and it is money that does not oear interest -isn't worth stretching pretty far and making sure that you  0  are sticking to your core business and not doing peripheral  8  things that aren't important.  9  They have a marine  10  dispositions and see some possioilities.  11  operation tnat is small.  12  dollars will help and will get management back to its  13  primary tas< and not divert it to other activities.  But even a few tens of millions of  14  There is also the possibility of either selling the  13  finance company, which I think should be treated cautiously  16  because that is an important arm of marketing.  If  sold, it would have to be coupled with some long—term plan  19  for that financing company to handle Chrysler product, or it  19  might be possible to sell an interest in that company and  20  continue to have it but have a partner, and thus, lessen the  21  commitment without losing the primary mission.  22 23  110  One could look at the own company's list of potential  24 26 Federal Reserve Bank of St. Louis  If it were  So I think that there are many options the company can look at. Mr. Moorhead.  Obviously, we want to look first at,  let's say, the opportunity as to how this plan will work.  750 90 05 12 gshHEE  111  I  And then I suppose we shoulJ say what it is the protection  2  of the taxpayer in case the automobile industry is much  3  worse than your predictions, and how is the taxpayer  4  protected if you have exercised your federal priority of waiver rights under Section 107(f). Secretary Miller.  Mr. Chairman, this is one of the  cases where we are asking because of the circumstances, approval for a plan that is reasonale in the sense that the government goes into the program and makes  commitment for  10  a loan guarantee only if the other constituents have come  11  forward.  12  111  3  Ne cannot yet tell you just what role each of the  And because we cannot  13  constituents can or will play.  14  present to you X—amount from the banks, X—amount from the  15  suppliers, X—amount from the dealers, X—amount from the  16  employees, we need the flexibility to negotiate the best arrangement we can.  18 19  that in case it is only possible to put this program  20  together by putting some of the federal loan guarantees on a  21  carry pass—through oasis, it might be better to do that than  22  to have the whole thing abort.  23  111  And the reason to give the authority for a waiver is so  Now you notice that while we can waive priority, we  24  cannot become subordinated.  23  other creditors. Federal Reserve Bank of St. Louis  Ne could never be less than  751 190 05 13 gshHEE  111  1  3o the only question is, if the last $200 million you  2  need, would it be better to carry pass—through, and that  3  would be the view of the total picture.  4  And with your blessing, we would li'<e that flexibility.  5  Mr. 'Aoor`lead.  5  Thank you.  My time has expired.  Mr. :AcKinney? Mr. McKinney. Mr. Secretary, welcome.  Ne are adhering  3  very strongly to the five—minute rule, so I will sort of  9  jump around in my line of questioning.  10  Chrysler had four very profitable divisions, or at least  II  three verY profitable -- Chrysler Finance, New Process, and  12  Huntsville, Alabama.  13  say, is an ongoing federal commitment.  An  also the tank operation, as you  14  Has any thought been given, or wouldn't it be right to  Ii  have the Federal Government put a priority collateral lock  15  on those four divisions so that should something happen, the  11  Federal Government would have the priority to sell it?  18  ;)f course there is a difficulty.  My feeling is, and I  1)  believe Salomon Brothers agrees with this, that Chrysler  20  Finance is so tied to Chrysler's operations in floor  21  planning and dealers that its probable worth, functioning as  22  it is now, of $600 million, might drop to as low as S'300  23  million.  24  But would that be a consideration?  25  Secretary Miller. Federal Reserve Bank of St. Louis  I think that we ought to look at all  752 90 05 I 4 gshHEE  1  of those assets as possible collateral for federal guaranteed loans.  3 4  ;Alhat we have suggested here is that we seek collateral, again, with the possibility of waiving it or foregoing it on all or part, depending upon the circumstances.  3  'Nhether those properties would completely collateralize the loans remains to be seen.  9  Ne might also want to look at some of the plants and other activities because, after all, physical facilities do  13  have resale value, even if there is a failure of the  11  company.  12  ID  Mr. 'AcKi nney.  One of the things that bothered me, in  13  looking through the Department of Transportation-'s figures  14  and meeting with them in Boston — is that one of the  Ii  reasons that Chrysler is having a tremendous problem, is  15  because its variable unit margin is very susceptible to  11  outside suppliers rather than being vertically integrated  13  with such as General Motors and Ford.  1)  And I would hope that the Secretary, or whoever finally  23  administers this plan, would think very long and hard about  21  selling anything that would require Chrysler to go further  22  out into the supplier, sub—supplier market to affect that  23  very limited profit.  24  I would agree.  I dory't see why Chrysler should stay in  2i  the bank business.  I don't see why Chrysler should stay in Federal Reserve Bank of St. Louis  753 190 05 15 gshHE  111  But I would defy anyone to try and  1  the marine ousiness.  2  sell it at this particular point in time.  3  Secretary Miller.  4  Mr. McKinney.  Yes.  It may not raise much money.  I'm afraid not.  One of the things that  interests me is a lot of talk has been made about cRISA's 5  prooable long—term, cumulative deficit of about $1.1  zillion  in pension guarantees should Chrysler go under. 8  Has any actuarial study been made as to -- ERISA, for instance, is  13 II  411  already, as I understand it, $130 million in  the hole. Has any actuarial study been made as to what the  12  increased cost per employee would be to other corporations  13  in this country should this $1  14  they're already in the hole, have to be met?  13 la  billion plus the $130 million  Secretary Miller. Mr. McKinney, we nave not made that actuarial study in the Chrysler case.  r:or everyone's  benefit, I should mention that if Chrysler became insolvent 18  and the pension plan were terminated, that contingent  1)  liability of $1.1 billion would fall on the Pension  20  3uarantee Corporation.  21  to go into cost for other employers in premiums.  22  111  And the recovery of that would have  So that would be another impact on the economy which I  23  did not mention in my presentation, which is another factor.  24  Mr. McKinney. Well, this is one of the problems. It  2i Federal Reserve Bank of St. Louis  really bothers me.  And, for instance, in talking to Doug  754 190 05 16 gshHEE  1  c7raser, this is one of the problems, that you talk to business men on one side, and he says, the per capita cost  •  3  of a new employee is too much. So, therefore, we have overtime and we have all of these other methods of avoiding putting more people back to work, particularly in a recessionary period. And I have made rough estimates that I believe the  3  employee cost -- the cost per employee is now $2 and something cents, and that would probably jump as high as  411  10  double, say to $4.65 to $5.00, which is just one more  11  impetus not to have employers go out and hire new employees.  12  And that would be, I think, a tremendous concern.  13  In all of this talk of creditors, and I guess we've  14  talked to all of them, there has been a dull silence and I  13  accuse the banks of that.  15  and now there has been a dull silence from one of my  1/  constituents; namely, the insurance companies.  13  But we have solved the problem  I believe Aetna, per se, which is a kinetic corporation,  19  is into Chrysler for more than anyone else at this point  20  practically, as an individual.  21 22 23  • 25 Federal Reserve Bank of St. Louis  Has your department talked to the insurance companies?  755 190 06 01 mgcHEE  111  Secretary Miller.  i  No, I do not oelieve we had talked The  2  diractly, out I suspect that Salomon Brothers has.  3  financial advisors, Mr. McKinney, have tarced to them.  4  have decide  Ne  not to sit down with that group until we had a  program because we did not want to precommit you to some program until we  new what /our wishes were.  But we will be  sitting down with all of those groups, out principally 3  relying on the company and its financial advisors to line them up because I think it is their tas'< to do so.  13  'Ar. McKinney. question.  111  My time has expired.  Just one last short  Has any contemplation oeen made of asking the  12  large lenders to think in terms of, say, a one year  13  moratorium on interest and principal?  14  3ecretery Miller.  Yes.  I think we have to look at all  13  of the concessions possible -- possible lower interest rates  1.5  on oart of this, possible moratoriums.  1i  maturities will have to be nandled so that we do keep these  13  credits available underneath the new program.  1,7)  will not hold together.  20 21  Mr. 'AcKinney.  Certainly the  Otherwise, it  Thank you very much for a very thorough  presentation.  22  Mr. :400rhead.  23  'Ar. Blanchard.  Mr. Blanchard? Thank you, Mr. Chairman, and thank you,  21  Mr. Secretary, for a very thorough report and testimony.  25  am especially pleased with all the work and analysis you Federal Reserve Bank of St. Louis  I  756 190 06 02 have put in on this matter, and we also here are aware of  mgcHEE  the time considerations you have worked under which make 3  111  4  this presentation all the more impressive. Secretary Miller.  6e will have to charge Chrysler a fee  to make up for our expenses. (Laughter.) Mr. Blanchard. 3  I am especially pleased also that you  underscored Chrysler's role in making small fuel efficienct cars, especially on page three and four of your testimony.  111  13  You indicate the potential balance of trade losses if  11  Chrysler were to go out of business.  12  because there really isn't a U.S. competitor to the  13  Omni/Horizon four—cylinder front wheel drive cars.  14  correct?  13  Secretary Miller.  I take it that is  Is that  I think several reasons,  One, I donJt think other U.S. manufacturers  15  :Ar. Blanchard.  17  could pick it up immediately, an d I think the natural  13  inclination would oe for the market to be supplied from  19  abroad, and then once that oegins to happen and dealers  23  oegin to take up foreign lines, I think there would be a  21  permanent loss of business overseas and a permanently loss  22  of jobs to overseas suppliers.  23  4r. Blanchard.  So you would agree with the Department  24  of Fransportation people who have said that if Chrysler were  23  to shut down, at least for a couple of years the United Federal Reserve Bank of St. Louis  757 190 06 03 mgcHEE  •  1  States would lose a major producer of small, fuel efficient  2  cars?  3  Secretary Miller.  I think for a short time we would  In the long term, we woulJ make them up,  4  lose quite a bit.  3  but there would be some net loss permanently, I would think.  5  r. Blanchard.  Along those lines, Chairman Reuss, I am  7  pleased with your suggestions, and I hope, assuming there is  a  reasonable flexibility as the Secretary has outlined, that I can offer such an amendment that you have suggested, as long  13  as there is flexibility for the Secretary and for the  11  government to meet all the conditions that are necessary to  12  make this plan work.  13 •  14 13  important matter. ',Ir. Secretary, I would like to ask you a question about As you know, everyone is  15  problems that recession can cause.  1,  trying to predict exactly what direction the economy will  13  tak3.  1')  consultants, who were very helpful to me, and they indicate  20  that the $1.5 billion figure or the $3 billion figure was  21  reasonably recession—proof, if you're talking about a  22  moderate recession.  23  111  But I tnank you for your reconsideration of this  I had a chance to talk with the Booz—Allen  I take it you probably would agree with that, but you  24  don't state it flat out in your testimony.  25  about that? Federal Reserve Bank of St. Louis 0  How do you feel  758 190 06 04 mgcHEE  1  Secretary Miller.  4e covered that, Mr. Blanchard, by  indicating a reduction in the market, the total automotive  111  3  mar.(et, for 1980 and '81, so we accounted for recessionary  1  effects by reducing the forecast from what were in the Chrysler plan, and we would agree therefore that the plan  p  presented accomodates to a moderate recession in this time frame.  3  It does not take account of a possible 'nother  recession in '83  or '84, which I think would be at this  moment unli'Kely and difficult to predict. 10  Mr. Blanchard.  Thank you.  Also, in your testimony, you  11  outlined early on that the auto industry in the United  12  States was going to need about $80 billion in capital in the  13  near future.  14  expenditures required to downsize automobiles, not only of  13  course to meet the law that we have enacted, but also it  15  appears to ce the substantially changing market demand.  1/  that a correct assumption of mine that most of that $80  13  billion is for those costs of downsizing automobiles?  1)  From what I understand, that is largely the  Secretary Miller.  Is  Most of it would be in connection You could, I suppose, argue that a  23  with the downsizing.  21  good deal of it would be needed to make some of the changes  22  in fuel economy, even if you continued present lines, but  23  the fuel economy requirements plus the market snift requires  24  both the downsizing and the retooling for tne new models,  23  and that's where the $80 billion comes from. Federal Reserve Bank of St. Louis  Yes, sir.  759 190 06 05 mgcHEE  111  1  Mr. Blanchard.  Regarding commitments, I have a letter  2  from the Governor of Michigan, Governor Milliken, that I  3  would like, Mr. Chairman, to be made part of the record, and  4.  also I will send copies to my colleagues. Mr. Moorhead.  5  Nithout objection, it will be made a part  of the record. (COMMITTEE INSERT.)  3  13  12 13  •  14 15 13  13 19 20 21 22 23  •  24 Federal Reserve Bank of St. Louis  760 I 90 06 06 mgcHEE  111  1  He  Michigan's role which should be significant with you.  3  outlines a proposal which apparently ends up with a total  4  package of approximately $150 million from the state  5  available to Chrysler.  .5  carefully and decide whether that would be a significant --  I  whether that would qualify on the $1.5 Pillion contribution? Secretary Miller.  Have you had a chance to review that  Mr. Blanchard, I had heard that the  )  Governor was talking in terms of some aid package that might  10  be $150-200 million.  11  colleagues.  12  so you will probably be furnishing them to us with that  13  letter, and we will certainly take a look.  14  deny the great State of Michigan the opportunity for its  13  fair share of this financing.  I was just checking with my own  I believe we have not received the details yet,  15  (Laughter.)  li  Mr. Blanchard.  I'm sure you don't.  Ne don't want to  He isn't that  13  specific, so I assume that this general offer of $150-200  1')  million --  20  Secretary Miller.  Ne have that problem with the  Most of them are very general, and we are  21  constituencies.  22  going to have to get some of them very specific very soon.  23  111  He has been discussing the State of  2  3  111  Mr. Blanchard.  Mr. Blanchard.  Nell, I hope you are able to firm up  24  exactly what the details are, and if this will, in fact,  25  qualify, but I appreciate having that in the record. Federal Reserve Bank of St. Louis  1  761 90 06 07 mgcHEE  III  Finally, regarding the criticism often heard that  I 2  Chrysler ought to restrict its operation, to reduce its  3  operations, as I 'Inderstand it, up until recently they have  4  been operating with five basic body frames, and they  3  basically call them platforms.  5  they're going to move to three, and they will essentially be  i  small, smaller, and smallest.  Basically, in their future,  Do you get that same impression in terms of their )  management plan? Secretary Miller.  13  III  Definitely by 1985, this  H  company is going to be highly directed toward the small  1..  automobiles.  13  operations you should bear in mind that I did not touch on  14  enough in my presentation, and that is, they have had a  13  position in vans and light trucks which has been impacted by  15  the gasoline and economy requirements, and they are either  1/  going to have to suffer some loss there, or they have got  18  some possibilities of retooling and downsizing those kinds  lY  of vehicles also.  20  III  Yes.  Now there are other features of Chrysler's  That has to be looked at in more detail, but  21  fundamentally their passenger automooile business is going  22  in the direction of up to 80 percent in the small lines by  23  1985.  24  needs to be held together with their continuation of their  25  lines, because otherwise you lose the market. Federal Reserve Bank of St. Louis  And in the meantime, I think their whole business  fou lose the  762 190 06 08 mgcHEE  You lose the dealerships that are the ultimate  I  service.  2  need to move your product to the market.  3  Mr. Blanchard.  My time has expired.  I want to thanK  4  you again, Mr. Secretary, for your very strong testimony.  5  ThanK you. Mr. Moorhead. Mr. Kelly.  3  Mr. Kelly?  Thank you, Ar. Chairman.  Ar. Secretary, it doesn't seem to be very ooscure that what we are doing here is starting a new welfare program on  111  ID  this basis, that the cost to the country will be so heavy in  II  welfare if Chrysler goes under that we can't afford to let  12  that happen.  13  program that nopefully won't cost us quite as much.  14  So we're going to institute another welfare  3ut I think it is an important thing to ask, °Nell, who And as I understand the  13  is going to get the welfare?"  16  situation, the tenth largest corporation in the United  1/  States of America will benefit from the welfare, and the  13  highest paid industrial wor4ers in the United States will  1)  oenefit from the welfare program, and that these same  23  workers that you testified this morning, as I understood it,  21  had made a reduction in Chrysler's cash flow, didn't Jo tha t  2)  at all.  23  that they did is they increased the casn flow problems They got a pay raise.  24  oy 3700 million, not reduced it.  23  you can't turn a pay raise into a sacrifice when they are Federal Reserve Bank of St. Louis  Now  t  763 90 06 09 mgcHEE  I  already oeen paid more than the other production workers in  2  the United States. rhen we get down to, well, what will the cost be, and  3  111  that is what I want to ask you some questions about.  4  As I  understand the situation here, the risk is so heavy that all 5  of the best minds, industrial and financial, in America have said, "We will not take the risks on a voluntary basis with  I  our money."  )  asking those of us on this Committee and th is Congress and  13  the people of the United States to take.  11  411  And that is the kind of risk that you are  3  :'tow I got this a minute ago, and today or tomorrow, I'm  1)  going to have a yes—or—no decision without any opportunity  13  even to know what is in here.  14  Is it not just as I have said, that all of the people who  13  are supposed to kno4 what they are talking aoout with regard  13  to the financing industry have said no to Chrysler, ana that  17  is why Chrysler's here?  13  Secretary Miller.  Do I misunderstand the risk?  I do not think, Mr. Kelly, there is  1  the prospect in the private sector to assemble a $3 Pillion  23  financing package.  21  the elements we are talking about, relying solely on private  2.  institutions.  23  this financing plan of $3 billion includes contributions and  21  additional contributions from employees.  23  contributions from suppliers, from dealers. Federal Reserve Bank of St. Louis  That includes contributions from all of  That is correct.  And you will notice that  It includes These are the  764 90 06 10 people that are normally financed businesses -Ar. Kelly.  111  'Ar. Secretary, I understand that.  But all  3  of those things are a possibility, and you nave already  4  testified to them.  3  your judgment, that the money is not available in the  D  private sector on a voluntary basis?  But what I want to know, is it true, in  Secretary Miller. 3  In my opinion, adequate financing to  see .'i-lrysler through this period is not available in the private sector.  13  :w1r. (elly.  Fine.  Now much of the rationale that we  have received on this Committee for why we should take this 1)  risk is because of women and children.  13  talK to you a little bit about that.  14  Now, I would like to  I understand that you have a background in finance and  13  in industry, and you are the Secretary of the Treasury.  15  do you really think that Chrysler constitutes the finest  Now  investment to improve the economy of the United States And if you Jo, then why is it the private sector  13  today?  1)  the guys out there that really are hardball players, that  23  knows what makes it go around -- that they say no, and you  21  say yes?  22  Secretary Miller.  Mr. Kelly, my view of government is find the best  23  not to take the taxpayers' money an  24  investments in America, but to look at the total purpose of  2J  government. Federal Reserve Bank of St. Louis  In this case, the government has a purpose in  765 190 06 11 mgcHEE  111  1  terms of joos, in terms of communities, in terms of a whole  2  network of an industry, in terms of permanent loss of jobs  3  overseas, in terms of a major position in a major industry in the world, and it has a problem that regardless of what  5  you and I Jo, the taxpayers will lose over $2.5 billion in the next two years if Chrysler goes bankrupt. 3o in terms of whether we are seeking the best  3  investment, the government isn't to collect taxes to make  9  investments, but the government should oe rational.  13  have looked at two options -- to help Chrysler and not to  H  help Chrysler -- and not to help Chrysler costs the taxpayer  12  more.  13  411  And we  Mr. Kelly.  Do you mean today or when we collapse the  14  whole economy by making investments in failing industries,  13  instead of investing in the most efficient sector of the  15  economy. The decision before us is the  1,  Secretary Miller.  13  decision of Chrysler.  19  exception.  20  sector, and I would not suggest it to this Congress.  21  think most American businesses are well-managed, and the  2;  great American industrial capability has been generated by  23  successful enterprise, successfully managed and profitable.  24  rhis is an exception, which lists the reasons I have  25  given -- why it is Federal Reserve Bank of St. Louis  It stands on its own merits as an  I do not favor general aid to the private I  better for the federal government to be  766 190 06 12 1  mgcHEE  •  a part of a refinancing plan rather than not to be. 'At-. Secretary, my time has expired.  2  'Ar. Kelly.  3  Mr. :400rhead.  4  Mr. Lundine.  Ar. Lundine. Thank you, Mr. Chairman.  .4r. Secretary, you made a comment just awhile ago that everybody has been very general, and it is time for people to oe specific. 3  And we often analogize these kind of  pro,00sals to a package.  It strikes me that we see some  strings and we see some wrappers and maybe even some I don't see any of the  13  cartons, but I don't see a package.  II  contents of a package here.  12  are oeing asked to approve is sometning, yes, that is  13  flexible.  14  it.  15  go into the $1.5 billion in private sector concessions or  And it seems to me that what we  It is so flexible I can't even get my arms around  I can't even understand precisely what it is that will  investment. 17  Jo you not think that it is a fair statement that  13  the debt.  1  we are oeing asked to approve something that is very, very  23  general?  21  110  And on tne other side of it, I'm not quite sure even of  Secretary Miller.  Mr. Lundine, there is one overriding  22  specific here that will become statutory if you approve this  23  proposal, and that is, assuming the color of money is green,  24  there will oe green mone of $1.5 billion as a precondition,  25  out whether it comes from a bank or a dealer or a supplier Federal Reserve Bank of St. Louis  767 190 06 13 mgcHEE  1  or a shareholder is not identified to you. that there  111  3  But the fact  as to be $1.5 billion oefore the government  makes its commitment is the controlling condition. And I do agree with you that it would be preferaole if  3  Congress were to oe in session over the next two or three months for us to go back now and say, "This is the amount of need."  3  Ne 'lave just discovered the $3 billion after  considerable work and effort, and we would love to go back and line up whether so much of it is coming from banks and  13  come back to you and say, "Fhis is now the plan, and here  11  are all of the people."  12 13  that before the Congress adjourns, and I'm afraid oefore the  14  Congress could address this in the next session, the problem  1.)  would have oecome moot oecause Chrysler would have gone past  lj  the point where aid would be successful.  If  And so we are faced with that problem.  4e have tried to  13  solve it by saying we don't want to give you a pig in a  19  poke.  23  half bucks from non—federal sources.  21  111  I am afraid that we do not have the time to accomplish  You have got to know that there is a billion and a  Ar. Lundine.  I restrain myself from using that There are two conditions that I would  22  expression myself.  23  insist upon seeing here.  24  side, it seems to me terribly important that there is an  23  employee stock ownership program, first because it will make Federal Reserve Bank of St. Louis  One, on the government guaranteed  768 90 06 14 mgcHEE  1  the repayment of that loan more likely by having an  2  incentive to improve productivity, and second of all,  3  because this won't oe just the other stockholders.  1  then be the employees who would benefit from it, and I am  3  ,iisappointeJ in not seeing that.  5  It would  Secondly, it seems to me terrioly important that we put some kind of a requirment on that $1.5 billion private  3  sector money, that some of that comes in equity and not all of it in terms of debts or sales or other kinds of sales of  13  assets or other kinds of concessions. ;Arould you comment?  12  •  Secretary Miller.  Well, on the first one, I certainly  13  have no philosophical objection to a stock ownership plan.  14  I would think it is better to be worked out between the  13  corporation and its employees.  15  ownership plan in which part of the billion and a half  17  dollars would be a concession from employees for which they  13  could get stock, that would give them a real incentive to  19  make the company successful, to get back the give—up in pay  20  that they otherwise would have received.  21  fine.  2,  If you mean a stock  And that would be  If you mean using part of the federal funds to subsidize  23  or give a grant to employees for no concessions, I don't  21  think that is good public policy.  23  question of whether people have an incentive to earn back. Federal Reserve Bank of St. Louis  I think this is a  769 190 06 15 I  mgcHEE  After all, this program would protect the joos and the incomes of lots of people, and I think if they want to make  3  concessions to make this successful, that rewards to them  4  through stock would be excellent.  It is just that I  wouldn't want to see our suosidies used for that purpose. And I favor that if it can be accomplished. Fhat would, of course, add equity, if tne employees 3  would take over the next two years $250 million less in pay, which is quite a small percent, and take it in stock.  That  10  would add quite a bit of equity and generate that much more  H  cash from our plan, and that would be very desirable.  12  rhe question of putting in a specific amount of equity  13  is difficult, although part of the thinking is that there is  14  a so—called family stock plan where stock subscriptions  15  might come from dealers and those who have a stake, and I  Ii  think the company has been thinking of at least $100 million  1/  from that source, but I don't know that we can guarantee  13  that.  1  dealers and other members of the family, so to speak, the  23  Chrysler family, could subscribe to some stock.  21  They were thinking along the lines of seeing whether  I would love to have that all before you and say that  22  the company has got a program that will raise $150 million  23  that way, because you are aosolutel/ right.  24  is raised by equity, the more that is raised by disposal of  23  unneeded assets, the more the company has cash without the Federal Reserve Bank of St. Louis  The more that  I  770 90 06 16 mgcHEE  111  1  debt burden and the amortization burden and the interest  2  burden.  3  term, the more infusion of equity capital we can obtain.  And to the degree that this company succeeds long  On a stock ownership plan, one thing to bear in mind 5  that if we were to dilute down the present equity too much,  5  we might foreclose the input of an outsider with fresh equity who would feel that the dilution of stock would make  3  it unattractive to make an investment.  So ae have to weigh  those kinds of problems. 1J Ii  •  I would love to see that, too,  Mr. Lundine. Mr. Secretary.  Thank you.  12  ,Ar. Moorhead.  13  Mr. Green.  Mr. Green?  Mr. Secretary, in the course of your oral  14  testimony although not in your written testimony, there is  1J  soma suggestion that the $200 million from the UAi'd is  15  already in nand toward the $3 billion.  1i  accurate, is it, because on page eignt you indicate that  13  you have already considered that $200 in determining that  1)  there is only $3 needed, so that you would really be  20  counting it twice, wouldn't you?  21  3ecretary Miller.  That is not really  I must point out something we should  22  have made clear in the testimony in making that adjustment.  23  We were able to offset it with a $250 million cushion that  21.  was just built in unidentified, so it netted out, and  23  actually there is no double counting. Federal Reserve Bank of St. Louis  771 190 06 17 mgcHEE  1  Mr. Green.  The point I'm trying to make is that we  2  can't look toward that $200 million UAW concession as  3  helping us reach the $3 billion because you have arrived at  4  the $3 billion figure, already assuming that $200 million in hand. Secretary Miller.  No.  That I am saying is, while we  said that in our testimony, we omitted the line that said 3  that the figure was then further adjusted, out there is a $200 million cushion of additional cash requirement that  13  more than offsets the UAW $200 million, so that the net  11  effect in the figures we have shown you is not to double  12  count.  13  411  14 13  Mr. Green.  I understand that.  But that $200 million is  no longer available towards the $3 billion. Secretary Miller.  In arriving at the $3 billion, while  15  we have not made it clear, we have not taken into account  ii  the $200 million from the UAN.  13  Mr. Green.  So that the statement at the bottom of page  19  eight is not correct?  20  Secretary Miller.  21 22 23 24  41/ 2_) Federal Reserve Bank of St. Louis  It is incomplete because it should  have said there is an offsetting item.  772  190 07 01 kapHEE  1 2 3  111  Mr. Green,  ihat market penetration did you assume in  your 100 percent base volume projections? Secretary Miller.  In the 100 base volume case  and  4  I'll ask one of my associates to give me quickly the market  5  penetration --  6  (Pause.)  7  Here it is, on Exhibit C, page 24, you see the car U.S. industry volume, the October 17th plan, the first and  9  second base case, the penetration shows here -- first, you  10  see right under "car" it shows 10.5, 11.1, 11.6, 11.9.  11  then --  12  Mr. Green.  And  I do see page 24, and I guess the point I'm  13  trying to get at is that in each instance you are assuming  14  that Chrysler, which I understand currently has about 10  15  percent share of market, that Chrysler is going to be able  16  to increase that share of market somewhat.  17  rosy a market as Chrysler has projected because of the  16  impending recession, but you are at least, in each of these  19  instances on page 24, apparently, assuming a penetration at  20  the end greater than at the present time.  21  It may not be as  And I was wondering, shouldn't we have a projection  22  which assumes that Chrysler cannot increase its share of  23  market?  24 25 Federal Reserve Bank of St. Louis  Secretary Miller.  Look at the bottom of the page where  it shows the share of U.S. market.  If volume adjustment is  773  190 07 02 kapHEE  1  due only to lower Chrysler market penetration, so that there  2  was an analysis both from lower share or lower units.  3  111  Mr. Green.  4  Chrysler will have achieved what is, I gather, in the  5  industry, a significant improvement in volume over the 10  6  percent they now have.  7  Secretary Miller. Mr. Green.  9  I'm saying, shouldn't we have a projection  which shows what the needs are if that doesn't occur?  I'm  sure Chrysler is optimistic, but there is every reason to  11  believe other companies are going to be competing vigorously  12  also.  14 15  Secretary Miller.  We did that by assuming they did not  meet their volume objectives. Mr. Green.  We went to 95 and  90.  I understand that, but we have had testimony  16  here that it would be an extraordinary result for them to go  17  from 10 to 12 percent penetration.  lb 19 20 21 22  1  That is correct.  10  13  11  But you are contemplating that by 1983  You are apparently here assuming a penetration of 10.7 percent. Secretary Miller.  But in our adjusted base two case, we  assumed that they reached 10.9. Mr. Green.  Again, don't you think it would be prudent  23  to look at what happens if they only get to 10 percent,  24  where they are now?  25 Federal Reserve Bank of St. Louis  Secretary Miller.  Well, we did one that gets to 10.3.  774  /1 YO 07 03 kapHEE  1  We did not consider that the most prooable, but we show you  2  the figures.  3  111  Mr. Green.  I would like to see a projection that  4  assumes they can't do any better than they are doing now,  5  that the markets stay the same.  And I would really like to  see what happens if things get a little worse, because I 7  think those are things we ought to be addressing if we are  6  going to operate in a prudent way, committing the taxpayers'  Y  credit.  10 11  that nowhere in here do I see any debt service repayment  12  schedule, and it would seem to me that if this committee is  13  going to act in a prudent way we certainly ought to have  14  that kind of projection, so that we can see that this  15  enormous load of debt which we are adding on the company. is,  16  in fact, something they will be able to pay on a reasonable  17  economic projection.  18  Secretary Miller.  In the Chrysler plan that I was  lY  furnished -- to the committee, there is a debt repayment  20  schedule for the existing debt.  21  testimony because that was the Chrysler plan.  22  •  The other thing that concerns me about this is the fact  Mr. Green.  That is not part of my  You're now assuming that -- your plan  23  assumes that they have been optimistic in their assumptions,  24  and I would really like to see how it works out under your  25  plan. Federal Reserve Bank of St. Louis  775  90 07 04 kapHEE  111  Secretary Miller.  1  We have assumed, for the purposes of  2  our plan, that they continue to meet the contracted  3  maturities of existing debt, and for new debt, of course, we  4  don't know the terms yet. Mr. Green.  I would like to see some projections as to  how that new debt would be handled, particularly if you're 7  selling off profit centers to get to the $3 billion.  I  think this committee is entitled to have some projection as 9  •  to how that is going to happen.  10  My time has expired.  II  Mr. Moorhead.  12  Mr.  13  Mr. Secretary, I think your statement is an excellent  Vento.  Mr. Vento.  Thank you, Mr. Chairman.  14  statement, and I really want to commend you and your staff.  15  It obviously anticipates many questions that each of us had, and that were brought out during the hearing, and I think  17  you really make a definitive effort to address some of  16  those, especially with regard to the projections and insofar  19  as the marketing forces.  20  the regulatory bugaboo type of question that had kept  21  cropping up.  22  more so than any other cost and no more so than as it  23  affects other industries.  24 25 Federal Reserve Bank of St. Louis  And I think that you do address  I think it is important, obviously, but no  Let me just take a little different tack, I think that needs to be addressed.  One of the concerns is there has  I  776  O 07 05 kapHEE  III  1  really been a new bankruptcy law which has been passed and I  2  understand is effective October 1st.  3  it, ana I don't expect that you are, Mr. Secretary, but I  4  know that you are aware of it, probably more so than  5  myself.  0  III  But is this corporation, the size of this corporation  7  and the nature of the proble:n and the way that it came about  o  -- really speaks to writing special legislation that  9  provides for a means to execute its debt and meet its In other words, why doenslt it fit into  10  responsibilities.  11  the bankruptcy question, which has so often been the base  12  line here?  13  III  I'm not an expert on  14 15  Nhy should we do anything unusual?  Why not let the  current bankruptcy law solve this particular problem? Secretary Miller.  Mr. Vento, it is, I believe, our  10  opinion that if we do not have a financing package, that in  17  fact Chrysler would end up in a reorganization under the  18  bankruptcy laws, probably Chapter 11.  19  felt that that is not a proper or an appropriate way to go,  20  and would not solve the problem, is because Chrysler really  21  depends upon one business and that is the automotive and  22  light truck and van business.  23  franchise, and if they go into bankruptcy, it is probably  24  likely that that consumer franchise would be eroded and that  25  the possibility of their returning to being a viable Federal Reserve Bank of St. Louis  The reason we have  And that is a consumer  777  90 07 06 kapHEE  1 2 3 4  producer in this industry would be highly unlikely. Mr. Vento.  Mr. Secretary, are you saying our bankrupcy  laws are imperfect as the affect large corporations? Secretary Miller.  Nell, I would say that if you are  5  talking the reorganization of a purely industrial company  o  that sells to limited industrial customers, there is more  7  likelihood of understanding the roblem and continuing to buy their product.  But whether Mr. and Mrs. America will  continue to buy Chrysler products when they understand the 10  company is in bankruptcy, and they don't know about future  11  service and parts and whatnot, I think that is a question.  12  Mr. Vento.  In other words, if I could try to interpret  13  what You're saying, you're saying that as it applies to a  14  large corporation that it actually assesses a greater  15  penalty on a product, the consumer—based product such as  lo  automobiles and trucks than it might on other types of  17  businesses -- especially the nature of this particular  15  business?  19  Secretary Miller.  I would not over—generalize because  20  there are some large corporations that sell products that  21  could be handled anyway, whether they distribute or sell  22  branded products or other distributors.  23  But here, you are talking about a company whose product  24  goes through a large number of dealers that are identified  25  with their name. Federal Reserve Bank of St. Louis  Their name is on the door, all over  778  I0 07 07 kapHEE  411  It is a high value item for the consumer.  America.  2  consumer doesn't buy a bottle of aspirin and say,  3  the next bottle isn't there, what difference does it make?"  4  He buys something he expects to own for a long time, and to  5  have service. So I do think that is a unique feature.  7  that reorganizing a toiletries company selling soap and  going to wash with it today. 10  They're  If they don't get that brand  next week, no harm.  H  That's not the way they buy automobiles.  12  Mr. Vento.  Well, I just wanted you to address that And it  13  because I think it is a fundamental difference.  14  makes a unique -- I notice you did refer to it on page four,  15  but I thought some elaboration was necessary.  16  111  if  I would think  whatnot -- I mean, people buy soap off the shelf.  411  The  1  So much of this does hinge upon the projections and I  17  think that this does not imagine sort of a catastrophic  id  event.  1  auto sales right now.  20  occurring because, apparently, of just instability in terms  21  of the supply of energy.  22  at the same time not address the concern about the stability  23  of automotive fuel supply?  24 25 Federal Reserve Bank of St. Louis  I mean, we can witness the diminution in terms of  Secretary Miller.  I mean, it is a phenonena that is  Can we really rescue Chrysler and  We need to address the energy problem  with a complete application. There are bills pending in this  779  90 07 08 kapHEE  1  Congress which will be the most important legislation passed  2  in many a Congress in dealing with the fundamental problem  3  of reducing our dependence upon oil as a source of energy  4  and reducing our dependence upon imported oil.  5  critical to the future welfare of our nation. It is also critical that we move rapidly to adjust the  0 7  size ana fuel economy of our automobile and that we use all  8  the productive capacity we have to make that adjustment as  9  rapidly as we can.  one major source of making that transition, that will not be  11  replaced easily. So I think your point is well taken. We need to address  13  the whole thing.  14  are being looked at by Congress, and I think with a very  15  constructive attitude.  10  Mr. Vento.  This is part of it, and other parts of it  Well, my time has expired, but I would like  17  you to comment on the leverage, the one—to—one leverage in  18  the $1.5 billion asked and the $1.5 billion of outside  19  credit.  20  combination?  21  private money?  22  •  If we lose one major producer, that is,  10  12  •  Those are  Why wasn't it a one—to—two or different Wouldn't it be better to leverage even more  Secretary Miller.  It seemed to us, from the work that  23  had been done over the last three months, that it was  24  unlikely that sources could be identified for unguaranteed  25  loans greater than this $1-1/2 billion. Federal Reserve Bank of St. Louis  The company  780  190 07 09 kapHEE  1  stretched very nard to come up, previously, with such  2  sources, and had hoped to accomplish about $1,350 billion  3  with less federal aid.  4  With more federal aid we think they could get up to the  5  $1-1/2 billion, but our judgment is that is about as far as  O  they can go.  7  here is to guarantee up to $1-1/2 billion, so if we can get  8  more from other sources, we would be able to take less from  We can go further.  You notice our proposal  the goverment sources. 10  Let me just clarify that, if I could have You're saying it has to be $3  11  the indulgence of the chair.  12  billion, but if we can do it for less federal government  13  money it is your intention to do so?  14 15  411  Mr. Vento.  Secretary Miller.  Obviously, if we could get $2 billion  from other sources we would not need as much guarantee. Thank you.  16  Mr. Vento.  17  Mr. Moorhead.  18  Mr. Shumway.  Mr. Shumway. Mr. Secretary, through the entire course  19  of these hearings I have gained the impression that none of  20  the witnesses who have testified before us have really given  21  very much attention to the value -- or attributing some  22  price tag as value, to what we may accomplish in terms of  23  easing federal regulatory burdens and providing tax  24  incentives, or something of that sort.  25 Federal Reserve Bank of St. Louis  For example, in your chart this morning, where you  781  90 07 10 kapHEE  1  depicted the forms of non-federal financing, there was no  2  mention of any value attributable to producing these  3  regulatory burdens. Now, my question would be:  4  isn't it possible to put a  And wouldn't that value, plus  5  price tag on those burdens?  0  some increase, perhaps, in employee sacrifice, together with  7  some tax incentives -- advance tax credits or somthing of  o  that sort -- be instrumental as part of the financing package which we have referred to repeatedly here this  10  morning? Secretary Miller.  II  •  12  we did point out that this has been a subject of  13  aiscussion.  14  quantification of what could be contributed in this period  15  of time to any reduction of the regulatory matters that are  16  primary.  17  agencies over which we have no control, and the  10  administration has no control.  19  locked in statute where there seems to be little desire to  20  change.  21  We have not been, ourselves, satisfied with any  Those, of course, are subject in many cases to  And in many cases they are  So I think we have felt that it would be unrealistic to  22  expect to generate quantifiable funds from the regulatory  23  side that we could bring to you in this time frame.  24  111  On the regulatory side, Mr. Shumway,  25 Federal Reserve Bank of St. Louis  As far as tax credits are concerned, they are most useful, obviously, to corporations that are profitable.  782  90 07 11 kapHEE  111  1  Chrysler has a particularly heavy burden because all of the  2  benefits of the appreciation deductibility of interest, all  3  of those things are lost to it when it is not making any  4  money.  5  while for profitable companies every dollar of interest cost  0  it 54 cents.  7  with when you have an unprofitable company.  Every dollar of interest it pays cost it a dollar,  And it is that kind of problem we are stuck  That is why it is so important, as others have pointed out, to get as much equity infusion as possible and 10  not to just add unused tax possibilities.  Now we have not  felt that it was appropriate for the taxpayers of the nation  111  111  12  to give an unconaitional tax credit to Chrysler or any other  13  corporation, because then there is no control over the  14  company, there's no assurance that it will ever become  15  profitable, there's no assurance of whether it gets all of  16  its other financing together, and there is no assurance that  17  the benefit will ever roll back to the federal government.  18  So I think it is much sounder to put the whole package  19  together -- to do it in a conventional way and not try to  20  use the tax code for something that, really, it isn't well  21  designed for.  22  comPanies, but to use it for incentives for non—taxpaying  23  companies is awfully hard.  24 25 Federal Reserve Bank of St. Louis  It could be used for incentives for taxpaying  Mr. Shumway.  It seems to me if Chrysler were able to go  to its sources of private financing and indicate, Look, in  783  190 07 12 kapHEE  1  the future we are no longer going to have these burdens,  2  these requirements which cast a cloud over our ability to  3  capitalize and retool now, wouldn't they then have a better  4  footing, a better presentation, a better loan package, as it  5  were, to make to those private financers? Secretary Miller.  7  If they could show some actual cost  reductions, cash reductions that would be beneficial.  The  company had told us that throughout this year it has discussed this issue in the Congress, with members of 10  Congress and with various concerns, and it has decided  11  itself that it look fruitful that it could make any gains in  12  this area.  13 •  So the request that Chrysler made to us was with its own  14  conclusion that it was not likely that it could make gains  15  in that area at this time.  16  Mr. Shumway.  As I understand the administration's  17  program -- and you did not touch upon this in your testimony  18  here today -- perhaps it is in your prepared testimony -but in addition to the matter of loan guarantees, you  20  likewise indicated that you would be requiring matching  21  participation from Chrysler.  22  110  We have discussed that.  You have indicated that you You  23  would review their financial program in the future.  24  have indicated that, indeed, you would even require the  25  ability to make management changes to oversee some of the Federal Reserve Bank of St. Louis  784  190 07 13 kapHEE  111  Now that, coupled with the fact of  1  personnel in Chrysler.  2  making a large investment as the federal goverment would do  3  under your proposal -- haven't we essentially nationalized  4  the company?  5  Chrysler is concerned?  And what remains of free enterprise as far as  o  I mean, assuming the very worst and being the most  7  skeptical, would we be willing in the future to allow this company to sink or swim on its own, once we have made that kind of investment and once we have asserted those  10 H  Let me go from the back of your  Secretary Miller.  On the back, the bottom line, I  12  question to the front.  13  would think, is this is a one—time program.  14  personally assume that this has to work or that Chrysler in  15  the future will be a failure, or it will either be  16  successful or a failure and it should not become a permanent  17  load of support.  lb  411  prerogatives?  And I would  It is a one—time transition program.  Now, on the other part of your question, there may be a  19  misunderstanding, because in any major financing,  20  particularly for a company with uncertain prospects, the  21  same kind of covenants we talk about here are normal in any  22  financing.  23  They are required by insurance companies when they lend  24  money to a company.  25  you have to do. Federal Reserve Bank of St. Louis  They have nothing to do with nationalizing.  They list certain kinds of things that  fou have to file your financial plans to  785  YO 07 14 kapHEE  you  you have to stick to them;  1  approve where you're going;  2  can't make acquisitions;  3  anything happens where you're not making -- the right to  4  elect some directors from the creditor.  you can't pay dividends; if  These are creditor's terms that are very normal in major  5  financing, which I've been on the other side of on 7  occasion.  And so they don't seem strange to me to have  creditors saying, Hey, if we're going to give you money to build your company, we want you to come, prove to us that  111  10  you are on track, and that if you are off track you have  11  some corrective rules and you won't do some things to  12  squander your resources.  13  go buy some other company and take money we thought was  14  going to build a plant and use it for something else.  15  won't go throwing out dividends and depleting your cash  16  before you have done the other things.  You  That is all very normal, and I don't think you are  17 lo  You will stay on track, you won't  nationalizing, to have the same terms in a program where the goverment has a guarantee as when you have a program in the  20  •  goverment that doesn't have a guarantee. Thank you.  My time has expired.  21  Mr. Shumway.  22  Mr. Moorhead.  23  Mr. Ashley.  24  Mr. Secretary, I want to pursue Mr. Vento's line of  25 Federal Reserve Bank of St. Louis  Mr. Ashley. Thank you, Mr. Chairman.  questioning for a moment.  And let me say first that I think  786  YO 07 15 1  that the methodology that you have employed is very  2  pursuasive, because it seems to me that you have tried to  3  examine the question of whether or not it is in the public  4  interest as an exception to provide assistance in this given  5  situation.  kapHEE  111  Having arrived at the conclusion that it is in the  6  public interest, you have then examined the question of:  7  what kind of remedies are appropriate to the situation? Your testimony assumes, really, that there are two fundamental alternatives involved here.  11  in bankruptcy, having recourse either to Chapter 7 or  12  Chapter 11 of the Bankruptcy Act, or a Chrysler that would  13  be the beneficiary of a federal plan in lieu of bankruptcy.  14  Do you think that the Chrysler operation could continue  15 16  in Chapter 11? Secretary Miller.  I believe, Mr. Ashley, that in  17  Chapter :1, the company would not survive as an independent  18  automotive producer.  1  parts of its operation might be picked up.  20  would be permanent losses, both in terms of U.S. production  21  and in terms of market share and market competition.  22  •  One is a Chrysler  10  Mr. Ashley.  I think parts of it might survive, I think there  I wonder if you could furnish for the  23  record some back—up information on your assessment of the  24  cost of a Chrysler demise.  25  unemployment compensation and welfare payment and local and Federal Reserve Bank of St. Louis  You spoke in short term of  787  190 07 16 kapHEE  1  federal revenues and balance of payments.  2  111  It would be interesting if we could have that back—up  3  information together with any projections you might have as  4  to the somewhat longer term.  5  Secretary Miller.  Yes, sir, we would be happy to do  that. 7  10  12 13  •  14  15 16 17 Id 19  20 21 22 23  •  24 25 Federal Reserve Bank of St. Louis  (Information to be furnished.)  788  190 07 17 kapHEE  Mr. Ashley.  1  I've been interested in looking at the  2  Bankruptcy Act and the testimony we have had from people who  3  are very knowledgeable with respect to the new bankruptcy  4  act, because it seems to me that the plan that you have  5  advanced really does track the Bankruptcy Act in many respects, and satisfies the basic provisions and objectives  7  of the Bankruptcy Act. And I specifically am referring to the testimony which points out that Chapter 11 raises the following questions:  111  who will operate the business?  11  addresses itself to that.  12  available?  13  11.  14  debtor's pre—position contracts?  15  that.  16  What sources of credit will be  Your plan addresses that, just as in Chapter  What effect will Chapter 11  proceedings have on the Again, you have addressed  There are other questions, similiarly.  It was pointed  17  out that in bankruptcy there would be an examination of  18  Chrysler's past management practices.  19  addressed yourself to that.  20  supervision of Chrysler's feature operations would be  21  available, that again is implicit in your plan.  22  •  Your plan pretty well  10  Well, you have  That bankruptcy court  So I just think that it should be pointed out that we  23  are talking more form than substance here, as far as whether  24  there are positive advantages, it seems to me, to proceeding  25  on the basis of a plan in lieu of bankruptcy, for the Federal Reserve Bank of St. Louis  789  N0 07 01 kapHEE  I  reasons that you have articulated in your previous  2  responses. I am interested in the Reuss amendment because it raises  3  111  a fundamental question that I want to put to you:  5  of a control -- how is the Treasury Department, as the lead  o  department for the government in this matter, going to  7  exercise its position with respect to the operation of the Chrysler corporation? question:  44(  111  The Reuss amendment raises the  do we, at this juncture, begin to play a  10  management role by virtue of the proposal of guaranteeing of  11  credit?  12  telling the company the kinds of products it should be  13  making and so forth?  14 15 16 17 1d 19 20 21 22 23  •  what kind  4  24 25 Federal Reserve Bank of St. Louis  Are we going to put ourselves in the position of  CR 8190 HEER t-8 mte 1  •  790  1  Secretary Miller.  2  to do that, because in  3  did do that, then we would be taking on  4  beyond the kind of reorganization, without the uncertainties  5  of bankruptcy that you have just described.  6  then doing would be taking over accountability for the result,  7  and if the result was poor, I think many claimants would then  8  say, well, it is because of what you the Government did, not  9  because of what the company did.  10  •  •  Mr. Ashley, I would be very reluctant the way you state it, because if we a responsibility  What we would be  I think it is a dangerous path to go down.  I would point  11  out, however, that any major creditor has a say in the sense  12  that the plan has to be reasonable, it has to meet criteria.  13  And the nice thing about this kind of a program is that the  14  $3 billion will be raised only if a very large number of consti-  15  tuents agree that the plan is reasonable.  16  be just the Government and just Chrysler  17  banks and some dealers and some suppliers and some employees  18  and some others are going to have to agree before they put up,  19  or the State of Michigan is going to have to be satisfied that  20  the plan of operation is sensible and is going to lead them  21  into a viable condition.  It is not going to management, but some  22  And that will dictate very much the choices of product  23  over the short term, even if you have a long-term desire to  24  maximum fuel economy cars and small cars, which I think we  Ace-Federal Reporters, Inc.  25 Federal Reserve Bank of St. Louis  should have.  But we have to go there, down a path that gets  791  mte 2  •  1  us there and doesn't leave us short of resources at any point  2  along the way.  3  So I think we are one of a partnership of interests which  4  in its cumulative effect will, I think, represent a very intel-  5  ligent judgment of the right way for this company to go.  6  Mr. Ashley.  7  forebearance and get to a part  8  unanswered that I think is important.  9 10 11  •  of the question that remains  The Blanchard bill, as I recall, assumed the creation of a  Control Board, and I don't believe that your proposal does  so.  And I wonder if you would talk to that and tell us how,  12  in the absence of a Control Board, the position of the  13  Federal Government and the taxpayers can be protected?  14  •  Mr. Chairman, I wonder if I might have your  Secretary Miller.  I should have included that in my  15  answer, Mr. Ashley.  16  center this in one department is because it is very difficult  17  in the Federal Government to coordinate and take accountability  18  and responsibility of you involve too  19  we would do is set up a special office.  20  put a very knowledgeable person full-time, with appropriate  21  staff support, to make this project the function of that  22  office; to not only be involved in working out the financing  23  plan, which will take some time, in seeing that it is completely  24  done, but then to do the monitoring on the continuity of  The reason we believe it is best to  Ace-Federal Reporters, Inc.  25 Federal Reserve Bank of St. Louis  relationship that is essential.  many departments.  What  We would certainly  792  mte 3  •  1  So we would have an interface built into our structure  2  and with, I think, the right kind of accountability to make  3  sure that the Government's position was always looked after  4  with care and professionalism.  5  Mr. Ashley.  6  Mr. Moorhead.  7  •  •  Thank you, sir. I think we had better go off the record  for a moment, just to get our plans arranged.  8  (Discussion off the record.)  9  Mr. Moorhead.  Mr. Hinson?  10  Mr. Hinson.  11  Mr. Secretary, from the standpoint of mechanics, I would  Thank you, Mr. Chairman.  12  be interested in having a little more specifics on the way  13  that the Treasury would expect to use its authority under this  14  legislation, particularly in the area of direct loans as  15  provided for by the Blanchard bill, and I would be interested  16  specifically in knowing what use is envisioned, if any, of  17  the Federal Financing Bank.  18  Secretary Miller.  Mr. Hinson, our preference -- our  19  preference in our proposal is that we approach this through  20  guaranteed loans.  21  the possibility that the Federal Financing Bank might acquire  22  some of these securities at some other time.  23  start  24  it financed outside of the bank and accomplished as guaranteed Federal Reserve Bank of St. Louis  believe we would not want to foreclose  But we would  off from the proposition that we would prefer to see  Ace-Federal Reporters, Inc.  25  I  securities.  mte 4  793 1 2  •  3 4 5 6 7 8 9 10 11 12 13  • 14 15 16 17 18 19 20 21  O  22 23 24  Ace-Federal Reporters, Inc.  25 Federal Reserve Bank of St. Louis  Mr. Hinson.  Did I understand that you would not foreclose  the possibility of a direct loan from the Federal Financing Bank to Chrysler? Secretary Miller. Cr to having the Financing  Bank acquire  these loan positions. Mr. Hinson.  Can you say with any personal degree of  confidence that you won't be back under these circumstances, with the need to request an additional loan guarantee or more direct loan authorization?  Do you feel comfortable with what  you are asking for, and maybe along with the other private arrangements, that it may be adequate? Secretary Miller.  Mr. Hinson, from my business experience  I feel very comfortable with this.  I think this is a sound  financing package that is appropriate to the needs and to the outlook.  I can probably guarantee that a year and a half or  so I won't be back.  I can't guarantee you another Secretary of  the Treasury won't be. MR. Hinson.  On another matter, I would be interested in  just finding out whetheb or not -- what  attitude the Treasury  Department would have toward the possibility of trying to work out some additional arrangement with the UAW in the matter of its strike fund.  I understand it has some sort of constitu-  tional prohibition in its own constitution against the use of these funds for such purpose as, say, a loan or assistance to Chrysler.  794  mte 5 1  III  it seems to me it would be much easier for the UAW to amend  3  its own bylaws and constitution and provide this assistance  4  than it would be to ask the federal taxpayer to underwrite  5  an additional $100 million or $500 million or however much  6  additional funds would be required. Secretary Miller.  As you know, our plan contemplates We  8  additional concessions or contributions from employees.  9  certainly believe it is legitimate to consider what additional The possibility of them making some loans  10  the UAW might do.  11  from the strike fund and changing their constitution is per-  12  fectly proper to look at, because after all, Congress, if this  13  works, will pass a law which is an effort, I think, asking  14  employees directly involved to change their law, so to speak --  15  is not unrealistic.  16  III  not -- I mean,  2  7  III  What I would like to know is whether or  Now, I don't know whether that fund -- I don't know how  17  much that fund could provide and I don't know whether that  18  could be accomplished.  19  area, putting together the billion and a half dollars, as I  20  see it, and I don't see it as cutting into the other billion  21  and a half dollars of guarantee we still need.  But that is part of the legitimate  Thank you very much.  22  Mr. Hinson.  23  Mr. Chairman, I yield back the balance of my time.  24  Mr. Blanchard (presiding).  Let me mention for the  Ace-Federal Reporters, Inc.  25 Federal Reserve Bank of St. Louis  record, Congressman Hinson, that I am pleased to be a co-sponsoit  795  rnte 6  •  •  of the Administration bill.  2  the Blanchard bill, it may be considered the Moorhead-Wright-  3  McKinney-Miller-Blanchard bill.  4  Congressman LaFalce?  5  Mr. LaFalce.  6  Mr. Secretary, my initial thought was that the bankruptcy  Thank you  very much, Mr. Chairman.  But then, after I considered  7  laws would be most applicable.  8  the consumer psychology involved -- and this was even prior  9  to our hearings -- I concluded that, given the public awareness absolute desire on  10  of the Chrysler financial dilemma and the  11  the part of  12  he buys, both insofar as its maintenance and its resale value  13  and trade-in value, et cetera, that bankruptcy is not a  14  viable option.  any potential purchaser for security in the car  15  However, one of the advantages of bankrutpcy is that  16  there can be an arrangement of creditors, and what I have been  17  seeking is an arrangement of creditors as you would have under  18  the bankruptcy laws, without the stigma of bankruptcy attached  19  thereto, but as a legislative condition prior to the drawdown  20  of any guarantee.  21  411  So at this point, when you say  1  I don't know if this is going to be possible.  I hope so,  I don't know if we are talking that far apart, because  22  though.  23  you are talking, amongst other things, about the lowering of  24  interest rates by the present creditors,  Ace-Federal Reporters, Inc.  25 Federal Reserve Bank of St. Louis  maturity, et cetera.  an extension of  mte 7  796 1  •  It is very loose.  2  And we are engaged not just in economic discussions; we are  3  engaged in political discussions.  4  in  5  Dead," we might be dealing with President Ford today.  6  when you are negotiating with all of the parties involved,  7  whether or not there will be implementation of any legislation  8  that we pass, political pressures will come into play and you  9  know it.  10  •  I do have some difficulties, though.  If there were not a headline  the "New York Daily News," "Ford to New York City:  So what should we do to  Drop And  minimize the political pressures  11  and to ensure that any loan guarantee does have coupled with  12  it some arrangement for creditors and some things that are  13  legislative preconditions rather than just  14  in your hands, subject to a great amount of discretion?  15  have got some problems, though.  16  You said there would have to be agreeing up front as far as  17  this $1.5 billion.  18  flexible options I  You talked about specifics.  I don't think something is too green when you're talking  19  about not getting what you asked for, not getting what you  20  wanted.  21  It is not too specific.  Secondly, I do think that the interested parties should  22  have something definitely at risk prior to any governmental  23  money at risk.  24  a precondition, that there be some employee investment in the  And so I think it would be wise to demand, as  Ace-Federal Reporters, Inc.  25 Federal Reserve Bank of St. Louis  company, which investment would not be guaranteed and which  mte 8  •  797  1  investment  2  How we would structure this, whether it would be called an  3  ESOP or something else, is up in the air in my own mind.  4  I think that it is necessary and I would like to work with  5  your office on an amendment along those lines.  6  •  take a loss prior to any governmental loss.  But  Secondly, when you talk about giving you the pass-through  7  option, the problem is, when we give you that option,  8  the other creditors come in that becomes the starting line.  9  You're going to throw that on the starting line immediately.  when  10  You're not going to have a prior position over anybody unless  11  we legislatively give you a prior position for the total  12  amount or at least in part.  13  legislatively we should give you a prior position, so that  14  you don't have to give everything all at once, as you most  15  surely will do under the pressure of having the Federal  16  Government act.  17  •  would  And that is why I think that  And I will be chatting with you about that.  But what I want to get to now is, assume that we do call  18  for some arrangement of creditors, some renegotiation.  19  the present creditors have a prior position to the  20  United States Government, or could we demand that in this  21  new renegotiation of existing debt, that the present creditors  22  in the renegotiation take, at the very  23  with the Government,  24  require as a precondition for any federal guarantee, the new Federal Reserve Bank of St. Louis  least, an equal position  and any new loans which we would also  Ace-Federal Reporters, Inc.  25  Would  loans could take a secondary position?  mte 9  798 1  •  But as I under-  with our general counsel that I am correct.  3  stand our bill, it provides that existing loans would be  4  subordinated except with one exception.  5  existing liens, we will not be able to wipe them out.  If there are any  Do you mean anything that is collateralized?  6  Mr. LaFalce.  7  Secretary Miller.  Most of the credits(of Chrysler are  They are general credits, and they would  8  not collateralized.  9  have to be subordinated to our new $3 billion in financing or  10  to the new Government guarantees, excuse me.  11  required to be subordinated. Mr. LaFalce.  They would be  What if these were renegotiated?  Would they  13  then also be included within that category of loans that would  14  have to be subordinated?  15  Secretary Miller.  We are talking about requiring that  16  all existing credits be continued, that they be subordinated,  17  and they would be reduced only at maturity dates that are now --  18  that were existing on October 17th.  19 20  •  I'm just going to check and make sure  2  12  •  Secretary Miller.  Mr. LaFalce.  Is this presently mandated in the bill or  is it discretionary? It is, I believe, mandated in the bill.  21  Secretary Miller.  22  My counsel points out that there is a provision that the So you are correct that if the  23  Secretary could waive it.  24  Congress felt that that waiver authority was giving me too  Ace-Federal Reporters, Inc.  25 Federal Reserve Bank of St. Louis 0  much authority, that could be taken away and you could require  mte 10  799 1  •  There was  a phrase later that said that the Secretary, if he found it  3  necessary to get the financing together, and found that  4  repayment cE the guaranteed loans was reasonable, that he  5  could waive the subordination.  6  to other creditors, either existing or new ones.  He could never give priority  I agree with you, this is a legitimate area of concern, your judgment and your ideas in this area.  8  and we will welcome  9  We are trying to shape this in a way that is workable and yet  10  does give the greatest protection and safeguards.  11  Mr. LaFalce.  12  Mr. Moorhead (presiding).  13  Mr. Evans (Indiana).  14  111  existing credit be subordinated, period.  2  7  •  that all  Thank you. My time is up. Mr. Evans?  I have no questions at this time,  Mr. Chairman.  15  Mr. Moorhead.  16  Ms. Oakar.  17  Thank you, Mr. Evans.  18  Mr. Miller, I wanted to certainly commend you for your  Ms. Oakar?  Thank you, Mr. Chairman.  19  testimony.  20  not been convinced yet from the testimony  21  throughout these hearings about one special point.  22  am concerned about the fact that we have a tremendous number  23  of individuals who will be potentially unemployed, and I under-  24  stand the unemployment problems and the ripple effect in our  Ace-Federal Reporters, Inc.  25 Federal Reserve Bank of St. Louis  economy.  I am concerned, and I want to be honest.  I have  that I have heard I mean, I  800  mte 11  But I just wonder if we are prolonging a terminal illness.  1  •  2  And on that note, because I haven't been convinced by the  3  testimony, I decided to go out in the field and see a little  4  bit of the grassroots individuals who will be affected and do  5  influence policy, or try to, anyway.  6  Chrysler plant, but there are some in Ohio, and obviously it  7  would have a devastating effect to an extent on my state.  8  I visited a plant where there are 3700 employees.  They said  10  And let me tell you some of the things they said.  11  the workers said there is no suggestion box -- and this may not  12  seem like, you know, the ultimate when you are trying to assure  13  that the management of a company will be adhered to in a very  14  disciplined fashion, but I think it is kind of indicative of  15  what has gone on in the past. Ford and Chevy plants in my district, they have a sugges-  16  •  So  I went out to the dealerships in the areas and so on.  9  •  So I don't represent a  17  tion box for employees whereby they can say how they can save  18  the company thousands of dollars.  19  offering a viable suggestion, they are rewarded.  20  in this particular plant and they don't look forward to having  21  one.  22  And if they succeed in There is none  The managers of the plants, they had very little to say I'm not trying to get them in trouble, but  23  about policy.  24  obviously they must have some ideas about what the problems  Ace-Federal Reporters, Inc.  25 Federal Reserve Bank of St. Louis  are and whether or not they ought to be making various other  mte 12  411  801 1  parts and whether or not they are using the kinds of products  2  and are being supplied products viably.  3  be that kind of input.  4  It's these kinds of people that daily live this experience, And I really wonder, has the Treasury Department been  have.  6  out in the field?  7  union, we have heard from the president of the Corporation.  8  Have you been out in the field to see the dealerships, for  9  example?  I mean, we have heard from the head of the  Tell me that they can't -- I mean, they are, after all,  11  where it's at in terms of selling the cars.  12  in and they know what their customers want, and they see the  13  potential for what the American public needs and wants.  14  it is a cold day in hell for getting these kinds of cars that  15  they need.  16  them.  They put orders  And  And as a result, their competitors are out-marketing  17  And I'm just wondering, is Chrysler going to operate  18  business as usual or are there going to be some changes on the  19  local level to really assure that their past management prac-  20  tices will change?  21  O  seem to  5  10  •  There doesn't  Secretary Miller.  Ms. Oakar, I hope the latter.  Let me  22  say, your inputs are very helpful, because I do believe that  23  the involvement  24  to shape its future.  of the whole company is going to be required I can sympathize with the employees who  Ace-Federal Reporters, Inc.  25 Federal Reserve Bank of St. Louis  feel they don't have a place to make a contribution, and I'm  802  mte 13 1  •  2  dealers, because, for example, the cars of Chrysler,  3  and the Horizon are in great demand, and they can't produce  4  them.  5  decided some years ago to buy them from Volkswagen.  6  only get 300,000 a year.  7  and that is in this program.  8  That's because they can't get the engines because they They can  So they have to build an engine plant  But it is that kind of task that we do -- what we're trying to do in our role is look at their program to overcome that  10  and to be sure that they have control over their destiny so  11  that they can produce the cars that can sell. They have, as you know, decided to go away from the sales  13  bank idea, where they produce cars they wanted to produce and  14  then hope the dealers could later sell them.  15  producing only to dealer order.  16  have --  17  Ms. Oakar.  Now they're  Unfortunately, they don't  But if you will pardon me, they have to have  18  some kind of prophetic notions about what is going to sell in  19  a couple of months from now, also.  20  •  the Omni  9  12  •  I can sympathize with the  sure that needs to be corrected.  Secretary Miller.  Absolutely.  They have to have marketing  21  that feeds in the market requirements, so they can set up their  22  lines.  23  capacity, and particularly following the gasoline shortage.  24  It was in the wrong place at the wrong time.  But part of it is their fundamental base production  And the cars  Ace-Federal Reporters, Inc.  25 Federal Reserve Bank of St. Louis  that have been selling last year don't sell, and the cars that  803  mte 14 1  •  will sell they are not able to produce, and that is one of the problems.  3  And one of the efforts here is to get them, as fast as possible.  4  the resources to make the tooling and do the capital expendi-  5  tures which will get them into the production of the kind of  6  cars that not only the market should want  in the future, but  7  which as a nation we have got to produce.  We cannot afford to  8  produce anything else in the future.  9  •  Ms. Oakar.  Do you have assurances that they are going to  10  change their ways?  11  I'm asking -- I mean, I didn't see that, frankly, in the  12  testimony.  13  I guess that is putting it simply.  What  And I don't see that in the field.  Secretary Miller.  They have  as the head of the company  14  now, a man who has testified here, I believe, Lee Iacocca, who  15  was the President of Ford and is very experienced as an  16  automotive executive and has very great experience.  17  been there for a short time.  18  a very short time.  19  III  And we can't duck that problem and we can't hide it.  2  He has  He has been chief executive for  I think, based on his track record, we would have to say don't know who you would hire in America, who would be a  20  we  21  better automobile operator than he is.  22  have to go with that for the moment.  23  other executives who have had many years experience elsewhere.  24  And on the record, they look  So we just, I think, He has brought in some  like very competent people.  Ace-Federal Reporters, Inc.  25 Federal Reserve Bank of St. Louis  But unfortunately -- I will not kid you -- in a business this  mte 15  •  804  1  big, you do not in one month or two months change direction or  2  change course.  3 4  and make sure that they are on the plan and on the program.  5  And I'm sure there will be some other strengthening needed in  6  the company to carry this out, and we will expect it as part  7  of our program.  8  Ms. Oakar.  9  •  Mr. Chairman, my time  has expired.  But I  certainly have a few questions along that line to pursue.  10  Mr. Moorhead.  11  Mr. St Germain.  12  And I want to thank the Secretary for his very, very  13 14  •  We will have to evaluate this quarter to quarter and see  Mr. St Germain? Thank you, Mr. Chairman.  helpful presentation this morning. I would say to my colleague from Ohio that the complaints  15  that dealers of Chrysler have about not getting the right  16  cars are not unique to Chrysler.  17  are General Motors dealers, and for instance, the new X-car  18  that is being produced by General Motors, they are yelling and  19  screaming because they are five and six months behind in their  20  orders.  I have very good friends who  21  Unfortunately, I have a lot of friends who are automobile  22  dealers, and all I ever get from them are complaints about the  23  way they are treated by General Motors and Ford, let alone  24  Chrysler.  So it is not unique to Chrysler.  Ace-Federal Reporters, Inc.  25 Federal Reserve Bank of St. Louis  Mr. Secretary, as far as Chrysler Finance is concerned,  805  mte 16  •  1  am I correct in my understanding that they indeed financed the  2  floor plans for their dealerships?  3  Secretary Miller.  4  Mr. St Germain.  General Motors stopped doing that a number of years ago; is  6  that not correct?  8 9  III  Which is again unique, in that Ford and  5  7  •  Yes.  Secretary Miller.  I believe that is correct.  I believe  they finance consumer paper, but not the floor plans. Mr. St Germain.  I wish most of my colleagues were still  10  here, because  11  Mississippi about whether or not you felt that, should this  12  plan be approved, what in your own judgment -- what did you  13  think as to the success of this plan, your words were that, as  14  a businessman yourself, that you felt, after studying this  15  very thoroughly, that the chances of success were very strong.  in answering a question of Mr. Hinson of  16  Secretary Miller.  17  Mr. St Germain.  Reasonably. And of course, you have to say reasonable,  18  because one never knows in these days.  19  '73 and '74, and we have had things happening to us ever since,  20  that no businessman, even with a crystal ball, could have  21  predicted.  22  I mean, we go back to  But I would like to emphasize that, as one who has  23  observed the Secretary over a number of years prior to his  24  coming to serve his government and his country in Washington,  Ace-Federal Reporters, Inc.  25 Federal Reserve Bank of St. Louis  that I would rank him -- and  ! I am not alone or unique in this --  mte 17  e-8  806 1  as  2  year in this country of ours; and that in this particular case,  3  in this instance, he certainly is calling upon his expertise  4  over a number of years as the head of one of the nation's or  5  the world's largest businesses.  6 7 8 9 10 11 12  •  13 14 15 16 17 18 19 20 21  •  22 23 24  Ace-Federal Reporters, Inc.  25 Federal Reserve Bank of St. Louis  perhaps one of the outstanding businessmen in many, many a  807 190 09 01 pv HEE  •  For that reason, I would say your testimony is  1 2  compelling, knowing of your past experience, and when you're  3  willing to stand up here answering the questions you have.  4  And I think they have been very clear answers, very direct  5  answers, and you haven't attempted to in any way equivocate.  And I think that we all have to take this into  consideration as we reach a final conclusion. 3 9  O  one point where you say "continuation of present financing Now, does that mean that if banks X, Y, and Z  10  commitments."  11  have loan commitments to Chrysler, that one of the  12  preconditions is that they will honor these commitments into  13  the future and you would not call some of these loans in  14  ahead of time?  13  Secretary Miller.  15  Mr. St Germain.  11 18  O  Mr. Secretary, on page 14 of your statement, there is  That is correct. And that is solid as the rock of  Gibraltar as far as preconditions are concerned? That is correct.  Secretary Miller.  And we are talking  19  in our proposal that these be the commiemtns and not the  20  takedowns. Lines of credit commitments as well?  21  Mr. St Germain.  22  Secretary Miller.  23  Mr. St Germain.  That's correct. I am pleased at that, because there has  24  been some concern on the part of some that on the one hand  25  these banks would not honor these commitments and yet come Federal Reserve Bank of St. Louis  808 190 09 02 pv HEE  1  in under the loan guarantee and collect a rather hefty  2  interest rate for these loans with the full faith and credit  3  of the United States Government behind these loans.  4  this certainly, I think you would agree, would be rather  3  unfair.  3  And  These commitments are needed for  Secretary Miller.  their continuing financing olus the seasonality and 8  intra—month.  9  takedowns.  10  •  So, you need those commitments even with the  Mr. St Germain.  Now, let's say, particularly because a  11  it's $1.5 billion that you need or are requiring  12  precondition, let's say that a particular set or one or two  13  large financial institutions that do have these commitments  14  say, "No, we are not going along with it," out yet on the  15  other hand the $1.5 billion is achieved and the loan  15  guarantee is in place from the Federal Government.  17  as  Now, what would the attitude of the Treasury be about  18  those same oanks that don't honor those commitments coming  19  in and saying, "Well, yes, we will be happy to loan the  20  money under a loan guarantee."  21  Secretary Miller.  Would they be precluded?  Nell, if we don't get the  22  continuation of the commitments, of course, there will be no  23  loan guarantee.  24 23 Federal Reserve Bank of St. Louis  Mr. St Germain.  _Well, it could be, Mr. Secretary, that  if there is X number of banks that didn't honor these  809 [90 09 03 pv NEE  111  1  commitments, that nonetheless you would still reach $1.5  2  billion.  4  But you would not have met the  Secretary Miller.  3  condition of continuing the present financing. Mr. St Germain.  6  So, in other words, if one ban'; says  "No," the conditions aren't met?  8  they will fail to meet the conditions.  )  111  Mr. St i3ermain.  So they get a substitite and  10  subsequentl/ after this goes into place can that bank that  H  aid not go along, would you condone that banl< that did not  12  go along?  13  Secretary Miller.  14  Mr. St Germain.  1D  I wouldn't. Is there anything in here that would  preclude that?  16  Secretary Miller.  There is no statutory preclusion.  I  li  would think that we would certainly disqualify that bank if  13  it failed to meet its one commitment and then looKed for a  1)  guarantee.  20  wOULJ have no objection to it.  21  411  They will have to get a substitute or  Secretary Miller.  i  But if you felt that would be in the statute, I  ',fr. St Germain.  Well, if not in the statute, I think it  22  should be very strong in the language of the report,  23  Mr. Secretary and Mr. Chairman, because what's fair is fair.  24 )3 Federal Reserve Bank of St. Louis  Secretary Miller.  That's right.  If the report could  show that, that would certainly be helpful to us to clarify  810 190 09 04 pv RE  •  I  that it would not be proper for a oank to cut out of the  2  present lines and then seek a position in the guaranteed  3  lines.  4  Mr. St 3ermain. committee.  the chairman and the  My time has expired. Mr. Bethune.  Mr. Moorhead. Mr. Bethune. 3  I than  Thank you, Mr. Chairman.  Mr. Secretary, you referred to this as  one—time  program," in that we are making an exception that you found 10  to oe in the public interest, and language has been used  11  tnat this is a "plan in lieu of bankruptcy."  12  main reason tnat you give for fashioning the plan in lieu of  13  bankruptcy, it seems, is that the aspect of consumer  14  psychology.  13  And tnen the  Now, if we do this for Chrysler, what are we going to  16  tell the otner poor devils out there in the country, the  1/  small businessman or middle—sized businessman or someone who  18  is not a giant in business in this world who is faced with  19  taking oankruptcy?  20  manufacturing and marketing consumer goods; he is also in  21  the business of servicing sales and honoring warranties; and  22  he has employees and stockholders.  23  I mean, he is in the business of  And they plead to us as members of Congress; they say to  24  us, "Nell, this business of consumer psychology is going to  25  ruin me if I am forced into bankruptcy. Federal Reserve Bank of St. Louis  There is no way I  811 1 90 09 05 pv HEE  III  It's going to hurt my business."  And  i  can rehabilitate.  )  they say tnat they are taxpayers and they want a plan in  3  lieu of bankruptcy. Aow, Mr. Secretary, what do I say to those people?  4  Secretary Miller.  I think we have to point out that our  general rule is tat government aid to private corporations i  is not a sound way to go.  3  reasons I have outlined. And I would point out, on the question of the consumer  ›)  III  In the  13  franchise, that we have a number of factors here.  11  first place, this is a major industry with only three major  12  proJucers, and we have a nationwide business, distribution  13  of a product that is expensive to acquire, expensive to  14  maintain, and for which after—service is very critical. I don't know that you can find many small businessmen,  15 16  who, even if they have consumer products, have all of those  1/  conditions:  18  country, that their product is nationwide, that it is  19  expansive, that it needs service.  23  III  This is an exception, for the  where there are only two other suppliers in the  I think what you will find is most of those kinds of  21  people have products that can continue to be sold even if  22  thei're going through reorganization because they don't  23  require the after—service or the tremendous investment in  24  facilities to support the product that is required for  2'_)  something like the automobile business. Federal Reserve Bank of St. Louis  812 90 09 06 pv HEE  1  If there is a consumer product that goes into housewares, I am sure that most householders buy the product  111  3  expecting it to last for its life and they don't care  4  whether the company that sold it, as long as it has got  3  good value, is in business next week.  That's not true with  the automobile. 3o, I think there are a lot of differences, and I think 8  we do have to stick to the point that there are some basic considerations here in the public interest.  Ae don't want to make a precedent -- I don't want  1J  unique.  II  to make a precedent -- that this now means the government  12  should undertake to assist or underwrite every business.  13  111  They are  14  :Ar. Bethune.  Now let's just assume for a moment that we  can sell that political explanation -- because that's what it is -- let's assume then that the same poor devils are  15  drug into the bankruptcy proceeding either oy force or oy  Ii  voluntarism.  13  Justice Department; have you had an evaluation of what this  1)  is going to do to the credioility and integrity of the  20  bankruptcy law and the processes that are carried out there?  21  And I wonder, have you checked with the  I wonder what is going to happen when the people that  22  are pulled into oankruptcy court raise these points that I  23  am raising, and the cry that they are being discriminated  24  against or they are denied equal protection of the law.  2D  wonder, have you explored that with the Justice Department? Federal Reserve Bank of St. Louis  I  813 190 09 07 pv  1  I had not explored it with the  Secretary Miller.  We do have a study under way into the  2  Justice Department.  3  bankruptcy laws as tney apply to Chrysler, which we will  4  nave ready soon and submit to you. 3ut I would suggest that, you know, in most reorganizations under bankruptcy, tne present bankruptcy law, the new oankruptcy law does allow a system for  3  continuity in the business; it does allow for a system of accommodation of creditors; it does get away from the one  13  group being able to block the final resolution of the  ii  proolem for all the others.  12  flexibility and does avoid the kind of hangups that we had  13  under the prior law.  14  And it does give more  And I think, for the businesses that you are talking  13  about, that kind of reorganization in which the people who  15  have a financial interest will also have an interest in  1/  seeing the company come out successfully, would serve the  18  needs.  19  Mr. Bethune.  But you say the main reason that we can't  20  apply this particular law to Chrysler is the consumer  21  psychology angle.  22  can't apply that law other than the consumer psychology?  23  Can you give me any other reason why we  Secretary Miller.  I believe that the main reason that  24  ChrYsler would not continue as a separate major producer if  2  we want through a bankruptcy reorganization is because its Federal Reserve Bank of St. Louis  814 190 09 08 pv HEE  •  I  mar at and its product would be permanently impaired during  2  the process of that reorganization, and that permanent  3  impairment would mean that we would lose these other  4  objectives of maintaining a U.S. position in automotive  3  production of adjusting our total productive base to the .-11.DuJcivul,Jift  5 product  3  tl  UI  iete1L oi this  to overseas producers and the loss of American jabs  permanently. I think it is so unique that I just cannot imagine in my  10  own mind the small businesses that could indicate that they  11  have the same impact and the same public effect.  12  hard—pressed to find an analogy.  13  411  So, I am  I do believe Congress has the authority to make this I do not believe that impairs the rights of any  14  exception.  13  other enterprise.  15  protected by the laws, the bankruptcy laws, from undue and  1/  harsh treatment and liquidation, and they will be entitled  13  to work out a plan if they can show how to do it.  19  will continue to have that, and I think that's the test we  20  can do.  21  Mr. Bethune.  2)  Mr. Moorhead.  And other enterprises will continue to be  Thank you.  And we  My time has expired.  Remembering the committee's commitment to  23  the secretary to try to have him finish by 1245, are there  24  any members who would submit their questions in writing?  25 Federal Reserve Bank of St. Louis  Mr. Green.  Mr. Chairman, could I raise a question?  I  815 90 I. S. pv HEE  1  am perfectly happy to submit questions in writing, but  2  obviously I would like to have answers before we mark up  3  this bill.  And I am concerned about what the schedule is  going to be for maricup. Ne have been given this very complicated document, where  3 5  under questioning there was at least one point that needed  7  clarification.  3  to the numbers that are used here if we do have a projection  9  of no increase in market share.  And I would really like to see what happens  I might also point out that three weeks ago in this room  13  I asKed Mr. Iacocca to supply us with a full report on the 12  battle tank program, including its cash flow prospects and  13  the mechanical problems that have been encountered.  14  agreed, but I have not yet got  13  dublished reports of severe problems with this that might  13  cause the Department of Defense to delay the production  14  schedule, and I would like to know what impact that mignt  13  have on the cash flow.  19  .In  And he  there have oeen  So, I think there is a lot of work to be done, and I And under  20  hope that we're going to have the time to do it.  21  those circumstances, yes, I would certainly be happy to  22  submit my questions in wrng.  23 24 23 Federal Reserve Bank of St. Louis  Mr. Moorhead.  Nell, unless they are too complicated,  you can get answers back very promptly. Secretary Miller.  We will respond as rapidly as we can,  816 11 90 09 10 pv HEE  111  We know, and we appreciate,  1  and we want to do so promptly.  2  /our indulgence in allowing us to do this in—depth study.  3  Ne just did not feel comfortable making a proposal to you  4  until we knew this much, and now we're going to respond to you very rapidly because we have the base. Mr. Green.  5 4  leadership of the committee have the same indulgence to the  3  minority members who wish to examine this very complicated  9  report and go through it.  10  12  Secretary Miller.  Mr. Green.  Mr. Chairman, I guess what I am asking is  are we proceeding to mark up tomorrow? Mr. ifoorhead.  13  I doubt that we will have time.  We go  But I do want to get to it  15  into session at 10:00 o'clock.  1/  promptly, but not conclude it promptly, but get started on  13  it.  19  Mr. Green.  With the assurance that we are not going to  20  trY to ram this thing through tomorrow, then I am certainly  21  quite pleased to submit the rest of my questions in writing.  22 23  •  Mr. Green, if you can let us know the  questions, we will respond post—haste.  13 14  And we want to get additional  data from you.  11  III  All I ask is that the administration and the  24 Federal Reserve Bank of St. Louis  (COMMITTEE INSERT.)  817 90 09 11 pv HEE  Mr. Kelly.  1  Mr. Chairman, I can submit my questions in  writing.  •  3  Mr. Moorhead.  4  As. Oakar.  D  As. Oakar.  Mr. Chairman, I am more than happy to submit  my questions in writing.  But if we are going to proceed in  that manner, then I would assume that we would all proceed that way unless we have an agreement among one another that 3  all of us would do the same thing. V.r. Kelly.  Mr. Chairman, I have questions I want to ask  now, rather than depend upon some misunderstanding. 11  ask a question and they respond with a funny answer, then I have got to submit another question.  111  effective way to do this is to do it right now.  11  are  13  long time.  30  13 1) 2) 21  And if we  busy that we can't g3t to it, I am willing to wait a  (Laughter.) Ms. Oakar.  •  And I think the  13  13  If I  Mr. Chairman, may I suggest, since it is  12:43 aria we did say we would respect -Mr. Moorhead.  Well, I think the secretary has indicated  he would just as soon continue. Secretary Miller.  If we are down to a few questions,  22  then I would serve you well by completing them so your  23  schedule would not oe tied up this afternoon. I do have one more question.  24  Ms. Oakar.  ),  Mr. Moorhead. Federal Reserve Bank of St. Louis  ell, I would recognize Mr. Blanchard  I  818 90 09 12 pv HEE  1  first. Mr. Blanchard.  2  III  Mr. Secretary, I am curious as to  3  whether you have any plans to help Chrysler retain its  4  credit commitment to at least those prior to October 17,  3  which I understand will be important. 3ecretary Miller.  5  We have called upon all of the  creditors to stand still.  ;le believe it is in their I believe they will because to go  8  self—interest to do so.  9  in another direction when this committee is acting  10  affirmatively, as long as it is toward passage, I think they  H  likely will stand still. Mr. Blanchard.  12  And then, regarding the concessions and  13  commitments that are going to be required here in order for  14  you to trigger the loan guarantees, which I think is an  ID  excellent idea and only understandable, especially in light  13  of Jew York's experience and others, is there any special  11  reason why you picked October 17 rather than like September  13  15?  19  Secretary Miller.  4e picked the date of the plan  20  because we thought if we have a baseline we should start  21  with the base and then make adjustments.  22  to be the day they filed the plan, the date they  23  represented.  24  accomplished after that is a favorable impact upon that plan  25  and would be counted; anything before that had already taken Federal Reserve Bank of St. Louis  That just happened  So, we said anything that could be  819 190 09 13 pv HEE  And that is the reason that is the date of the  I  place.  2  Chrysler plan itself, for which we have done the figures and done out footings, and it is a variation from those footings  111  4  that we are looking at. I understand they have several plans,  Mr. 31anchard.  and r don't know whether there were any commitments or concessions they received between plan 1 3  3ut I would assume that if there were, that might be a bone of contention.  13 II  111  111  and plan 2 or 3.  I don't know that there is.  Secretary Miller.  I think everybody is happy with the  date we have selected as being fair. ell, that is helpful.  Thank you.  12  Mr. Blanchard.  13  Mr. Moorhead.  14  Mr. Kelly.  13  Mr. Secretary, as I understand, what is happening here  Mr. Kelly.  Thank you, Mr. Chairman.  13  is we are saying that the financiers and the industrialists  1/  do not deal besically in human terms; they jeal in money.  19  But it is an obligation of those of us in government to be  1)  concerned about the people, about wives and children and the  20  impact of disruption in business and in the economy.  21  understand that there is a further obligation, and that is  22  that this is the government of all of the people, that we  23  represent everyone.  2 Federal Reserve Bank of St. Louis  low, my question to you as a financier is:  Now, I  isn't it  more in the interest of all of the people to invest a  820 190 09 14 pv HEE  1  billion and a half or $3 billion or whatever we're getting  2  reauy to do in the most efficient industry we can find to  3  nelp us produce the best goods of highest duality, cheapest  4  price, to help us with inflation, rather than to start another welfare program for a company that has not succeeded? And the only reason we are doing this is in the name of  8  women anu cnildren, but what women and children?  The women  and children of the highest-paid industrial workers in the 10  United States.  11  onl/ reason.  12  And why?  For politics.  And so, my question to you is:  That can be the  to serve all of the  13  people, if we're going to invest any money, shouldn't we  14  invest it in the most efficient operation and not the one  13  that has been rejected by every volunteer in the entire  15  financial and industrial world?  1/  Secretary Miller.  All of those efficient producers, I have taken  13  Mr. Kelly, do not need government assistance.  19  an oath that I will perform for the good of all the American  20  people to the best of my ability.  21  case that this plan has a high probability of assuring that  22  we create over time an efficient producer of the kind of  23  automobiles that our nation needs, sustaining the level of  24  production, output of jobs, and wealth generation that our  25  nation needs and which contributes to the well-being of all Federal Reserve Bank of St. Louis  It is my judgment in this  821 190 09 15 pv HEE  1  Americans. And I oelieve that the alternate to doing this is to  •  3  have an involuntary tax upon all Americans from the losses  4  that will come from not doing it.  And the fact that the  revenues and the out—gos of the Federal Government will oe greater without doing this means that every American will contributing to the failure of Chrysler.  I would rather  have every American contribute to a guarantee as a reasonable risk to avoiding that alternate cost. Mr. Kelly.  13  O  Aell, Mr. Secretary, let me ask you this. Chrysler is a principal  11  You are a principal player.  12  player.  13  neophyte or that you just fell out of a Christmas tree.  14  think that what you  1D  same kind of responsibility to those in Chrysler.  No one can attribute to you the fact that you are a  JO  I  is deliberate, and I attribute the  Now, between October 17 and November 7 we have gone from  15  Fhis is a  1/  a $2.1 Pillion estimate to a $3 billion estimate.  13  42 percent error.  1)  reflects not a lack of quality in judgment of financiers anJ  2)  industry, but I think this is a political judgment.  21  Senator Proxmire has said that this thing is greased, it's  22  going to go, and there is nothing that anybody can  23  it.  2  political judgment that we can just up the ante.  2D Federal Reserve Bank of St. Louis  Now, it would seem to me that this  JO  about  So, I think, since it is going to be so easy, it is a  And in connection with that, I want to ask this.  If  822 190 09 16 pv HEE  1  Chrysler went on the market today and was going to get  2  money, going to borrow money, going to borrow the $3  3  billion, what kind of interest rate would they pay?  4 3  Secretary Miller.  I don't believe they would be able to  raise the money, Mr. Kelly. Mr. Kelly.  But they would come somewhere in the area of  junk bonds, like 15 percent? 3 9 10 11 1) 13  Secretary Miller.  Well, I am sure that any money they  could raise would be high—cost, but I do not believe they could raise the $3 billion. Mr. Kelly.  And if they were going to get it, though, it  would cost 15 percent or more? Secretary Miller.  Well, it depends.  If they could  14  raise money by selling the company and merging -- I think  13  you are asking me a question, if you are asking me what it  15  would cost for Chrysler to raise money -- a lot.  1/  Mr. Kelly.  All right.  Now, if we go forward with this  13  just like you recommend to the American people for the  19  benefit not of the American people but just these few people  20  in Detroit, what is going to be the interest rate that they  21  will pay?  22  for with your plan?  23 24 25 Federal Reserve Bank of St. Louis  What kind of rates will Chrysler get the money  Secretary Miller.  They will have to pay a reasonable  rate of interest plus the fees that we will charge them. Mr. Kelly.  Well, give me some figures.  J  823  190 09 17 1  pv HEE  Secretary Miller.  I believe it would be impossible to  tell what the market will be when we make the financing 3  agreement. Mr. Kelly.  3  Nell, what will be the criteria?  How will  you arrive at it? Secretary Miller.  The criteria will be the market.  The  guaranteed loans will have to bear an interest that the 3  marklt will pay. .4r. Kelly.that is the market, though, tnat the  1J  government can borrow the money at?  11  corporation?  12  3ecretary Miller.  Correct.  Not a aefunct  And that -- you would have  -N 13  to add to tnat the fees that we charge for our guarantee.  4  14  Mr. Kelly.  Well, by any standards, that is a super  bargain, isn't it, the difference between wnat they could 15  get it for through voluntary action in the marketplace and what we're going to compel the American people to invest in  18 1 29  ? Federal Reserve Bank of St. Louis  Chrysler whether they like it or not?  824  190 10 01 gshHEE  1  Secretary Miller.  Remember, this is the same American  people that if they don't invest, will have an involuntary  111  Ana don't forget that while you can  3  cost imposed upon them.  4  saY this saves a few people in Detroit, doesn't it aid every  5  American to maintain a viable automotive industry?  6 7  Doesn't it aid every American to avoid a billion dollar balance of payments deficit each year?  Doesn't it aid every  American to avoid transferring jobs overseas? 9  aid every American to avoid a billion dollar cost to the  10  Federal -- not mentioning Detroit and New York and other  11  states next year?  12 13 14 •  Doesn't it  I think we have to weigh the benefits and our judgment is -Mr. Kelly.  Mr. Secretary, my time has expired.  I'm  And I think that the  15  hoping to have another opportunity.  16  next question would indicate an answer to your question.  17  Mr. Moorhead.  ld  Ms. Oakar.  19 20  Ms. Oakar?  Mr. Chairman, I'm just going to ask one  quick question. Mr. Secretary, you did mention the third quarter results And it is my  21  concerning Ford and General Motors.  22  understanding -- I could be wrong -- but from my memory, I  23  recall that Ford would have really had a more devastating  24  show had it not been for their foreign assets.  25 Federal Reserve Bank of St. Louis  This is a two—fold question:  One, what guarantee do we  825  190 10 02 gshHEE  111  1  have that other automobile companies are not going to come  2  before this Congress; and secondly, are we contributing to  3  an unfair competition by assisting Chrysler, and at the same  4  time, providing those kinds of loan guarantees which, in  5  effect, will, I believe, anyway have some kind of  o  ramification as it relates to Ford and General Motors and  7  American Motors? Secretary Miller. I believe Ford and General Motors have the capacity to finance themselves.  Chrysler is now a domestic producer.  For all  10  producers.  11  practical. purposes, they do produce some in Canada and some  12  in Mexico.  13  111  They are muli—national  But their main business is U.S.  General Motors and Ford have international operations,  14  which is beneficial because that means the American designs  15  can reach around the world and help support the research for  16  our base.  17  earnings in different markets, support the overall  16  investment. Even when there is a downtake in this market,  19  some other market may be good and it creates the same cash  20  flow that supports the corporation.  21  And it does strengthen the companies and the  I don't believe that we can be accused of unfair  22  competition in trying to prevent us going to a very  23  non—competitive, two—producer situation.  24 25 Federal Reserve Bank of St. Louis  I think we really are pro—competition by maintaining a major third U.S. producer, and we are pro—consumer in doing  826  190 10 03 gshHEE  411  1  so over the long—term because as you shrink and shrink and  2  shrink until you become almost a monopoly in this business,  3  and I think that that is not the right way to go from the  4  point of view of not maintaining the total competitive structure. But I  0  Of course we do have competition from overseas.  7  think we have an interest in maintaining the competition within our own structure and to maintain a greater  9 10  giving us outlets to foreign markets through some of those  H  producers, at least.  12 13 14  111  Ms. Oakar.  So you don't see that we will be dealing  with Ford or American Motors? Secretary Miller.  I don't believe so. They have high  They have adequate resources.  They are  15  credit ratings.  10  going to make major capital investments in the next few  17  years.  lb  I believe that they can finance them.  19  Ms. Oakar.  20  Thank you very much, Mr. Chairman.  Mr. Moorhead.  22  Mr. Green.  24 25 Federal Reserve Bank of St. Louis  Thank  you, Mr. Secretary.  21  23  111  possibility of that compeition, either offsetting imports or  Mr. Green?  Has the Treasury taken a look and done an  analysis of the British Leyland experience? My understanding is that there's an example of a similar effort with government intervention to save an automobile  827  190 10 04 gshHEE  1  company for many of the  2  so eloquently.  3  same reasons that you've expressed  And that was a disaster.  Secretary Miller.  Mr. Green, that is an example of what We don't want to take over and run  4  we don't want to ao.  5  Chrysler, and we don't want to take that responsibility over.  7  We must say to you, frankly, we believe that this is a reasonable financing plan and we'll be in the role of  9  10  creditor.  If we fail, then we will lose some money.  don't think that we should take over Chrysler and try to run it as a government.  12 13  But I  We would probably fail just like the  British government did. Mr. Green.  Let me ask you another question.  It is  14  obvious -- and I agree, you are correct that this is  15  probably an amount of capital that Chrysler could not get in  16  the capital markets.  17  almost certainly be a venture capital type of deal.  lb  But if it were to get it, it would  Ana in any venture capital kind of deal, normally, the  19  investor -- and in this case, the investor is the United  20  States Government -- gets more than a 1  21  plus loan guarantee fee.  22  percent or 1  percent  Now I realize that we give benefits and externalities  23  that you have been discussing, but aren't we really entitled  24  in this kind of situation to some major participation in the  25  upside directly, if we, in fact, cause this capital infusion Federal Reserve Bank of St. Louis  628  190 10 05 gshHEE  1 2  111  that turns Chrysler around? Shouldn't we perhaps get a major stock position in  3  Chrysler and make it non—voting stock if you're concerned  4  about the ideological problem of our getting involved in the  5  day—to—day management?  o  Secretary Miller.  I would have no objection, Mr. Green,  7  to us taking compensation in the form of some sort of  8  kicker, some equity kicker or some other. I would have no objection to us turning a profit for the If we are too successful in  10  U.S. taxpayer in this process.  11  that, it might encourage Congress to want us to take over  12  other companies.  13  make it to the government.  14 15 16 17  So we have to be careful how profitable we  And so we will have to balance that and not tempt you for putting investments into other companies. Mr. Green. But in any case, the Administration has no objection to the principle?  18  Secretary Miller.  19  Mr. Green.  20  Mr. Moorhead.  21  Mr. Bethune.  Not at all.  Thank you, Mr. Secretary. Mr. Bethune? Mr. Secretary, I'm still worried about the  22  other poor devils who have to take bankruptcy and their  23  employees and their stockholders and their creditors, who  24  generally get ripped off in a bankruptcy proceeding.  25 Federal Reserve Bank of St. Louis  But presently, I'm more concerned about the fact that  190  829  II.  gshHEE  1  we have put you through a couple of hours of questioning. And I think I would yield back the balance of my time.  2  Moorhead.  111  Mr. Kelly.  4  Mr. Kelly?  Thank you, Mr. Chairman.  Secretary, I nope I didn't understand this right. •But  7 •  9 10  in your last answer to my question, did I understand you  correctly that  eI-st way for the American public, our  II vernment, our economy, our country, to avoid a balance of payments deficit and to avoid high welfare costs and foreign competition would be to invest in Chrysler? Secretary Miller.  12 13  111  That is not the best or only way.  is a factor that comes about from this plan. One consequence of this plan is to avoid what we feel  14  would be a reorganization of Chrysler, probably leading to  15  its elimination as a major producer.  lo  Mr. Kelly.  Mr. Secretary, I think maybe you  17  misunderstood the question because it had to do with  lo  Mr. Bethune's question.  lY  for profit.  20  It  He was talking about the prospect  Is the proposition that we are making here that although  21  the rest of the world can't see how much profit there is in  22  Chrysler, that we in government can see the profit.  23  And so this is really going to be a zinger in the  24  economy, and we are going to IS a lot for the balance of  25  payments with Chrysler, and this is the best investment we Federal Reserve Bank of St. Louis  1  830  10 10 07 gshHEE  IP  1  can make to solve all of these problems, balance of payment,  2  welfare, and foreign competition, is with Chrysler?  3  Chrysler is the answer to our problem in each of these  4  regards.  5  Secretary Miller.  No, it is a consequence of the plan  that we gain certain things. 7 8 Y 10 11 12  111  purpose. Our primary urpose is to look at the alternatives. one alternative is Chrysler goes down.  The other  alternative is we save it. The one about saving it is more profitable to all of the American people. Mr. Kelly.  There is one other thing that I wanted to In the media and in your testimony, in  13  try and clear up.  14  both places it appears that there is some indication that  15  the United Auto Workers have made a sacrifice and have  16  helped the cash flow problem.  17  Now do I misunderstand that as we are here right now,  18  Chrysler is in the process of negotiating a pay increase of  lY  about $700 million?  20  wage and price guidelines of the Administration.  21  III  It is not the primary  That totally violates the voluntary  The Administration has not complained and the UAW is They are not making a  22  getting a pay raise right now.  23  sacrifice compared with what exists now and compared with  24  what is being negotiated.  25 Federal Reserve Bank of St. Louis  Right as we sit here, they are negotiating a pay raise.  831  190 10 06 gshHEE  1 2 3 4  Secretary Miller.  I think they have completed that  negotiation before we ever made a proposal. But it had not been approved by the  Mr. Kelly. membership.  Secretary Miller.  It has been ratified, I believe. And I can only tell you facts. I  6  They have a new contract.  7  cannot make a value judgment.  8  value judgment.  You will have to make the  The facts are they made a contract that defers increases 10  and changes in their compensation for six months, thereby  11  generating savings for the company.  12 13 14  program, as negotiated with Ford and General Motors. So six months later, Chrysler people will start getting The  15  the same pay increases as General Motors and Ford.  lo  second year there will be a 4-month delay and the third  17  year, a 2-month delay.  16  Those delays, which means a permanent reduction from the  19  figures included in the Chrysler plan, means $200 million  20  less of cost than was in the plan.  21  111  The six months/ deferral of increases in the first-year  I ao not give you a value judgment of whether that is I do not give you a value judgment of whether  22  sacrificial.  23  that should be more or less.  24  Those are the facts.  25  Mr. Kelly. Federal Reserve Bank of St. Louis  But Mr. Secretary, this is a pay raise of  832  190 10 09 gshHEE  1  enormous proportions after the company came to the  2  government bankrupt.  3  Isn't that a fact?  4  Secretary Miller. It is a fact that we have private And it is a  5  collective bargaining in the United States.  6  fact that Chrysler and the UAW made a contract.  7  fact that if Congress felt that that contract was not  8  consistent with this proposal, they could turn it down or  And it is a  require something else. 10  Mr. Kelly. But it is a pay increase negotiated after  11  they came to the government saying that they were bankrupt,  12  that they needed money.  13 14  It was a pay contract entered into  after they had first started asking for federal aid. Let me ask you another question.  15  Mr. Kelly.  16  You mentioned the loss of U.S. production.  Chrysler has  17  a plant in Detroit that is 30, 40, 50 years old, or  18  something like that.  19  to go, wouldn't it?  20  111  Secretary Miller.  Secretary Miller.  That would be one of the first things  Chrysler operates a number of plants  21  in the Detroit area, and at least I think two of them are  22  phasing out in this procedure and others are being  23  rehabilitated.  24  Mr. Kelly.  25 Federal Reserve Bank of St. Louis  Now that is a loss of production.  But the  question I have for you is -- the loss of production that  833  190 10 10 gshHEE  1  Chrysler would sustain would be the loss of the least  2  efficient portions of its complex.  3  Isn't that so?  4  Secretary Miller.  Well, what happens when this plan is  5  completed is that Chrysler, for whatever reasons in the  6  past, may have been, and in the future, will have gone  7  through the tooling and restructuring and re—equipping and then have plants that can produce competitively the kinds of  9 10  I wouldn't suppose that we should go back and look at And it has  11  other automobile companies have made mistakes.  12  been better that they have turned around and rehabilitated  13  and moved on to other models.  14  111  cars.  And it is true here that we believe it is wise to do We do not endorse  15  the same.  We do not condone the past.  16  the past.  We look at a prospective program which will end  17  up with production output that the nation needs in places  18  reasonably consistent with where they now have employment  19  and with the least social harm and the least loss  20  economically to the nation.  21  Mr. Kelly.  What I was suggesting, Mr. Secretary, was  22  that this is kind of a scare tactic about the loss of  23  production because I haven't heard anyone that appeared  24  knowleageable to indicate that the efficient departments of  25  Chrysler, the good departments would be lost. Federal Reserve Bank of St. Louis  834  190 10 11 gshHEE  411  1  Every indication I have is that those departments would  2  carry on and whether they went through bankruptcy -- for  3  instance, the Omni and Horizon departments.  4  forward.  5  Chrysler.  They wouldn't collapse.  They would go  And they are the best of  6  That is what the country needs now, isn't it?  7  Secretary Miller.  Mr. Kelly, let me just say in our  analysis, which you will want to look at, we do not suggest that these facilities will be permanently out of the 10 11  We suggest that in a failure of Chrysler there will be a  12  transition in which some new owners, some transfer, some  13  retooling is required and you will lose that period of  14  output and you will never gain back the full amount because  15  that would be lost permanently to other suppliers.  16  So what you are saying is true, but there is a gap  17  between the operating company today and the reformed use of  18  some facilities in the future and the effect on the market  19  and the process.  20  410  economy.  So there is both a short—term loss, which we have priced  21  out for two years to be over $2-1/2 billion to the economy,  22  cost to the taxpayer.  23  that will attenuate in time because there will be, as you  24  say, the recycling of these plants into other uses.  25 Federal Reserve Bank of St. Louis  Mr. Kelly.  And we have more permanent losses  Mr. Chairman, my time is up.  I have some  835  190 13 12 gshHEE  110  1  additional questions.  2  Mr. Moorhead.  3  Mr. Blanchard.  4  Let me just state for the record that it would appear  5  Blanchard? Thank you, Mr. Chairman.  most of the questions that have been propounded in the last few minutes have already been answered by previous  7  non—Chrysler, non—UAW witnesses. Ana that, essentilly, our dear judge from Zephyr Hills wants to put words in the mouth of the Secretary that have  10 11  not been stated. And I think for the record, I would want everyone to  12  recognize that it is somewhat interesting to see the judge  13  paraphrasing Ralph Nader, however.  14  amusing.  15  And I find that rather  I don't have any other questions other than, again, to  16  restate my appreciation for very strong testimony by the  17  Secretary, testimony that has been well worth waiting for.  18  Thank you. Mr. Moorhead.  20  Mr. Kelly, for what I hope will be a last  round. I hope so, too, Mr. Chairman.  21  Mr. Kelly.  22  Throughout the course of the presentation that has been  23  made here in support of this charity program for Chrysler,  24  there has been some suggestions by Mr. Fraser of the UAW  25  that the government buy a billion dollars' worth of stock, Federal Reserve Bank of St. Louis  4  836  1Y0 10 13 gshHEE  100  1  by Nader that the government acquire a 30 percent equity  2  ownership in Chrysler, and that the government then start  3  and control the product that would be produced by the  4  company. That also, I think implicit in that suggestion is the  5 o  proposition that the government will also be determining  7  what Americans will buy because when you produce a product,  8  it doesn't necessarily mean the people are going to use it.  9  So if you produce it by government mandate, then you  10  have got to establish by mandate that the people will use  11  it.  12  I think this is a marked direction that we are  13  taking. You in your presentation suggested that you would be  14  able to control the management, that if the management did  15  not produce correctly, as I understand, that you would have  16  some control over the personnel.  17  The Chairman of the full committee suggested that the  18  government ought to be able, through the process of this  19  program, to be able to control the products that Americans  20  will be able to use. In other words, we in Congress are going to tell the  21  410  22  American people what kind of cars they are going to drive  23  and what they are going to ride in, whether they like it or  24  not.  25 Federal Reserve Bank of St. Louis  Then you suggested that the lender has a lot of control  837  190 10 14 1  suggested that the lender has a lot of control in the normal  2  sequence.  3  government ownership and control are not so unique.  gshHEE  3ut the thing I want to ask you is when you have control  4  1  So, really, all of these suggestions of  by the private sector, do the big bankers on Nall Street •  7 8  billion decisions the way we're making them here  make today?  In other words, if we mark this up tomorrow, I want to have a yes or no vote on $1-1/2 billion on Chrysler.  10  got this document a few minutes ago'.  And I  Is that the way they  do it on Wall Street? 12 13 14 15 •  410  Secretary Miller.  Yes.  As a matter of fact, it is not  far different. If you look at the months in which the Congress has looked at this problem and heard from many, many witnesses and had many, many presentations of financial data and  17  looked at the many, many man—years of effort that we have  18  put into this analysis and look at the data that we have  1  given you, you would have a report in the aggregate that  20  certainly would be as extensive as a loan committee of a  21  bank would receive, and having the judgment and  22  recommendation of management that the loan was reasonable,  23  that the repayment was reasonable, and that the terms were  24  reasonable.  25 Federal Reserve Bank of St. Louis  And I hope that you will decide that this is a  838  I0 10 15 gshHEE  fir  1  reasonable proposition and this loan committee will vote  2  yes.  3  Mr. Green.  Would the gentleman yield?  4  Mr. Kelly.  Yes.  Mr. Green. I really don't think that a financial on Wall Street would proceed without a debt payment or debt service 7  schedule keyed to the assumptions upon which the loan  6  guarantee is being made.  9  111  And we do not have that yet. Et cetera.  10  Mr. Kelly.  II  Secretary Miller.  12  Mr. Kelly.  Pardon me?  I just said "et cetera," and that means that  13  there's a whole bunch of other things that have not been  14  produced as well.  15  Secretary Miller.  This is a loan where the loan  lo  committee would say, we authorize you to do your part of it  17  if others do their part, and the other part to be done is  18  $1-1/2 billion of credit from other people.  1) 20 21 22 23  And I think that that would be a not abnormal way to approach it. Mr. Green.  But I think that they would want to see some  projection of how they would want to get paid back. Secretary Miller.  Nell, I think that they would do  24  that, or want to trust their management in the program,  25  since there is a requirement that the Secretary of the Federal Reserve Bank of St. Louis  1Y0 10 16 gsh'ciEE  1  Treasury find that there be reasonable assurance of  2  repayment.  3  agreement, of the financing agreement, rather, we would have  4  to have that assurance.  5  That means in the final negotiation of the loan  Mr. Green.  I guess my problem with waiting for that is  6  that I know that next year is divisible by four and that is  7  something that a loan committee does not have to take account of, but I as a member of Congress do. Mr. Moorhead.  10 11 12  •  Mr. Secretary, do you favor making this a  direct loan program? Secretary Miller.  No.  guaranteed loan route.  14  of those equity suggestions.  15  Kelly.  ie would prefer to go in the  And incidentally, we do disfavor any  13  Then let me ask you this.  Then implicit in  16  this position that you have just announced is the  17  proposition that the Federal Financing Bank will absolutely  18  not be involved.  lY  Secretary Miller.  As I mentioned before, our  20  contemplation is that that not be the way this be financed.  71  Vie would not use the Federal Financing Bank, but we would  22  not want to foreclose the use of it at some subsequent time.  23 24  Ilk  Mr. Kelly.  Mr. Kelly, for one last question.  25 Federal Reserve Bank of St. Louis  Mr. Kelly.  Okay.  Now if the Federal Financing Bank is  used, then this becomes a direct loan. Secretary Miller.  If it ever is used, yes.  840  90 10 17 gshHEE  1  Mr. Kelly.  It then becomes a direct loan and that is a  2  very real possibility under the terms of the legislation  3  that is before us.  4 5  Secretary Miller.  If the paper were later acquired by  that bank, yes. Thank you, Mr. Chairman.  6  Mr. Kelly.  7  Mr. Moorhead.  Thank you, Mr. Secretary.  The subcommittee stands adjourned. (Whereupon, at 1:10 p.m., the subcommittee adjourned.) 10  Q.,  12 13 14 15 16 17  19 20 21 22 23 24 25 Federal Reserve Bank of St. Louis
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