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Steve Parker

Steve Parker

Posted March 20, 2009 | 10:50 AM (EST)

AIG v. Detroit - Renegotiating Contracts

Here's just one example of how bad things are for the Detroit Three: GM announced Wednesday that they have more than 14,000 orders for the new 2010 Chevrolet Camaro. That's a nice, round number for an eagerly-awaited car which has just gone into production.

But at the SEMA automotive aftermarket trade show in Las Vegas during the first week of November, 2008, GM officials told me then the company had 8,000 orders for the new car. This means Chevy has received just 6,000 orders for the new Camaro in the past five months. Not a good number.

Now that we've seen AIG CEO Edward Liddy "in action," so to speak, it's appropriate for an update to our most recent post about the differences in how Washington has treated Detroit and Wall Street. Edward Liddy was formerly the CEO of Allstate -- so I guess we're all in "good hands" (he wrote sarcastically).

Many Americans have a "let them die" mentality when it comes to the Detroit Three, and you really can't fault them, at least when they're talking about these companies' products.
2009-03-19-2010camaroreadyfordelivery.jpeg New 2010 Camaros readied for shipment to dealers

Someone, though, has to stick up for those companies, and it might as well be me -- at least for now. Those of you who follow this blog know that my support of Detroit is very complex, and mostly based on my fervent desire to not add another three to four million Americans to our nation's vast assembly of the unemployed; nor the many more millions worldwide whose jobs can easily disappear overnight.

Wednesday, Liddy told the congressional committee AIG "retention bonus" contracts are inviolate, permanent and unbreakable.

A congressperson told Liddy, "Contracts are changed every day in America."

Liddy responded with, "Yes, a contract can always be changed as long as the all parties' involved agree to it."

But in this case, we can bet that one of the parties involved -- i.e., those who got some of the more than $160 million in recent AIG bonuses -- will probably not agree to any change. It's a pretty safe bet.

Heck, would you? A few mil can get you that house on the golf course in Palm Springs or Bal Harbour.

And Liddy's explanation of the differences between "retention bonus" and "incentive bonus" held little, if any, water with us.

If a company wants someone to stick around, then what is the difference between the two? In fact, we found out today, many of the folks who got these retention bonuses have already left AIG for greener (and probably, they hope, more virgin) financial pastures.
2009-03-19-edwardliddyaigprotest AIG CEO Edward Liddy testifies at a congressional hearing, with a little inspirational help from Code Pink

It was this kind of back-and-forth between Liddy and the committee members which led me to think about the people who work in the AIG "Financial Products" division and those who labor on the assembly lines of Detroit.

Washington ordered GM and Chrysler (and essentially, Ford, too) to cut costs and present corporate viability plans to congress. It looks now as if all three are may be "cutting themselves to death." They're making huge cuts in the number of their employees -- but only those who task on the lines, not those in executive suites.

And, Ron Gettelfinger, head of the UAW, immediately agreed to work with the Detroit Three and make major contract concessions; yes, to make changes to existing contracts.

Both GM and Chrysler have said this week that they don't need anymore TARP money, GM saying they're on their way to viability and Chrysler's Bob Nardelli said Wednesday that Chrysler could soon be, once again, "a stand-alone company" (the Fiat/Chrysler "merger" is on hold until congress looks at it). I think those positive comments from the companies are good sound bites and nothing more. When it comes to Washington, Detroit is laying low.

But also Wednesday, GM CEO Rick Wagoner used the "b" word -- bankruptcy -- perhaps signaling what he sees as the inevitable.
2009-03-19-nardelliarrivesdcelectricjeep.jpg Chrysler CEO Robert Nardelli exits an "electric Jeep" concept vehicle at the US Capitol

Incidentally, Wagoner made $26 million last year; we don't know what Nardelli earned in 2008 because Chrysler is now a private company and not obligated to give the public that information. In Dearborn, at Ford, Alan Mulally, then head of Boeing, demanded and got a $20 million "signing bonus' deposited in his bank account before agreeing to run the company.

The elimination of the "jobs banks" program, which kept UAW members who had been laid-off able to keep receiving some of their salary, and the union taking over, from the car makers, the financing and operation of their own health care plans are just two examples of the unprecedented level of cooperation Washington wanted between Detroit and the UAW.

Rep. Elijah Cummings (D-Maryland) made some of the most powerful statements at Wednesday's AIG hearing, questioning the loyalty and patriotism of AIG employees. Another panel member said, to paraphrase, "AIG employees put their country last, and themselves first."

We posted yesterday about Detroit having received just 10% of TARP money loaned to just one Wall Street firm, AIG. And Wednesday, sources in congress said that the $18.5 billion in loans requested for the crucial auto industry's supplier companies, might not happen at all, and if it does, certainly not in that asked-for amount.
2009-03-19-nyc2009DodgeChallengerLineUpPricingStartingintheLow20sP640.jpg Chrysler's Challenger modern-day musclecar is another example, along with Camaro, of the wrong car at the wrong time; Ford doesn't get off easy, either -- their 2010 Mustang is just hitting showrooms

Which brings up another point: Recently, we've all become perhaps more aware of "deferred payments" in sports contracts. Why are these Wall Street firms and banks not operating in that mode? Deferring bonus payments to employees to a future date when, as we all fervently hope, the US and world economies begin a full recovery, is not the worst of ideas.

My plan for Detroit is complex, but involves the firing of senior and many members of mid-level management. Sure, keep the "car gals and guys" who actually know something about building cars and trucks.
2009-03-19-assemblyline6.jpg UAW members have made gigantic concessions to the Detroit Three and are rewriting contracts

But those top managers, the bean-counters, as they're called in the industry, most graduates of Wharton, Harvard, Yale and other top-notch business schools, have got to go. Unless and until that happens, congress could throw hundreds of billions at GM, Ford and Chrysler -- but how could the results be any different from what we see now?'

As many, if not most members of the congressional committee grilling AIG's Liddy said yesterday: How can the people who got us into this mess possibly get us out of it?

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