AIG Angst: The Auto Industry and Detroit Protest Bonuses Loudest
By Michelle Krebs March 17, 2009By Michelle Krebs
President Obama and others on Capitol Hill expressed their indignation Monday over the revelation that American International Group Inc. (AIG) plans to reward its top executives with $165 million in bonuses despite the fact that the insurance giant is being kept afloat by U.S. taxpayers.
But no one is more outraged about the AIG bonuses than those in the auto industry, especially those in Detroit.
Michigan Congressman Gary Peters introduced a bill Monday night, one he's been promoting on the airwaves of business programs all day Tuesday, that allows the AIG bonuses to be paid -- and then taxes them at 100 percent to recover the cash for taxpayers.
The gall of execs taking "performance" bonuses after accepting $170 billion in federal dollars and recording the biggest loss in U.S. corporate history -- $62 billion -- in the last quarter is bad enough. But in the auto industry and Detroit it's the double standard between Wall Street and the rest of America that really grinds.
AIG has received 10 times more than General Motors and Chrysler had to grovel for, and it appears AIG is promised even more. And the lame excuses AIG's top brass are citing -- that these bonuses are required under contracts and needed to keep these stellar employees who drove the company to the brink of bankruptcy -- just don't wash in the Heartland.
Autoworkers interviewed by local media in Detroit -- and presumably in other auto towns in the Midwest -- pointed out that their contract, which included landmark concessions negotiated in 2007 and was supposed to last for three years, was reopened and renegotiated so that workers took more pay and benefit cuts. Salaried autoworkers have seen their paychecks shrink. As part of obtaining federal funds, GM CEO Rick Wagoner and Chrysler CEO Robert Nardelli agreed to work for a buck this year. Supplier contracts are being renegotiated, and now even GM's bondholders, who also have a contract, have come to the table, agreeing to concessions.
As Detroit News columnist Daniel Howes points out in Tuesday's edition: there's "one set of rules for troubled Wall Street firms with a demonstrable record of fat campaign contributions and another for automakers with union labor and little clout in Washington."
Even Peter Morici, professor at the Smith School of Business at the University of Maryland and former Chief Economist at the U.S. International Trade Commission, is ticked about the double standard. And Morici has been no friend to Detroit automakers; he basically testified against them at last year's Congressional hearings on bailout funds.
In an email sent out Monday, Morici suggested Treasury Secretary Timothy Geithner, formerly head of the New York Federal Reserve Bank and a key player in the AIG bailout, should be embarrassed more than outraged over AIG's bad behavior.
"So Mr. Geithner," writes Morici, "instead of being outraged at AIG's last revelations, perhaps you can explain to all of us why a UAW worker earning $29 dollars an hour must give back wages and benefits to keep their company alive, while the architects of the biggest financial disaster in history get to keep their gold plated contracts... Mr. Geithner, we are waiting for your answer."
Detroit's eagerly waiting for his answer.
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Prof. Morici, I'm waiting to find out why UAW assembly line workers earn $29 an hour in Detroit while their counterparts in other (non-union) industries in the southern US earn half that, or less. Perhaps you can explain that one to me, while you're finding out about the millions in AIG bonuses.
My company has done similar things though, like holding everyone's pay constant, while the executives get multi-million dollar bonuses. If the job market wasn't so lousy, I'd show my disgust by leaving. So I can understand how this has the auto industry pissed off. On the one hand the government is handing out money willy-nilly to AIG (but, oddly, not Lehman) but when the auto industry requests less than a tenth that amount, they have to jump through all sorts of hoops. This is yet another demonstration about how inconsistent and unjust our government can be.
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